Economic Concepts Affect Strategic Planning Essay

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Economic Concepts That Affect Strategic Planning: Comparative Advantage and the Importance of International Trade

The concept of free trade vs. protectionism is based upon the concept of securing comparative advantages. A "comparative advantage exists when a country has a margin of superiority in the production of a good or service i.e. where the opportunity cost of production is lower" (Comparative advantage, 2014, Tutor2U). For example, it makes little sense for the United States to try to grow bananas, given the excessive cost this would entail, versus importing them from the Southern hemisphere.

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In their strategic planning, companies choose to produce goods and services which they can do at a relatively lower cost than their rivals abroad. This enables them to price their goods and services lower, benefiting the consumer at home and abroad as well as the corporation.

However, not all aspects of comparative advantage are so salutary. One source of comparative advantage is the "the quantity and quality of factors of production available" including labor (Comparative advantage, 2014, Tutor2U). An advantage….....

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