Absolute Advantage for business 2 min read

the definition

is the ability of an individual, company, region, or country to prcxiuce a greater quantity of a good or service with the same quantity of inputs per unit of time, or to produce the same quantity of a or service per unit of time using a lesser quantity of inputs, than its competitors.

this can be accomplished by creating the or service at a lower absolute cost per unit using a smaller number of inputs, or by a more efficient process.

history

this was developed by 18th-century economist Adam Smith in his book The Wealth of Nations to show how countries can gain from trade by specializing in producing and exporting the goods that they can produce more efficiently than other countries.

A clear example of a nation with an Absolute Advantage (AA) is Saudi Arabia, a country with abundant oil supplies that provide it with an AA over other nations. Other examples include Colombia and its climate—ideally suited to growing coffee — and Zambia, possessing some of the world’s richest copper mines.

For Saudi Arabia to try and grow coffee and Colombia to drill for oil would be an extremely costly and, likely, unproductive undertaking.

AA for business

this AA thing is originally applies to countries. but we can also use the AA for business, too.

if you already have an AA, good.
if you haven’t got any AA, you should keep looking and try to have one.

so how do we apply this to business?

1. identify the core strength.

know what you do better than competitors:
is it superior product development, or acquire users at scale, and so on.

2. specialize in high-efficiency areas.

focus your resource to your AA; maximizing the output & quality.

3. attract investment & talent

this makes the startup more appealing to investors & top talent.

4. market positioning.

business can brand itself and send the message to public.

5. scale efficiently.

you can grow without sacrificing quality.

6. outsource weakness.

outsource or deprioritize tasks where it lacks efficiency.

AA Case Study

Tesla in its early days had an AA in electric vehicle battery technology, allowing it to produce longer-range EVs than competitors. this focus helped it dominate the market early on.

AA doesn’t guarantee long-term success if competitors catch up or market demands shift. startups must continuously innovate and adapt.

Sumber: Absolute Advantage: Definition, Benefits, and Example (Investopedia)

investopedia.com