Competitive advantage and comparative advantage

competitive advantageCompetitive advantage and comparative advantage are 2 key concepts to know in the field of competitiveness:

Comparative advantages are those that any company, nation or country can have for the mere fact of being located in a certain territory with pre-established conditions, that is, they are existing prior to the creation of any company or business.

Competitive advantages are those advantages that companies or nations have created and which, unlike comparative advantages, did not previously exist, allowing them to position themselves superiorly in relation to the competition.

As an example, imagine that we have to decide where to establish a new company dedicated to the processing of canned tuna, for this we have the possibility to settle in territory A that has an excellent beach full of tuna, on the other hand B territory is located in the high mountains 500 miles far from the nearest fishing port. Under these conditions we will choose to install the factory in territory A given the proximity and ease of obtaining the necessary resources (tuna) for the activity of the company. In this case we observe how territory A has a comparative advantage with respect to territory B by the mere fact of being located near the sea with large quantities of tunas.

The cost of labor as well as the proximity of the necessary resources are characteristic of the comparative advantages of any company or nation.

Returning to the previous example and before making the final decision about the location of our tuna company, we note that territory B is a great consumer and lover of tuna, in fact there are schools and universities specializing in the treatment of tuna, having experts in the processing and canning of tuna, as well as developed and available technologies that ensure a total quality together with high productivity rates during the process. On the other hand, the economic laws of territory B reward substantial tax rebates to all those new companies that are established and are related to the world of tuna, all this means that we can process the tuna more economically as well as offer a quality product and differentiated to customers. In this situation, territory B has created competitive advantages over the comparative advantages already existing in territory A, being a great choice to set up our company in territory B.

We can summarize that competitive advantages are created and comparative advantages already exist.

Traditionally, competitiveness has been based on comparative advantages, but due to the effects of globalization any company can access the comparative advantages of a territory, with competitive advantages being the key factors that define the success of competitiveness.

From the point of view of the company, the competitive advantage refers to the set of characteristics that a specific product / service has, which give it a superior position over the other products / services of the competition.

For Michael Porter this competitive superiority can only be achieved by offering different products and with an added value recognized by customers, for this Porter defines 2 competitive strategies as sources of these advantages, cost leadership and differentiation.

Each of the areas and activities that make up the company are potential generators of competitive advantages, for this the use of the value chain as a methodology for analyzing the activities of a company allows us to analyze and detect those parts of the company capable of working in a more economic way or to generate and add differentiated properties to the products / services that it produces.

 

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