Business owner and author with 25 years of entrepreneurial and executive experience in the health club industry featuring high levels of performance and breakthrough results.

Comparative vs Competitive Advantage

There is a difference between comparative advantage and competitive advantage. It is important to understand the difference in these terms in order to maximize profit.

A competitive advantage is when a company or individual has an advantage over their competition in delivering their products or services.

Comparative advantage has to do with natural and human resources. Every country has a comparative advantage in at least one industry. A Country that has gold rocks laying on the ground has a comparative advantage over a country that has very little gold thousands of feet deep. This is because of the easy accessibility and abundance of the resource compared to other countries.

A comparative advantage compares the feasibility of producing a product or delivering a service between countries, companies and individuals.

Many advanced countries do not produce products because their labor force can produce more income by buying products from other countries and using their labor for other purposes. Even though the advanced country might have a competitive advantage over another in producing a product, it might not be worth it to do so. This leaves a comparative advantage to another country.

People also have comparative advantages. A lawyer who earns $400 per hour might be an exceptional landscaper. He might be the best landscaper in his state. That doesn’t mean he should do the landscaping in his own yard. He can simply pay someone to do his landscaping for $50 per hour while he focuses his efforts in his law practice. Even though the lawyer has a competitive advantage in landscaping he does not have a comparative advantage. It would be a disadvantage to perform landscaping.

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Comments ( 2 )

  • Jeet Bhatt says:

    Very well put together!!
    Can we say that for a company located in a certain country, a comparative advantage can ultimately lead to competitive advantage?

  • Faheem-PG says:

    Its very useful and easy to understand with professional concept during Job and Studies.

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