Comparative advantage and competitive advantage in International trade

Comparative advantage and competitive advantage in International trade

The trade theories are manifested as per the velocity of time with various improvements in every sector to help in allocating the resources smoothly. Comparative cost advantage theory and competitive advantage theories are two development of theory to occur trade between countries. The findings of both of the theories differ in their own terms.

The comparative cost advantage theory is developed after the absolute cost advantage theory. Absolute cost advantage theory assumed to trade if the country can produce at a lower cost with the presence of abundant resources. However, comparative cost advantage theory has the benefit of abundant resources it should trade to those resources which it can produce relatively at a lower cost.

In another way, the competitive advantage was developed by Porter. It majorly focuses on innovation and upgrades to make the trade and gain a competitive advantage. He has developed four reasons why any country can trade to gain a competitive advantage:

1. Factor condition

The factors like skilled labor, technology, education, and others help the nation to achieve a sustainable competitive advantage.

2. Demand condition

How sophisticated is the demand in the market, determines the innovation to take place for gaining competitive advantage.

3. Supporting supplier and industries

The competitive advantage is also dependent on the supplier and industries to go hand in hand.

4. Firm structure, strategy, and rivalry

These factors also influence in gaining a competitive advantage. The innovative strategy of Apple company lets them gain a competitive advantage over its competitors.


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