Introduction
Comparative advantage is achieved when an organization has an edge over its competitors when attracting buyers. In business world, strategy is the creation of a unique and valuable position, where an organization can differentiate itself for the targeted customer and add value by an asset of activities different than those of rivals. The theory of comparative advantage explains that any industry or any organization within an industry can sustain a strong position in the market and gain a steadily increasing percentage of the market share by devising a comparative strategy that is both profitable and sustainable. Sustained comparative advantages lead to higher performance of an organization. So, the focus of an organization’s corporate strategy should be sustainable comparative advantage because this allows the organization to maintain and improve its comparative position.
Discussion section
There are two fundamental types of comparative advantage: lower cost and differentiation. The former refers to the ability of the organization to design, produce, and market a similar product more efficiently than its competitors, while comparative advantage by differentiation is the ability to create unique and superior value for customers in terms of higher quality products, special features, or superior after-sales service. During the economic crisis, some organizations pursued a lower cost advantage strategy and their solid performance demonstrated growing strength as it had recently gained market share by offering comparative technology for lower prices than competitors. Another important concern is comparative scope, which is important in that organizations can sometimes gain comparative advantage from breadth by competing either globally or from exploiting interrelationships by competing in related fields. For example, Lenovo re-organized and integrated its domestic and overseas operations to take advantage of the complementary capabilities across borders in the late 1980s as the firm expanded internationally. This new structure allowed the management to allocate resources and co-ordinate various activities much more effectively with a global perspective (Hall and Soskice 209).
Combining scope advantage with the comparative type of advantage generates the notion of generic strategies, which is about using different approaches to achieve superior performance in an industry. Comparative advantage can thus be achieved through differentiation leadership, cost leadership, or focus leadership. Being ‘stuck in the middle’ has been the downfall of many good companies. Thus, organizations are likely to benefit from choosing a comparative focus and sticking to it (Hall and Soskice 293). International marketing is one of business’s significant frontiers. Even though marketing has realized its greatest development in the American environment, the impact of its concepts and techniques has diffused to all parts of the world.
Research has shown that organization-specific factors generally influence profitability more than industry factors. To reflect this, most researchers focus on internal analysis based on the resource-based view (RBV) of the firm, which can be used to assess the organization’s assets and capabilities. For an organization to have sustained comparative advantage, these resources must be heterogeneous in nature and not perfectly mobile, meaning that the organization needs valuable resources that are inimitable and non-substitutable. These distinctive capabilities, such as patents, licenses, brands, or tacit knowledge, thus become the basis of organizations’ comparative advantage and sustainable comparative advantage is achieved by constantly developing these resources and capabilities and creating new ones (Hall and Soskice 343). Using this framework it can be seen that Lenovo has several distinctive competencies, including its:
- strong research and development capabilities,
- managerial autonomy, unlike other state-owned enterprises or institution-run firms,
- far-reaching distribution, sales, and support network, coupled with its highly efficient, loyal supply chain network,
- established manufacturing base with efficient management of cost such as labour and raw materials, leading to higher margins,
- valuable brand names such as ThinkPad; with quality products and services, Lenovo is seen as the number one IT brand in China.
When these strategies are successful in leveraging the organization’s rare, valuable, inimitable and non-substitutable resources, the organization is likely to gain an advantage over its competitors and therefore earn superior profits. In Lenovo’s case, it has been successful in leveraging these distinctive competencies; for example, it leveraged its product design capability to produce products that exceed customer expectations as well as tailor-made products to target segments of consumers. “There are three tests of core competence: they have to provide potential access to a variety of markets, make an important contribution to the perceived customer benefits of the final product, and be inimitatable by competitors” (Hall and Soskice 354). To assure profitable growth, companies must add new products that are tied to different phases of market development. When some products are declining, others should be enjoying market growth. Comparative advantage is not automatically assured by either population growth or lower prices. Planned market cultivation through such activities as product development, credit, advertising, or personal selling has an impact on opportunities. Though it is unrealistic to separate the assessment of market opportunity from marketing planning and programming is used by large organizations.
Finally, organizations pursuing a strategy of operational excellence have to excel at comparative pricing, product quality and selection, speedy order fulfillment, and on-time delivery. Organizations that excel at product leadership are very strong on innovation and brand marketing and focus on design, time to market, high margins, and have flexible organization cultures. Finally, organizations that excel at customer intimacy are very strong on customer service and tailor their products to individual customer groups. National comparativeness has become one of the central preoccupations of political and industrial establishment in every nation. Definition of the term “comparativeness” when applied to nation is not widely accepted, where notion of the comparative company is generally approved. A principal reason for applying the mechanics of marketing on an international scale is the great similarity of consumer wants and needs throughout the world, wherever a high level of economic development prevails. In this respect, economic factors dictate the use of mass production and hence, mass-marketing techniques.
In sum, the theory of comparative advantage theory explains why a specific country produces and exports specific products as well as its global economic position in business world. When comes to competition among national firms and global corporations, one thing has to be noticed, it is companies that compete with each other in certain location. A geographical location seizes firm’s activities in both global and national economy. In global economy, each business seeks to link its own resources with the constantly changing demands of the marketplace in order to gain profits. In sum, the business sector of our economic system attempts to create total systems of business action that incorporate both manufacturing and distribution systems dedicated to consumer satisfaction at a profit to business enterprises.
Works Cited
Hall Peter A. and David Soskice. Varieties of Capitalism: The Institutional Foundations of Comparative Advantage. Oxford University Press, USA, 2001.