Question

Provide an example of Competitive Advantage and of Comparative Advantage. Explain the difference between them

Answer 1

Answer: The Term competitive advantage is used in terms of the capabilities and the conditions which allow a company or a country to create greater value for the customers or the stakeholders because of certain conditions and strengths like superior resources, unique competences and so on. For example Google enjoys a competitive advantage because of its unique capability of innovation and creativity. By using innovation Google produces products and services which provides the end users with a superior value as compared to the competitors of the company.

On the other hand the term comparative advantage is used for the ability of a firm or a country to produce goods and services more efficiently as compared to the competitors. This enables the firms to create greater profit margins. This ability comes from the factors like economies of scale, geographical location and so on. For example China has a comparative advantage as compared to U.S in terms of manufacturing industries because of easy availability of cheap and qualified labour. Thus China can produce products like cars at lower costs as compared to U.S.