International Business Strategy

How Vodafone applied the principle of comparative advantage in its operations

In international trade such as the one conducted by Vodafone , the principle of comparative advantage plays a very critical role Comparative advantage is said to be one of the most straight-forward and simple economic concepts Lee (2008 . The principle of comparative advantage is highly regarded not only in the business circles but also in the world of academia . It is said that when mathematician Stanislaw Ulam challenged Nobel Laureate Paul Samuelson in 1969 to state a preposition in all of

the social sciences that was both true and non-trivial he gave his answer as the principle of comparative advantage (WTO , 2008

This is why a better understanding of this theory needs to be established first before we proceed with finding out how Vodafone applied it . The theory of comparative advantage simply deals with the benefits of specialization and trade Suranovic (1997 . The theory states that trade can benefit all thecountries /companies /individuals so long as they produce goods with relative costs

The theory is also known as the Ricardian model after the 19th century classical economist David Ricardo who is credited with creating better awareness of this concept . Others who had earlier tried to explicate the benefit of this concept included Adam Smith and Robert Torrens Suranovic (1997

Adam Smith wrote in The Wealth of the Nations that "If a foreign country can supply us with a commodity cheaper than we ourselves can make it better buy it of them with some part of the produce of our own industry employed in a way in which we have some advantage (Book IV , Section ii , 12

But it is David Ricardo who is viewed as having brought the theory into prominence by using a gripping and simple numerical example in his magnum opus , On the Principles of Political Economy and Taxation

According Ricardo the benefits of trade come about if in an economy where specialization thrives . A clear example is offered by

. A Samuelson in his `The Way of an Economist ' when he writes

If a country is relatively better at making wine than wool , it makes sense to put more resources into wine , and to export some of the wine to pay for imports of wool . This is even true if that country is the world 's best wool producer , since the country will have more of both wool and wine than it would have without trade . A country does not have to be best at anything to gain from trade . The gains follow from specializing in those activities which , at world prices , the country is relatively better at , even though it may not have an absolute advantage in them . Because it is relative advantage that matters , it is meaningless to say a country has a comparative advantage in nothing (WTO , 2008

However comparative advantage is many times incorrectly taken to mean to have absolute advantage over other countries that do not hold the same advantage Lee...