Cost advantage

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There is a cost advantage in business administration and economics when an economic subject has lower manufacturing costs or total costs than another economic subject in the production of the same good .

General

Companies , the state with its subdivisions and foreign countries (through export / import ) come into consideration as economic subjects . Cost advantages in business administration compared to competitors , such as when economies of scale ( economies of scale ) through economies of scale ( englisch economies of scale ) occurs ( cost leadership ), company-specific technologies are applied ( technology leadership ) or in the procurement of low-cost country sourcing . These cost advantages improve competitiveness , open up scope for price reductions or increase profits .

species

In economics and especially in foreign trade theory, a distinction is made specifically between absolute and comparative cost advantages.

Absolute cost advantages

One speaks of absolute cost advantages when an economic entity (company or the state) can produce absolutely more sales volume in the same time unit at a lower cost than another economic entity . There is an absolute cost advantage when the domestic prices of a certain product are below those abroad or the import prices are below those of the domestic prices.

The concept of absolute cost advantage goes to Adam Smith's theory of absolute cost advantages ( English absolute cost advantages ) back in the fourth book of his published in March 1776 book The Wealth of Nations is included. Here Smith explains that every country should export the goods that it can produce absolutely more cheaply than abroad and import goods that can be produced more cheaply abroad.

Comparative cost advantages

To comparative advantage is, if there is a difference between the relative production costs are of various goods within a state. So can a particular good produce cheaper than another country, it has a comparative advantage for the former ( English comparative cost advantage ). The production costs of different goods in the same country are compared here.

The comparative cost advantage can be traced back to David Ricardo , who showed in 1817 using the example of two countries that the cost-weaker country specializes in the manufacture and export of those products for which it has the relatively lowest cost disadvantage.

economic aspects

Both Smith and Ricardo used a “two goods / two countries” model for their theories, against which they made their cost comparisons. They showed that cost differences - in addition to the exchange rate differences that are added today - are the main reason for foreign trade and the division of labor . It is only possible to exploit absolute and comparative cost advantages if each country is able to export those goods and services that it can produce most cheaply and imports those goods and services that other countries can produce more cheaply.

In foreign trade, cost advantages of this kind are mainly used by the low-wage countries compared to the high-wage countries and low-tax countries compared to high-tax countries by specializing in the production of labor-intensive goods or services. In the high-wage country, production is no longer worthwhile due to the costs, it is relocated to the low-wage country either through own production facilities with local workers in the low-wage country or by contract manufacturers in the low-wage country.

literature

Individual evidence

  1. ^ Sven Groß, Tourismus und Verkehr , 2011, p. 59
  2. ^ Adam Smith, The Wealth of Nations , Volume II, 1776, pp. 18–18.
  3. ↑ Markus Krajewski, Wirtschaftsvölkerrecht , 2012, p. 40 f.
  4. ↑ David Ricardo, Principles of Political Economy and Taxation , 1817, p. 160 FN
  5. ↑ Ernst Dürr, The Liberalization of International Insurance , 1956, p. 69
  6. ^ Udo Broll, Introduction to Real and Monetary Foreign Trade , 1995, p. 42