Competitive advantage theory emphasizes producing high-quality goods and services, rather than relying on natural resources. Importing essentials allows for production anywhere, avoiding depletion of resources. Quality production generates higher profits, fueling the local economy and raising living standards. Quality ultimately outperforms lower-priced options.
Competitive advantage theory is an approach to the sales and marketing process that the emphasis should be on producing high quality goods and services which in turn can be sold at the best possible prices. This is in contrast to the theory of comparative advantage, which tends to focus more on the production of goods and services based on the availability of natural resources and the potential to produce goods that can be exported. There is an ongoing controversy regarding the essential elements of competitive advantage theory and how that theory fits into the current worldview.
There are several hypotheses commonly associated with the theory of competitive advantage. One has to do with the understanding that it is not necessary to have natural resources to produce goods and services. Importing what is needed for production can be handled easily, making it possible to produce any good or service anywhere in the world. This runs counter to the idea of making the most of local resources as a means of keeping costs down. According to competitive advantage advocates, being open to the importation of essentials means that there is no danger of the economy being locked into producing goods that depend on natural resources that could eventually become depleted, limiting the range of production within of that given geographic location.
With the focus of competitive advantage theory on quality production, the understanding is that the labor used to produce the goods in question will be somewhat inexpensive relative to the returns generated. This does not mean that the labor will necessarily be cheap, but that it will be commensurate with the profits generated by selling high-quality goods at higher prices. Higher profits mean the ability to maintain production, meet demand, and keep employees working, which in turn fuels the local economy and helps raise living standards.
This emphasis on quality is intended to provide a distinct advantage over competitors who operate with a different approach. With competitive advantage theory, quality ultimately outperforms other lower quality options, even when those inferior goods are available at much lower prices. As consumers become more aware that they are spending more money purchasing other goods that do not offer the same level of satisfaction, they will migrate to products that may initially cost a little more, but will ultimately provide more utility. long-term.
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