A Cost Advantage From High Wages?

Many students assume that low wages are a necessary component of a low cost strategy. However, the many of our best examples of cost advantages pay their employers higher wages. In groceries, Aldi comes to mind – they chased Wal-Mart out of Germany because Wal-Mart couldn’t match their prices. Wayne Cascio writes about Costco’s advantage over Sam’s Club. Samsung is another very nice case of this as their low cost advantage is linked to higher productivity obtained from high wage workers. This insulates them for a time from the threat of Chinese competition which relies initially on low wage workers. The only way for them to catch up was to invest in human capital (see the Samsung Electronics case).

Contributed by Aya Chacar

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