Value+Chain

Michael Porter Value chain

Competitive Advantages, Forces of Competition Comparative Advantages

One way that managers can identify ways to create more value is through The Value Chain, developed by Harvard’s Michael Porter. According to this model, __ a company is a collection of activities __ that are performed to design, produce, __ market __, deliver and support its products. The Value Chain identifies nine – five primary and 4 support – activities that create value and cost in a business.


 * A value chain is a connected string of companies, groups and other players working together to satisfy market demands for a particular product or group of products**

=Comparative vs Competitive Advantage=

Comparative and competitive advantage are similar to each other in that comparative advantage is a component of competitive advantage ,  and both play an important role in decision making . Comparative advantage explains how a firm may benefit because of the lower opportunity cost it has from selecting one alternative over the other. On the other hand, competitive advantage explains how a company may benefit by having a distinctive advantage over its rivals allowing them to produce at a lower cost and improve profitability.

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Example
imagine the following ecconomy. this ecconomy only produces two goods.


 * || **A ** || ** B ** ||
 * **gadgets ** || **<span style="color: #000080; font-family: 'Trebuchet MS',Helvetica,sans-serif;"> 200 ** || **<span style="color: #000080; font-family: 'Trebuchet MS',Helvetica,sans-serif;"> 100 ** ||
 * **<span style="color: #000080; font-family: 'Trebuchet MS',Helvetica,sans-serif;">widgets ** || **<span style="color: #000080; font-family: 'Trebuchet MS',Helvetica,sans-serif;"> 400 ** || **<span style="color: #000080; font-family: 'Trebuchet MS',Helvetica,sans-serif;"> 50 ** ||

<span style="color: #000080; font-family: 'Trebuchet MS',Helvetica,sans-serif;">this table represents the maximums each country can produce. that is country <span style="color: #000080; font-family: 'Trebuchet MS',Helvetica,sans-serif;">A can produce 200 gadgets AND 0 widgets. or they can produce 400 widgets AND 0 gadgets. or any combination in between, i.e., 50 gadgets and 100 widgets, or 100 gadgets and 200 widgets, etc. the same for country **B.** <span style="color: #000080; font-family: 'Trebuchet MS',Helvetica,sans-serif;">so, country A out produces country B in both gadgets and in widgets.

//<span style="color: #000080; font-family: 'Trebuchet MS',Helvetica,sans-serif;">the question, does country A have a comparative advantage in both products? // //<span style="color: #000080; font-family: 'Trebuchet MS',Helvetica,sans-serif;">and will there be mutually beneficial trade between the countries? //

<span style="color: #000080; font-family: 'Trebuchet MS',Helvetica,sans-serif;">well, for each gadget that country **A** produces it must forgo 2 widgets. and for each gadget that country **B** produces it must forgo only 5 widgets. <span style="color: #000080; font-family: 'Trebuchet MS',Helvetica,sans-serif;">by this calculation country **B** has a comparative advantage in producing widgets. <span style="color: #000080; font-family: 'Trebuchet MS',Helvetica,sans-serif;"> and country **B** has the comparative advantage in producing gadgets.not only will the two countries trade but trade will make both countries richer. for each widget country **B** imports it will forgo somewhere between 0 and .5 widgets. obviously the number will not be 0, but if it is less than 5 widgets country will be richer by the difference of their opportunity cost (.5) and whatever they bought the thing for. the converse argument applies to the same trade for country A in exporting the widget.