Comparative Advantage Vs. Competitive Advantage

They are not the same, even though one may influence the other. Simply put, comparative advantage refers to a “given” advantage of situation where one country (or organization) can produce a certain product more efficiently than the other. This “given” or “pre-existing” nature of advantage is called comparative advantage. Australia has a comparative advantage of gold mining because it has natural gold mines, whereas Japan does not have it. Human resources could also yield comparative advantage. India has comparative advantage of designing jewelry over other countries because of the craftsmen and artists available in this trade.

There are criticisms of this concept of comparative advantage. Should comparative advantage be always a “given” phenomenon? How about if we invest in developing skills and capabilities so that we “create” comparative advantage rather than inheriting this advantage from the grave of time? Here comes the concept of achieving advantage through competency building programs. For example, USA had a comparative advantage in producing aircrafts because of their historical contribution to this technical field of expertise. Boeing, in particular, has been almost a monopoly until ‘80s. Europe, on the other hand, started thinking about building their own brand of passenger airplanes during 60’s, and invested heavily in R&D for building aircrafts. Four European nations invested their citizens’ tax money in private R&D of Airbus. Yes, Airbus has been a private consortium that received government aid for R&D. There are not many examples like this so far. Results? During 80’s, after 20 years of R&D and consistent endeavor, Airbus successfully appeared as a viable competitor to Boeing. Some industry experts suggest that, Airbus is more dynamic and successful in their R&D and with better market image than that of Boeing of USA.

It seems that the “competitive” advantage that Airbus now owns was never a “comparative” advantage before. This competitiveness was created with consistent planning, R&D and creative engineering on the ground. Through this “created” competitive advantage, Europe now has comparative advantage of building aircrafts.

Therefore, no matter what our predecessors did to make us competitive, for which we might own/lack certain comparative advantages, it should always be the case that we move forward and scoop out our global market share through consistent planning and building our own competency agenda.