Core Competency and Competitive Advantage A competency is defined as, Any knowledge, skill, set of actions, or thought patterns

that distinguishes reliably between superior and average performed i.e., a competency is what superior performers do more and with better results than average performers on the job. A competency is of two types; 1. Core competency (It is to be protected and nurtured) 2. Non-core competency (should be outsourced i.e., functions) A core competency are seen as an organizations primary resources of competitive advantage, and the areas, that an organization should focus on its resources and attention. According to Porter , competitive advantage potential offer the strongest basis for a strategic offensive(attacking). These competitive advantage potential include: 1. Developing a lower cost product design 2. Making changes in production operations that lower costs and or enhance differentiation. 3. Developing product features that deliver superior performance or lower user costs 4. Giving customers more responsive post-sale service and support 5. Eliminating market dealers and selling direct to the ultimate users. 6. The identification of core competence of a business firm basically aims to find new strategies to grow and improve a firms business. A companys core competence is defined by that set of products, customer segments, processes and technologies in which one can build the greater competitive edge. 7. A core competency not only integrates the technology but it also organizes workforce and delivery of value. Core competence includes interest, involvement and commitment to working across the organization Competency Technology Surplus cash inflow Skilled sales force R&D Quality Material supplies Potential Use Produce wide range of products Acquire other businesses Establish market for new products using the salesmen skill Developing high technology products Market expansion, customer satisfaction Selecting the low cost provider of quality materials

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

To identify the core competency of a firm following steps are followed; Define the core clearly(broad the focus) Detail those activities that lie outside the core Evaluate core business markets in depth Deliver excellence in the operation of the core business operations Use value chain analysis to find new strategies that deepen our focus on the core business Explore financial performance potential Prioritize most promising strategies and estimate the impact of each Contemplate the disinvestment of activities that lie outside the core. Penetrate(enter) the market deeply and finally, Look to adjacent business.

1. 2. 3. 4. 1. 2.

The resources and capabilities lead to competitive advantage when they are; Valuable- Allow the firm to exploit the opportunities and neutralize the threats Rare- Possessed by few, current or potential competitors Cost to limit Non-substitutable It can be achieved by following generic strategies; Cost leadership Differentiation

The HeckscherOhlin model (HO model) is a general equilibrium mathematical model of international trade, developed by Eli Heckscher and Bertil Ohlin at the Stockholm School of Economics. It builds on David Ricardo's theory of comparative advantage by predicting patterns of commerce and production based on the factor endowments of a trading region. The model essentially says that countries will export products that use their abundant and cheap factor(s) of production and import products that use the countries' scarce factor(s)

HeckscherOhlin theorem[edit]
Main article: HeckscherOhlin theorem The exports of a capital-abundant country will be from capital-intensive industries, and labour-abundant countries will import such goods, exporting labour-intensive goods in return. Competitive pressures within the H O model produce this prediction fairly straightforwardly. Conveniently, this is an easily testable hypothesis.

Features of the model[edit]

Relative endowments of the factors of production (land, labor, and capital) determine a country's comparative advantage. Countries have comparative advantages in those goods for which the required factors of production are relatively abundant locally. This is because the profitability of goods is determined by input costs. Goods that require inputs that are locally abundant will be cheaper to produce than those goods that require inputs that are locally scarce. For example, a country where capital and land are abundant but labor is scarce will have comparative advantage in goods that require lots of capital and land, but little laborgrains. If capital and land are abundant, their prices will be low. As they are the main factors used in the production of grain, the price of grain will also be lowand thus attractive for both local consumption and export. Laborintensive goods on the other hand will be very expensive to produce since labor is scarce and its price is high. Therefore, the country is better off importing those goods.

Theoretical development[edit]
The Ricardian model of comparative advantage has trade ultimately motivated by differences in labour productivity using different "technologies". Heckscher and Ohlin did not require production technology to vary between countries, so (in the interests of simplicity) the "HO model has identical production technology everywhere". Ricardo considered a single factor of production (labour) and would not have been able to produce comparative advantage without technological differences between countries (all nations would become autarkic at various stages of growth, with no reason to trade with each other). The H O model removed technology variations but introduced variable capital endowments, recreating endogenously the inter-country variation of labour productivity that Ricardo had imposed exogenously. With international variations in the capital endowment like infrastructure and goods requiring different factor "proportions", Ricardo's comparative advantage emerges as a profit-maximizing solution of capitalist's choices from within the model's equations. The decision that capital owners are faced with is between investments in differing production technologies; the H O model assumes capital is privately held.

Original publication[edit]
Bertil Ohlin published the book which first explained the theory in 1933. Although he wrote the book alone, Heckscher was credited as co-developer of the model, because of his earlier work on the problem, and because many of the ideas in the final model came from Ohlin's doctoral thesis, supervised by Heckscher. Interregional and International Trade itself was verbose, rather than being pared down to the mathematical, and appealed because of its new insights.

222 model[edit]
The original HO model assumed that the only difference between countries was the relative abundances of labor and capital. The original HeckscherOhlin model contained two countries, and had two commodities that could be produced. Since there are two (homogeneous) factors of production this model is sometimes called the "222 model". The model has "variable factor proportions" between countries highly developed countries have a comparatively high capital-to-labor ratio compared to developing countries. This makes the developed country capital-abundant relative to the developing country, and the developing nation labor-abundant in relation to the developed country.

With this single difference, Ohlin was able to discuss the new mechanism of comparative advantage, using just two goods and two technologies to produce them. One technology would be acapital-intensive industry, the other a labor-intensive businesssee "assumptions" below.

Extensions[edit]
The model has been extended since the 1930s by many economists. These developments did not change the fundamental role of variable factor proportions in driving international trade, but added to the model various real-world considerations (such as tariffs) in the hopes of increasing the model's predictive power, or as a mathematical way of discussing macroeconomic policy options. Notable contributions came from Paul Samuelson, Ronald Jones, and Jaroslav Vanek, so that variations of the model are sometimes called the Heckscher-Ohlin-Samuelson model or the Heckscher-Ohlin-Vanek model in the neo-classical economics.

Theoretical assumptions[edit]
The original, 2x2x2 model was derived with restrictive assumptions, partly for the sake of mathematical simplicity. Some of these have been relaxed for the sake of development. These assumptions and developments are listed here.

Both countries have identical production technology[edit]

This assumption means that producing the same output of either commodity could be done with the same level of capital and labour in either country. Actually, it would be inefficient to use the same balance in either country (because of the relative availability of either input factor) but, in principle this would be possible. Another way of saying this is that the per-capita productivity is the same in both countries in the same technology with identical amounts of capital. Countries have natural advantages in the production of various commodities in relation to one another, so this is an "unrealistic" simplification designed to highlight the effect of variable factors. This meant that the original H O model produced an alternative explanation for free trade to Ricardo's, rather than a complementary one; in reality, both effects may occur due to differences in technology and factor abundances. In addition to natural advantages in the production of one sort of output over another (wine vs. rice, say) the infrastructure, education, culture, and "know-how" of countries differ so dramatically that the idea of identical technologies is a theoretical notion. Ohlin said that [2] the HO model was a long-run model, and that the conditions of industrial production are "everywhere the same" in the long run.

Production output is assumed to exhibit constant returns to scale[edit]

In a simple model, both countries produces two commodities. Each commodities in turn is made using two factors of production. The production of each commodities requires input from both factors of production capital (K) and labor (L). The technologies of each commodities is assumed to exhibit constant returns to scale (CRS). CRS technologies implies that when inputs of both capital and labor is multiplied by a factor of k, the output also multiplies by a factor of k. For example, if both capital and labor inputs are doubled, output of the commodities doubled. In other terms production function of both commodities is "homogeneous of degree 1". The assumption of constant returns to scale CRS is useful because it exhibits a diminishing returns in a factor. Under constant returns to scale, doubling both capital and labor leads to a doubling of the output. Since outputs are increasing in both factors of production, doubling capital while holding labor constant leads to less than doubling of an output. Diminishing returns to capital and diminishing returns to labor are crucial to the StolperSamuelson theorem.