O'Sullivan and Sheffin Pointed Out (2003), an

¶ … O'Sullivan and Sheffin pointed out (2003), an absolute advantage, in commercial terms, describes the advantage that a country has over another country when it comes to manufacturing a product or service, at the same level of resources. Since the level of resources is the same, the element that usual differentiates between the output is the labor productivity, which varies from country to country because of different reasons, including better organization, level of education, specialization etc.

Comparative advantage, on the other hand, places the issue in the realm of competitive costs and accepts the idea that, although a particular country may have no absolute advantage, it would still have a comparative advantage over another country when it came to a particular good or service: it would be able to produce a particular good or service more efficiently than another.

Absolute and comparative advantages are useful when discussing trade theories, particularly because the comparative advantage theory does a better job of explaining why trade relations come about and what motivates countries to involve themselves in bilateral exchanges. The absolute advantage theory is somewhat limitative, because a country that has an absolute advantage has no motivation to trade with another country. The Heckscher-Ohlin model is perhaps the best fitted to explain the current global trends.

The model proposes the idea that countries will generally export products that they are able to produce at low input costs, profitably using the existing factors of production, including land, labor and capital. At the same time, the country imports products that are manufactured using production factors that the country does not have in abundance (Blaug, 1992).

The Hecksher-Ohlin model actually builds on the comparative model, only that it expands the notions presented their, where the labor efficiency was the primary criterion of determining what type of products a country would trade. The Hecksher-Ohlin model is more comprehensive, because it looks at a wider range of factors of production, including land and capital, thus providing a more enlarged explanation of why and how commercial relations between countries occur. There are several factors that may impede the successful application of this trade theory.

One of the important ones is the political impediment. A dictatorship and not only could use other arguments for commercial trade, including, for example, supporting some of its external partners. Political motivation may drive some of the commercial trades towards particular regions. From the same political perspective, the Hecksher-Ohlin model is applicable in a free trade environment. However, for political, commercial and social reasons, free trade does not exist as such in the world.

There are attempts to liberalize the international commercial framework, but countries still widely apply different forms of barriers to provide advantages for local producers. Politically, a barrier could be applied that could impede commercial relation with a certain country, even if this the commercially logical approach. Many times, commercial conditions are used as leverage for political considerations: countries may sanctions other commercially because of a political event. The issue of mobility is also important. The Hecksher-Ohlin model functions on the assumption of the factors of production being local/national.

However, the current business environment of the 21st century is not an immobile one. Capital and labor run across borders in a globalized framework. This is perhaps the most obvious characteristic of the way business is done in the 21st century. For example, cheap labor may be the competitive advantage in Hungary, but, as Hungary is a member of the European Union, these workers could migrate for a better pay to the UK or to Germany.

Hungary will no longer rely on this competitive advantage, but the UK would now have specialized, cheaper labor to use in its own economies. Examples can be given considering capital as well. Another aspect worth considering, somewhat on the same line as that of mobility, is the aspect of additional costs. One of these is the cost of transport. For example, it may be commercially logical for Hungary to trade with Japan, according to.