Absolute Advantage: The ability of a country, individual, company or region to produce a good or a service at a lower cost per unit than the cost at which any other entity produces that good or service using a smaller number of inputs or using a more efficient process than other party producing the same product or service.
Why Absolute Advantage?
In general, owning to their geographic location and natural resources, some countries possess what is described as an absolute advantage. This describes a condition in which the country can produce exclusively, or non-exclusively but more cheaply than others, and therefore possesses an absolute marketing advantage for that product. Although the former rarely exist, there are instances in which natural resources are so concentrated in one or a few countries that companies in those countries possess immense advantage in the marketplace. The production in diamonds in South Africa and tin in Bolivia are prime examples. The latter condition is more common, namely that there are cost advantages to foreign production that confer marketplace advantage. The lower labor costs of Japan in the manufacture of automobiles and lower costs per ton in steel production in Korea give the Japanese automobile companies and the Korean steel companies a strategic advantage in the marketplace. The amount of this production exceeds the ability of the local economy to absorb the units produced, and the excess production is exported to foreign markets. Thus even the little regional steel center in the U.S. heartland may find itself competing against a gigantic Korean steel mill.