Examining competitive advantage
Introduction
Over the years, nations across the world have been trading together due to the fact that one nation cannot entirely depend on itself. It is from that theory that the international trade emerged. Nations have increasingly become interdependent as they try to balance between the exports and the imports in terms of goods and services. The theory of competitive advantage has made the world market produce quality goods and services at a reduced price. More technological advancements has also made the world markets to advance, this has led to the emergence of open trade in which a business may trade online by watching the market fluctuations.
Factors’ causing the world’s trading nations to become increasingly interdependent
1. Economic interdependence
The economy of the world is highly linked together. A change in a given region affects the rest of the world; sometimes these changes may come with very devastating outcomes. The developed countries in parts of Europe, America, Australia and Japan are highly industrialized and have very high living standards and high literacy levels, these groups of countries are called Global North. The other group of countries referred to as global south consists of the developing nations which are in Africa, Asia, and South America. These groups of countries were colonized by the European nations. These Global South states face the high rate of unemployment, low literacy level, very little industrialization (Reeve, 2012). These are the factors that bring the interdependence between these two sets of nations.
2. Oil trade
The fluctuations that come in the oil market have a very big impact on the world as a whole. The high prices in the oil market are more beneficial to the oil-producing nation in the Middle East. However, these high oil prices may affect other nations that greatly depend on oil, the high prices of the oil may cause inflation to these countries (Reeve, 2012). With the high rate of inflation, the consequence in that the prices of the commodities increase and this may also affect the same oil producing nations since they also depend on importation of other products from other countries around the world. Therefore to maintain the fair market, the oil producing nations have reduced the oil prices so that they can also get cheap products from other nations that depend on their oil (Yager, 2014). The oil factor has therefore made the trading nations to be very interdependent.
3. Banking
With the high rate of literacy in the developed countries, the developing countries highly depend on these developed nations for finances in term of loans and grants, these loans help the developing countries with the modernization efforts. The developed countries also depend on their developing colleagues in many aspects such as labor. Therefore, the banking sector has increased the rate of interdependence among the nations of the world. The developing countries may give out some raw materials required in the industries within the developed countries in exchange for grants and loans (Reeve, 2012). This has highly improved the dependence rate among the trading countries in the world.
4. Environmental factors
The rising rate of industrialization in major parts of the world has had many consequences on the environment. Some of the effects include the acid rains that have been witnessed in some areas of the world. High industrialization has also led to the global warming effect that has reduced the rains in other parts of the world leading to deforestation in these areas (Francioni, 2011). The areas with high rate of deforestation can be witnessed in northern Sahara countries. These problems of deforestation have affected the agricultural sector in some parts of the world; this has made these regions highly dependent on other parts of the world that perform well in agricultural sectors. Most of these agriculturally less productive areas engage in other income generation activities such as mining. They, therefore, sell their minerals in exchange of other agricultural products from nations that are agriculturally productive. Therefore, the environmental factors have increased the rate of interdependence among several nations in the world.
Argument regarding open trade systems
Open trade may be very beneficial to a firm since it allows for 24-hour operation. This allows for an investor in the business to operate through the day to maximize on the returns. The open trade system is a large market, and it is the most liquid of all the sectors of the financial market. The open trade system may allow the trader to maximize on the fluctuations in the market prices to get maximum returns. The open trade system also has a low cost of trading; this is because there is no involvement of the third party or brokers that may make the trade system to be very expensive (Jones, 2009). The open trade system is also very large that no one will be able to control the prices in the market for a very long time. This makes it beneficial to a business since the market cannot be cornered. The open trade system may also be beneficial to a business because there are very few barriers to entry. One can start with a very low capital.
On the contrary, the open trade systems can also have some setbacks to the business. One of the major disadvantages of the open trade system is that it is very volatile. Although one can make money very quickly, there is also a possibility that the same money can be lost very quickly. Another major problem of the open trade system is the internet failure, during the trading period the business may encounter problems with internet connection, and this may be very detrimental to the operations of the business (Garnaut, 2010). The business may not be able to monitor the market with poor internet connection, and this may translate to losses by the organization.
The concept of competitive advantage and the nature of international competitiveness relevant to a firm, industry, and nation
Competitive advantage is any form of activity that a firm or a nation uses to create a superior value above all its rivals. This may be in the form of producing quality goods and services as compared to its rivals thereby attracting many customers. Another form of the competitive advantage in the situation in which a firm sells its products at a lower price to attract more customers compared to its rivals (Francioni, 2011). The concept of competitive advantage may take several forms about a firm, industry and a nation. These may include:
1. Product differentiation
Efficiency in production can be defined as the ratio of the input to that of the output. The inputs can be materials, labor and overhead that is assigned in the production of any given product. On the other hand, the outputs can be view as the total products produced by a firm, nation or industry or the services performed. To produce products that are of high quality, firms or nations can maximize on the inputs, the maximization will result to better goods that will attract more customers than its rivals (McGrath, 2013). The same concept can be applied in the nations which have specialized in the production of quality goods as compared to their other rivals. This has brought international competition since each and every nation would want to produce goods of a high quality that will attract more customers as compared to their competitors. It is from the international competitiveness that there has been a variety of quality goods in the market.
2. Service differentiation
Two or more firm, industries, and nations may be producing similar products. However, the difference may come in with the kind of the services that accompany these products. It is from this additional service delivery that a firm, industries and nations may have its competitive advantage. The customers in the market may be attracted by the kinds of services that a firm, industries or a nation provides alongside the products that they sell. It is from this form of competitive advantage that a firm, industries or a nation may decide to sell its products at a higher price compared to its rivals (Porter, 2008). This will be more beneficial since it will maximize on the sales because it possesses a competitive advantage over the others.
3. Innovative differentiation
A firm, industries or a nation may decide to very innovative in the process of production. The process innovation can be very efficient since it can lower the production cost within a given firm, industries or a nation. It may take quite a long time for the rivals to discover the innovation that is used by the firm, industries or a nation in its production of the goods and services. It is from this competitive advantage that a firm, industries or a nation may decide to sell its products and services at a lower price to attract more customers compared to its rival. This form of competitive advantage may be beneficial to the market as a whole since it will ensure that the goods and services produced by different firms, industries or nations will be cheap (Porter, 2008).
Conclusion
In conclusion, it is efficient to say that the international trade and interdependence among the trading nations has led to circulation of commodities and services around the world that has led to the improved standard of living. This is much evident when looking at the trends in the international trading system and the interdependence among trading countries. It is also conclusive to say that the competitive advantage has made the world market produce quality goods and services at a reduced price. Though the open market, many businesses have succeeded in trading without the influence of other factors such as the middle men.
Sources
Reeve, R. (2012). Policing international trade in endangered species: The CITES Treaty and compliance. London: Royal Institute of International Affairs [u.a.
Yager, L. (2014). International trade: Current government data provide limited insight into offshoring of. Place of publication not identified: Diane Pub Co.
Francioni, F. (2011). Environment, human rights and international trade. Oxford [u.a.: Hart.
McGrath, R. G. (2013). The end of competitive advantage: How to keep your strategy moving as fast as your business. Boston, Mass: Harvard Business Review Press.
Porter, M. E. (2008). Competitive advantage: Creating and sustaining superior performance.
Jones, R., & Organisation for Economic Co-operation and Development. (2009). Trade, investment and development: Reaping the full benefits of open markets. Paris: OECD, Organisation for Economic Co-operation and Development.
Garnaut, R. (2010). Open regionalism and trade liberalization: An Asia-Pacific contribution to the world trade system. Singapore: Inst. of Southeast Asian Studies [u.a.
