Gringo Business Culture for Latinos

This is an essay I wrote for an assignment to get certified to teach English. This open-ended assignment allows me to analyze any subject from the textbook. I chose a subject (culture) not related to language because it's less boring. Essay below:

In this essay, I want to address what I view as the part of the Business English text that is most relevant to doing business in America. American professionals will overlook minor errors in written or spoken English from an international. However, cultural missteps can damage relationships or otherwise communicate unintended messages. These cultural factors are those that present the greatest discrepancies between US and Latin American business cultures.

Time – American culture follows a monochronic time orientation, as opposed to the polychronic orientation in Latin American countries. Americans say things like “time is money” and “don’t waste time.” This particularly applies to deadlines. In America, deadlines are literally how they sound. Think about what “dead” and “line” mean. Those words don’t suggest that an agreed-upon time or date is adjustable with changing circumstances. If a project or payment isn’t made by the deadline, Americans will expect an explanation why it’s late. Deadlines are much more important in monochronic cultures. Keep in mind when conducting business in monochronic cultures, Americans value time and are not as tolerant of delays.

Punctuality – Punctuality goes along with time-orientation. Look at meeting times as deadlines. Don’t be late. If you are late to a meeting, Americans expect an apology.

Status – Thomas Jefferson wrote in the Declaration of Independence that “all men are created equal.” This is a cornerstone of the American psyche – that no citizens are inherently better or of higher standing than others. In the English language, there is no translation for the word “usted.” It was difficult for me at first, in my Spanish-speaking company, to address certain superiors as “usted” (instead of “tu”) with the agreeing verb form. In English, there is only “you.” There is no special pronoun for people of higher status. Executives and other ranking professionals need not be offended in America if they are not treated with extra respect. Cab drivers or restaurant servers will treat professionals with the same amount of respect as individuals from lower social classes. And customers will likewise treat servers with respect. Executives from Latin America should keep in mind that they are not being insulted. But rather, all people are generally treated with the same respect in America.

Interpersonal Relationships – Americans don’t place as high a value on relationships. While there is certainly a place for building rapport, remember that they believe “time is money.” American professionals can use blunt and direct language. This is normal. Do not take offense. After acclimating to Peruvian culture, I attended a sales show in the States and was a little surprised at how blunt some buyers were. Some meetings lasted less than two minutes. Saving time and moving on can take precedence over building relationships.

Greetings – Gender roles are different in America. In business, gender roles are even subject to law. Men: do not kiss women when greeting them. Women: do not kiss men when greeting them.

Gratuities – In America, many workers earn their living through gratuities as opposed to wages. Not leaving a sufficient gratuity can be insulting and make a bad impression with business colleages. Most important are restaurant servers / bartenders and taxi drivers. Servers and bartenders earn 15 – 20% of the bill’s total. Taxi drivers earn 15% of the fare.

Print Publishing vs. E-Publishing

Many writers and industry analysts are debating if e-publishing will conquer print publishing (various article links below). If is not debatable. When and how are. In other words, think about when print will be conquered and, especially for aspiring writers with no backup plan, how to make money in the future of publishing.

Keep in mind that, simply by being active in this online forum, you are statistically among the earlier adopters of digital technology. History has yet to run its course and digital habits have yet to go fully mainstream (consider the computer literacy of the 2008 Republican presidential candidate).

Historically, the automobile was an economic game-changer (an industry disrupter, if you will) for transportation just as digital technology is for reading. The method is irrelevant to the purpose. Transportation involves going from Point A to Point B. While people had grown up with and were accustomed to the horse fulfilling this need, horses aren't actually critical to the basic need of transportation just as paper is no longer critical to the basic need of reading. Aside from the paper milling industry, there are other unnecessary middlemen operations (lumber, shipping and storage, printing, binding, brick and mortar retailing via Barnes & Noble, Borders, etc.) that make the economics of print publishing unviable in the long-term when competing with e-publishing.

The resistance to abandoning paper is like the resistance to abandoning horses. Arguments to preserve paper – the feel of the book, the durability, less risk of reading in the tub – will seem as ridiculous in 100 years as arguments to preserve horses for transportation seem now. There were surely people who felt horses would never be replaced. After all, the automobile can't go everywhere a horse can go. Not everybody liked cars. Horses were the standard everybody grew up on. They used to call common sense "horse sense." There surely are virtues to printed copies of text just as there surely were virtues to keeping horses. On a different note and more personal level, I hold great affinity for the cassette tape. I still own dozens of mixtapes and can make strong arguments in favor of the cassette over the compact disc (although those don't hold water against digital music). Unfortunately for the tape, economics trump virtue. In other words: money talks, bullshit walks.

While we internet-savvy consumers from industrialized countries are early adopters, we are also fossils historically in that we even have some attachment to printed reading. How strong is that attachment among the youth in South Korea, the country which boasts the best broadband penetration in the world and whose citizenry performs most daily tasks and live their lives on smart-phones? If you're in the US, you may receive printed coupon advertising in the mail. In South Korea, they receive text message offers from restaurants and retailers as they pass the place. Paper is unnecessary.

To better understand where print is going, watch the newspaper industry. 50 years ago, every bumfuck town needed a hard copy paper to publish the same world news and a few local stories. But in the 21^st century and beyond, how many letters of record are needed past the New York Times, Wall Street Journal, and niche pubs like The Guardian and The Economist? Do people really need a hard copy of the St. Louis Post-Dispatch? People are already going online for news while the industry scrambles for revenue. Who needs the local classified section when there are superior digital sources like craigslist and eBay? Printed book publishers will eventually run into financial woes as well.

Determining when print will die is difficult. America won't match super-urban South Korea's broadband penetration any time soon because of its geography – suburban Americans live spread out in big houses with yards. This will inhibit the already slow digital adoption rate in America (don't forget about the presidential candidate who doesn't use the Internet). You may live most of your life before the inevitable death of print. In most of the world, the masses living in emerging markets don't yet have the means for digital technology. However, they may be able to leapfrog outdated technology like printing as they leapfrogged landline phones.

Determining how to make money is also difficult. I'm not going to pretend to have an idea how this angle will play out, but I'm confident that capitalism and the profit motive will find a way. I whole-heartedly disagree that the quality of literature will suffer. I imagine that argument was made by musicians complaining about the emergence of the phonograph record in the early 20^th century. If people can buy our music once and listen to it forever, they won't pay to see us perform. How will we make money? All the good musicians will quit making music. Present day musicians revived that fear when downloading technology came in the picture, but society has managed to monetize that as well. While the kinds of art found in museums may need a government subsidy, music and reading have always demanded a high premium. There will always be a market. Does anybody honestly foresee a shortage of writers someday?

Then again, published content will certainly change. I converted from the Times hard copy to the Internet about a year ago and there is a clear difference in what I choose to read. With a hard copy, you are almost compelled to read all the articles. While I thoroughly enjoyed a 3000 word article about the growing exports from Brazil of HPC products featuring exotic ingredients from the Amazon rainforest, I probably wouldn't have clicked on it if I were getting my news online. On the other hand, should the mainstream public be subsidizing that article if nobody cares about it? Or should it be featured in a niche publication? Nicholas Carr in The Atlantic on how reading online may change what we read and how we think: "Is Google Making Us Stupid?"

What's my point? Don't think if. Think when and how.

Marketing guru Seth Godin on the future of publishing

Samir Husni on the power of print

Bob Sacks says "It's a Digital World Now"

Fuck Detroit

Earlier this month, General Motors startled financial analysts by admitting that it was burning through $2 billion per month. It has lost $70 billion since 2004 while consistently losing market share for decades. GM, Ford, and Chrysler are currently launching an effort to gain access to the $700 billion TARP fund to prop up their companies in the midst of the historic financial crisis the world is in.

The companies were recently approved for $25 billion to retool factories in order to produce more fuel-efficient vehicles – a measure taken when oil was in the $160 / barrel range. Now the companies say that they will need more after a collapse in vehicle sales and credit markets. I am predicting that they, and specifically the most beleaguered GM, will not receive the bailout funds they are seeking as currently proposed.

There are many different takes on how the American automakers have come to their current situation. Popular culprits include union labor costs, poor management, and the current economic crisis. All of these play a part.

Denying the negative effect of the UAW on the American auto industry is ignoring the obvious. In researching a case study I did in 2007, I found there was a $30 / hour average difference in labor costs between American manufacturers and Japanese manufacturers.

Average cost of labor, Detroit Big Three = $75 / hour
Average cost of labor, Japanese Big Three = $45 / hour

The $75 figure for Detroit includes retiree pension and health benefits. It doesn't take an MBA to understand that you can't compete with variable costs 67% higher than the competition's and market a similar product (the word "similar" is arguable given perception towards American auto quality). It's plain to see that labor costs are a major contributing factor to American auto manufacturers' lack of competitiveness and financial woes. If labor costs didn't play a part, then why are all of the American companies in trouble while none of the foreign companies need help? *the 2008 Newsweek article below puts the figures at $71 and $47

The American companies reportedly gained sweeping concessions from the UAW negotiations in 2007, but savings aren't expected to be realized until 2010. Plus, those concessions still don't come close to bringing them in line with the competition.

The greatest failure in these companies' management was that they bet too heavily on light trucks and SUVs since the late nineties. Because the American companies made the best trucks and SUVs, they were able to command high prices and reap big profits. Their truck business subsidized the rest of the companies' operations. And since each American company had relatively the same deal from the UAW (from pattern bargaining), there was no competition between each other in labor costs. There was no competition from foreign companies in this category because Toyota trucks weren't in demand like the F-150, the Dodge Caravan, the Chevy Blazer, the Ford Explorer, and so on. In a particularly despicable chapter of business working with politics, the companies lobbied heavily and defeated legislation to increase fuel-efficiency standards so they could continue to sell these vehicles. Before the Japanese could develop better trucks at lower prices, the price of oil soared and the bottom dropped out on the truck market. This wiped out the little profitability the American firms had.

The price of oil has since plunged as the credit crisis gripped the world. While expensive gas will not prevent consumers from buying trucks in the near future, the inability to borrow will. As all the banks are tightening their belts due to their own mismanagement, millions of ordinary consumers who might have bought cars can't get the financing they would need in order to buy them.

That is the very short story of how GM and Detroit went from, as little as six months ago, touting their turnaround strategies as making progress to currently begging for billions from the federal government to stay alive. Would their turnaround strategies have worked if the economy hadn't tanked? Who knows?

The argument for the bailout is made in the name of preventing economic catastrophe. Not only does GM employ hundreds of thousands, but parts suppliers also employ hundreds of thousands. These companies are dependent on the manufacturers and they could also go under if GM did. In addition, there are over 10,000 dealerships around the country which depend on the Big Three for their livelihoods as well. Between the dealerships, the suppliers, and the manufacturers themselves, the Center for Automotive Research estimates that up to 3 million jobs could be lost (it should be noted that the Center for Automotive Research is heavily funded by the Big Three and that this figure is disputed). The argument's idea is that a government loan will keep GM and the others liquid for enough time to fully realize their turnaround strategies, therefore saving millions of jobs and preserving the primary component of the American manufacturing sector.

The argument against the bailout is winning. I first noticed yesterday that a vast majority of the users in newspaper comment forums opposed a deal. I can find articles detailing the arguments for and against a bailout, and I can find editorials against (especially in business and economics publications), but I could hardly find a strong editorial in favor of the bailout. To give an illusion of balance below, I had to go to the Detroit Free Press to cite an editorial in favor. There is a Newsweek article that is mildly in favor. Of all places, I found two of the more convincing arguments against a bailout from the New York Times.

Besides being a generally center-right country committed to free-market principles, most people just don't think the money will save the companies. It seems the more the public researches the industry and the companies, the more it believes that the bailout wouldn't solve their problems. The money would be burnt up and the companies would be in the exact same situation as before. Thirty years ago, the federal government bailed out Chrysler. What was it worth? Below is a link to an article detailing the British government's bailout of British Leyland, a case study with striking similarities to General Motors.

Bailout opponents contend that only under Chapter 11 bankruptcy protection will General Motors be able to make the drastic changes needed to become a viable company. GM would be able to rewrite union contracts. Laws throughout the country that protect redundant dealerships (preventing GM from shedding brands) would be voided. These changes won't happen with a simple cash infusion. Free-market champions contend that, even if General Motors were to suffer Chapter 7 liquidation - the worst-case scenario - other manufacturers would buy the factories, employ the experienced workers, buy parts from suppliers, and open more dealerships. After all, Americans will still buy cars.

It is probably obvious that I oppose any government aid to the Big Three that does not include Chapter 11 bankruptcy protection. But moving past the arguments for and against, these are the reasons why I deem the bailout (as is) as 'not-gonna-happen':

1. As stated before, there is considerable opposition to a bailout among the public.
2. There is considerable opposition on the editorial pages of all the major newspapers (except the Detroit Free Press).
3. In the face of demands to overhaul executive management, General Motors CEO Richard Wagoner has stated that he doesn't feel the company would need a change in leadership if it were to receive government money. Current management would stay in place.
4. Under mounting criticism of the labor unions' role, UAW President Ron Gettelfinger has said that his workers would not make any more concessions past the 2007 negotiations. They have given up enough.
5. As the Big Three mounted their offensive on Washington, a coalition of parts suppliers was formed and joined the beggars' party. They feel they are also entitled to TARP funds.
6. While the Democrats - who mostly favor a bailout deal - just won a landslide victory in November, Obama and the new Congress don't take office until late January. General Motors probably can't last that long. The Bush administration opposes using TARP funds for the auto companies and the current Senate probably does not have the votes to pass the legislation in the face of stiff opposition. And by the time the Democrats take office with their larger majority, the public will have had two more months to look into the matter. And, as I stated earlier, the more people learn about the companies and the industry, the more they realize that a bailout is futile.
7. Democrat Representative Barney Frank is drafting the bailout legislation with stipulations for the companies receiving aid. His bill includes pointless symbolism like a no-golden-parachutes clause and also a clause that would, in my opinion, completely tie the companies' hands in making sweeping change. There would be a government oversight on company operations (an auto czar, if you will) with veto power of any ventures(!).

"A Bridge Loan? U.S. Should Guide G.M. in a Chapter 11" (New York Times)

"A British Lesson on Auto Bailouts" (New York Times)

"How to Bail Out General Motors" (Newsweek)

"Saving Detroit" (The Economist)

"Time runs short to save an industry" (Detroit Free Press)

"Why Bankruptcy is the Best Option for G.M." (Wall Street Journal)

No Conclusion on the EU

Ten leading European economists wrote an open letter to European leaders urging a coordinated rescue plan for the world financial crisis, specifically as it implicates European banks. (As ten economists drafted the letter, over 300 more have since signed it as of this writing, see this article).

The letter made the argument that the “piecemeal” actions being taken in Europe will never amount to a solution for the crisis. “The current approach of rescuing one institution after another with national funds will lead to Balkanization of the European banking sector.” The letter went on to say that the US has already learned that bailing out a few giants did virtually nothing to stop the bleeding. Due to the credit-default swap industry, or banks insuring each other’s bad debt, the banks are all tied together as if with rope while trying to stay afloat in deep waters. When one or two go under, they will take others with them.

Those economists are not alone in their assessment. According to a recent Bloomberg article about Europe’s challenges, European Commission President Jose Barroso called on Europe to remove the “mismatch between a continental-scale market and national systems of supervision,” (see this article). The European Union, while comprising 27 different nations with 27 national governments, acts as one financial market with one currency (one currency for 15 member states, anyway). Banks across national borders are deeply intertwined with each other and their relationships affect smaller countries where neither bank is located. So a “systemic crisis demands a systemic response.” Coming up with an aid package that successfully navigates all the multinational bureaucratic red tape involved will prove extremely difficult if not impossible.

Adding to what seems like a perfect storm in Europe is the extreme diversity within the continent. Besides having 27 different governments, 27 different heads of state, and 27 different constituencies to independently please, there are extreme cultural issues to overcome. There are 23 official languages within the EU. Whether generalizing Europe in terms of East vs. West, North vs. South, or Christian vs. Muslim, there is really nothing in common among all states besides soccer. Imagine the possibilities for disagreement over a solution between the Greeks and the Swedes, or the Spanish and the Polish. One doesn’t even have to cross the continent to find such contrasts. England and France, neighbors, are well-known rivals who loathe each other, and my Swiss roommate often has less than kind words to say about the Austrians. Besides the fact that Switzerland has been involved in fewer wars, how many people can detail the cultural differences between those two? I can’t. As the Bloomberg article notes in its lead sentence, “It took the European Union almost three decades to agree on what could legitimately be called chocolate.”

While America is the most diverse country in the world, she has centuries’ experience of dealing with its ethnic, geographic, and economic diversity. America also has the benefit of only one federal government in control. So the US is at an advantage over the EU in executing its comprehensive public bailout of the financial services industry. The House of Representatives voted against the first bailout plan and showed how difficult drafting such a plan will be even in the States. I just can’t grasp how pain-staking of a process it will be for Europe.

In my International Banking class of my graduate program, the professor explained how the European Union was relatively young historically, and that there was no real conclusion on how it will turn out. It has yet to pass the test of time to call it a success. This directly contradicts what almost came to be considered common sense in the media – the US dollar was in the toilet and it would never come out. Some day the Euro would be the reserve currency of choice. I also heard this incessantly from my European friends.

While never arguing with my friends native to the other side of the big pond, I always viewed the fall of the dollar as a normalization of what was long overdue. I thought that the dollar was probably overvalued for the generations that Europe was economically splintered (what I wouldn’t give to be an American in the 80s vacationing in Europe!). Europe finally united and quickly grew its buying power. Imagine how much waste was saved by creating a common financial groundwork and establishing an ease of crossing borders. Imagine the waste, before the economic unity, of all the financial professionals dedicating their time, labor and resources to currency arbitrage alone. The EU became a much more productive, cohesive continent despite its inherent diversity and government fiefdoms.

The EU normalized economic standards and collectively grew faster than ever. The Euro increased in value to somewhere around $1.50. However, most of the economic reforms were planned in 1993 and executed in 1999. Being so young, the EU has yet to pass a significant test such as the global financial crisis we are in today. This is a historic time, especially for the EU. How quickly it can produce a continent-wide solution, and how effective that solution is, will help determine its historical success. As the Bloomberg article explains, the unanimity requirement for changes makes decision-making terribly slow. In trying to solve this problem, it has tried to change rules in favor of a stronger governing body twice. The French and Dutch rejected a constitution in 2004 and the Irish rejected the 2007 Lisbon Treaty (which the Polish were expected to do if the Irish hadn’t). As the crisis deepens and pressure mounts, the financial bloc may hastily push through a plan that satisfies everybody but is ineffective or not ideal.

As the US dollar was artificially over-valued while Europe was an economic mosaic similar to America in the 18th century under the Articles of Confederation, the Euro may prove to be overvalued after it overshadowed the dollar, never having proved itself in the absence of the EU’s ever seeing a crisis. The dollar has already started to gain on the Euro (currently $1.34 / 1 Euro). Only time will tell what will happen. Being one who earns US dollars, I am cheering for a 1:1 ratio someday. But if the EU can successfully come together and take swift, effective action, it will bind the countries even more. This may set the stage for, and I will be dead long before this happens, the conversion from 27 nations in alliance to 27 states in one country: The United States of Europe. In 150 – 200 years, who knows? It could happen.

The Unsolicited InBev Bid For Anheuser-Busch

Last week, InBev offered $65 / share to acquire Anheuser-Busch. The combination would make the largest beer company by sales revenue in the world. Anheuser-Busch used to hold the title, until Interbrew of Belgium merged with AmBev of Brazil, creating InBev. And then South African Breweries' acquisition of Miller Brewing and other companies dethroned InBev and currently holds the spot. InBev is primarily interested in Anheuser-Busch to gain a foothold in the US market (AB keeps about a 50-share compared to InBev's 2%), but also to add the "iconic" Budweiser brand to its world market-penetrating portfolio.

Before the offer went public, Anheuser-Busch CEO (and fifth-generation family member at the helm) August Busch IV was quoted as saying that the company "won't be sold on my watch." Being from St. Louis and having worked for Anheuser-Busch for two years, I knew he wouldn't be the only one staunchly opposed to the sale. There is a mentality ingrained in the company culture and the city of St. Louis - a strong culture that I never really fit into. Recent news of regional politicians taking preventive actions against a sale also validates the widespread opinion that Budweiser, the world's best-selling beer, should remain American-owned in St. Louis, MO. Missouri governor Matt Blunt has asked the Federal Trade Commission to review the potential deal for potential anti-trust issues - a desperate and futile move given InBev's 2% market share. Similarly, Republican Congressman Kit Bond and Democrat Senator Claire McCaskill have lobbied the Department of Justice in an attempt to block the deal. Several websites have sprung up with names like "www.savebudweiser.com" and "www.saveab.com" to rally support for the company staying in St. Louis. Who do they plan to petition, I don't know. I had heard hints from St. Louis that "The Fourth" had a nuclear option up his sleeve to thwart a deal. Given that the family owns a tiny minority of shares which do not have super-voting privileges, and given the board of directors is up for election in any given year, what could that nuclear option be? It turned out the nuclear option was to buy the remaining 50% of Mexico City's Grupo Modelo (brewer of Corona) that AB does not already own. Such an acquisition would raise AB's price tag $10 billion or so, which would be difficult for InBev to secure financing for in today's tight credit market. The Mexican families which control Modelo have about as good of a relationship with the Busch family as does the InBev management, so a deal isn't likely.

Unfortunately for Anheuser-Busch upper-management, protectionist politicians, and sentimental consumers, $65 / share is a price difficult to refuse. Due to consumer preferences shifting away from macrobrews toward craft brews and imports, spirits, and wine, AB has seen sluggish growth at best. AB's stock price has hovered around $50 for almost a decade. The main reason $65 is difficult to refuse is that there doesn't seem to be an exciting new strategy for growing the business. The most impactful new product of the last five years was Bud Select, a cannibalizing brand which I can't discern in taste from Bud Light. AB secured distribution rights for Monster energy drinks and, ironically, InBev beers in the US - both moves are hardly on the scale needed to significantly boost growth for the nation's leading brewer in an increasingly competitive global marketplace. AB briefly flirted with Brazil in the nineties, only to pull out and never return. AB does own 27% in China's #2 brewer, but margins in China are razor-thin and that asset won't bear significant financial results for a long time. On the other hand, InBev out-maneuvered Anheuser-Busch by dominating Latin America while consolidating a significant chunk of Europe. Soaring food prices (rice, corn, barley and hops) and a weak US dollar combined to create a perfect storm in which InBev is in the position to acquire AB outright, as opposed to the two companies' merger talks of yester-years.

The only rational reason the deal wouldn't happen lies in the cultural differences between the companies. InBev is known as a hyper-effective cost-cutter. They have closed centuries-old breweries in Europe and become a super-efficient holding company that just happens to sell beer. InBev management has been rumored to believe there is a potential $1.4 billion to cut from Anheuser-Busch operations. To the contrary, Anheuser-Busch is a benevolent employer known for generous employee compensation and spending top dollar on marketing initiatives - a contributing factor to its powerful brands. Brand management is Anheuser-Busch's business, core competence and passion. In my first year of employment in Contemporary Marketing, I had a $300 / week expense account for the bars. After a few months, I learned the $300 was more of a minimum than a maximum. One week I spent $1500 and didn't even receive a phone call about it. And every St. Louisan has heard the stories of AB employment perks including free beer, first-class flights, generous pay, tickets to various entertainment, etc. InBev would certainly find cuts, but would these two cultures blend? A private-equity-firm-esque, holding-company mentality and a tradition-rich, patriotic, proud character? The inevitable culture clash presents the only rational reason the two shouldn't join.

It has been reported this week that the world's richest man Warren Buffet, whose Berkshire Hathaway is AB's second-largest shareholder owning 5% of the company, supports a deal. Other large shareholders - the majority of which do not live in the St. Louis area - have been reported to support a deal as well. Aside from political reasons, there is no compelling financial or strategic reason for the deal to not happen. Anheuser-Busch has been almost exclusively focused on US market share in an age of globalization. In my time with the company, every strategic move seemed to be aimed at Miller, Coors, or boosting sales in the mature US market. Meanwhile, I can't order a Budweiser anywhere in South America. (However, I should be able to as soon as Budweiser is in the InBev portfolio.) Without considering how much imaginary value lies in the temporary economic worries of protectionist Americans or sentimentality for an "American company" (regardless how competitive it would not be in the future), the best value for the Anheuser-Busch shareholders and the best opportunity for the Budweiser brand lies in the deal with InBev.

Insightful article by a St. Louis native and financial analyst in favor of a deal:
Sobering Thought: Anheuser-Busch sale makes sense (by David Weidner)

Economics for Managers

I recently got an A on my comprehensive final in BA 5000: Economics for Managers. In an effort to afford a better environment for learning, I am posting my answer to one of four essay questions. Here it is for your benefit in its entirety, verbatim:

Give an example of how opportunity cost is used to solve for comparative advantage. Provide numbers and clearly illustrate the link between opportunity cost and comparative advantage.

Colin (me) and Ryan must achieve the highest level of inebriation as fast as possible. However, we have limited time and resources. Colin can drink five Budweisers per hour or four Red Bull & Vodkas per hour. Ryan can drink four Budweisers per hour or six Red Bull & Vodkas per hour. In the time it takes me to pour one Budweiser into my face, I could have drank 4/5 a RBV. Therefore, my opportunity cost of drinking one Budweiser is 4/5 RBV. In the time it takes Ryan to slam one Budweiser, he could have sucked down 1.5 RBV's. Since I am sacrificing less RBV consumption, my opportunity cost of chugging Budweiser is lower and I have the comparative advantage over Ryan at drinking Budweiser. Comparative advantage is realized when one has a lower opportunity cost at any given action, production, etc. than another. In the time I can kill one RBV, I could have downed 1.25 Budweisers. Ryan's opportunity cost of drinking one RBV is 2/3 Buds, which is lower and he has the comparative advantage at drinking Red Bull & Vodkas. So, in a society of scarcity and limited resources where we must get as drunk as possible as fast as possible, I should swill Budweisers and Ryan should suck down Red Bull Vodkas.

I hope you learned something.