Competitive Advantage Flashcards
Competitive Advantage
Where a nation has a higher ability than others to improve attributes and resources, being more competitive
- suggests that countries and businesses pursue ways to achieve competitive advantage over their rivals by focusing on cost and differentiation
- it’s argued that a nation’s prosperity relies on the ability to be innovative and adopt technology
Cost advantage and differentiation
In theory, competitive advantage proves why all countries can benefit from trade. However, only goods and services with competitive advantage can succeed in the international market.
- when a business provides the same goods and services but at a lower price
- when a business provides better goods and services
Determininants
- Factor conditions
- Competitive strategy, rivalry and structure
- Related supporting industries
- Demand conditions
Related supporting industries
Internationally competitive advantage industries deliver competitive input and knowledge.
Absolute and comparative:
- implied that countries would benefit from more specialised industries
Competitive:
- Strong domestic suppliers give industries a competitive edge by providing cost-effective inputs quickly and efficiently
- close collaboration between suppliers and end-users fosters innovation, faster upgrades and knowledge sharing
- overreliance on captive suppliers is unsustainable as it limits their ability to compete globally and stifles innovation
Factor conditions
Availability of factors of production and ability to upgrade specialised factors.
Absolute and comparative:
- Factors of production will determine the flow of trade. A nation will export those goods that make the most use of the factors with which it is relatively endowed.
Competitive:
- Basic factors don’t provide lasting advantage in knowledge-intensive industries given companies can easily access them through globalisation and technology
- Relying solely on abundant resources can lead to inefficiency, while selective disadvantages (high cost) push companies to innovate and improve
- Sustained competitive advantage comes from nations excelling in factor creation, supported by world-class institutions that develop and continuously enhance specialised resources
Competitive strategy, rivalry and structure
How companies are created, organised and managed + nature of domestic rivalry
Absolute and comparative:
- Domestic competition is inefficient, causing duplication and limiting economies of scale
- Solution: support a few national champions giving them resources and government backing to compete globally
Competitive:
- However, most national champions are uncompetitive, although heavily subsidized and protected by their government
- Domestic rivalry creates pressure on companies to innovate and improve, local rivals push each other to lower costs, improving quality and service, creating new production and processes
Demand conditions
Demanding home consumers encourage innovation and technological advancements.
Absolute and comparative:
- the size of domestic demand is important as it allows domestic industries to leverage economies of scale easier and at lower costs
Competitive:
- Sophisticated domestic demand drives innovation by pushing industries to anticipate emerging needs and develop advanced competitive advantages
