Competitive advantage can be created by improving efficiency, quality, innovation, and customer responsiveness. Improving efficiency means you do it faster or at a lower cost than anyone else. FedEx is an example of the first, and Costco an example of the second. Quality means you provide the best product or service, and so might be higher priced. Tiffany's is able to charge more because it's seen as the best. Innovation means you meet the same needs in a new way. The iPod was innovative because you can play whatever music you want, in any order. Customer responsiveness means going out of the way to delight the customer. Nordstrom's is known for this.
A country can also create competitive advantage. This is known as national competitive advantage, or comparative advantage. China is known for low-wage workers. India provides skilled technical, English-speaking workers at a reasonable wage. Japan changed its competitive advantage. In the 1960s, it was known for cheap electronics. By the 1980s, it had was known for quality brands, such as Sony.
America's competitive advantage is innovation. U.S. companies are able to bring innovative products to market faster and more successfully than other countries. The reason for that is our large and affluent domestic consumer base. It's easy to test new product ideas, and if they catch on, they can be marketed cheaply and effectively. As Amar Bhidé, author of The Venturesome Economy: How Innovation Sustains Prosperity in a More Connected World argues, even if the U.S. starts to lag behind other countries in producing engineers, it is more effective in bringing those innovations to market.
