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Problem

Many observers argue the cost advantage that rapidly developing economies enjoy will evaporate in 5 to 10 years. Agree or disagree? Explain.

Step-by-step solution

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Step 1/2

One of the competitive ways that firms use to succeed and to gain competitive advantage is the cost advantage. Cost advantage strategy explains that the company is enjoying a lower cost of production that helps them to maximize their profit.

Step 2/2

Cost advantage is attained in two ways. One is through lowering the operating cost and second through lowering the cost of capital investment. Business process outsourcing and subsidies have been emerged to contribute to these cost advantage practices. However, some critics comment that these cost advantage that rapidly developing economies enjoy will end in five or ten years. It is not true that the cost advantage will evaporate. The reason is that the economies are growing and the population is also growing. Thus, to satisfy the increased population/market needs, companies should be encouraged to produce more at a reduced cost. This will increase the subsidies again in these developing nations. The business process outscoring is expected to grow again causing a lower cost of operation in the future. The firms can control the RDE cost properly, the cost advantage can still be enjoyed by these developing countries. In addition, technology is growing and new equipment and technologies are also contributing to minimizing the cost of operation. In short, the statement in the question is not agreeable.