The goal of any businessperson is to make some profits from his or her business operations. In order to maximize profits, the traders must ensure that they employ the most efficient methods of operation. Trade efficiency is associated with the sale of a product at a good price. Some of the methods used by traders and nations to improve the efficiency of operations include creating a comparative advantage and specialization in trade.
Comparative advantage is associated to a situation where a person, business or nation is at an advantaged position in the production of a particular product or the delivery of a service as compared to the competitors. Some of the strategies that businesses use to create a comparative advantage include advancement in technology, specialization and cost manipulation. In international trade, countries gains comparative advantage by supplying products at a price that is lower to the price that the target country would produce locally and thus the demand for the foreign country’s products rises (Gandolfo & Trionfetti, 20140). Comparative advantage is most prevalent in international trade.
In order, determine the comparative of a particular nation or company we determine the opportunity cost of producing a particular product in that country or business in comparison to other competitors. If the company or the country has a lower opportunity cost, then it has a comparative advantage. The comparative advantage can also be determined through the comparison of the productivity of the two companies or nations. In order to improve the efficiency operation and maximize profits businesses and nations should specialize in products and services in which they have a comparative advantage. Technology improves the efficiency in production. The business must be able to select the best technology to employ in order to be able to meet the market demand in a timely manner. Technology is also used in improving the delivery of services to the customers. The increase in the number of internet users has opened a great opportunity for businesses to thrive. Clients are now able to order products, pay and also get customized products.
Specialization is used by businesses to increase their productivity and expand their operations to a globally scale. Specialization is also of benefit to the customers as they get quality products. Specialization lowers the opportunity cost, which consequently lowers the prices of goods globally (Đõ̂, Levchenko, & Raddatz, 2014). The customers thus enjoy the increased supply and low prices of goods. Over-specialization is disadvantageous in that the goods produced by the given country may loss their market demand, which may lower the country,’s GDP and increase the rate of unemployment.
Specialization is highly evident in the technological world where some companies specialize in the production of a particular assembly part. Most of the developed nations have specialized in the production of high-technological products. Internally, a company can improve the operation efficiency through the specialization of labor. This is mainly due to the fact that employees work best when they are assigned to specialized roles. The employer must however have the capability of identifying the skills, preferences, abilities and academic qualification of the workers in the allocation of tasks.
International trade has greatly advanced due to improved transportation and communication including the internet. It is for this reason that businesses focused on growth should aim at obtaining a comparative advantage through specialization. The operation of businesses overseas has been eased through the introduction of improved production systems, transportation, transactions, and product standardization.
Gandolfo, G., & Trionfetti, F. (2014). International Trade Theory and Policy. Heidelberg: Springer.
Đõ̂, Q., Levchenko, A., & Raddatz, C. (2014). Comparative Advantage, International Trade, and Fertility. Washington: World Bank.