4.2.5 Global competitiveness Flashcards
exchange rate
price of 1 currency expressed in terms of another currency
appreciation
if pound appreciates (gets stronger) against other currencies
UK exports to other countries = expensive/dearer
depreciation
depreciates = exports cheaper
= sell increased exports, revenue from overseas,
imports more expensive = buy less
exports > imports
government objectives
1high growth 2low stable inflation 3low unemployment 4strong and stable exchange rates 5balance of payments surplus exports greater than imports
SPICED
strong pound imports cheap exports dear
WPIDEC
Weak pound imports dear exports cheap
how does exchange rate affect business
- price exports in international mkt
- cost of goods bought from overseas
- revenue/profits from overseas (repatriating)
- converting cash receipts from customers overseas
(cost of imports and barriers to entry)
winners of a weaker exchange rate
businesses exporting into international market (recession currencies depreciate)
businesses earning substantial profits in overseas currencies
losers of weaker exchange rates
businesses importing goods and services (increase costs/affect competitiveness)
overseas business trying to compete in domestic market) = price less competitive
extent to which a business is impacted by exchange rate changes depends on:
- amount of imports bus relies on (weaker/depreciate ER)
- volume of exports bus relies on (depreciation)
- how many other countries you are generating income from (repatriating)
- no of available substitutes
- value of product (western status) = branding positive = little effect
- product price elastic
- YED = product necessity = less/no impact as still needed – proportion of income that something is in budget large quantity = price increase affect demand)
- whether domestic business face strong comp from overseas firms in mkt
2 main ways a MNC can secure a competitive adv:
- minimise costs (cost min EOS) (cost leadership)
-vcpu = sppu = competitive
(cost adv) - differentiation
-unique from comp
-USP/added value
-inflate consumer opinions of you = premium price = profitability
(differentiation adv)
types of markets
1. monopoly 2 duopoly few. digopoly monopolistic = many firms = degree of loyalty many. perfect competition
Porter’s Generic Strategies/ Porter’s Strategic Matrix (source of competitive advantage)
costs:
broad: cost leadership
narrow: cost focus
differentiation:
broad: differentiation leadership
narrow: differentiation focus
curve:
above = focus diff or cost leadership (above line = optimum)
below = stuck in middle
leadership
broad (mass)
focus
narrow (niche)
cost leadership
common and viable
large target market = allow to compete and decrease costs and price
differentiation leadership
common
stand out
cost focus
not viable
not high enough sales volume for low costs
no EOS
differentiation focus
niche marketing
issues surrounding being “stuck in the middle” of Porter’s strategies
combination of more than 1
trade off between costs and differentiation
guaranteed low profit (losing proposition)
recipe for strategic mediocrity and low performance = pursuing all means bus is unable to achieve any due to inherent contradictions
how can differentiation be achieved?
- superior product quality (features/ benefits)
- branding (customer recognition)
- wide distribution(across major channels)
- sustained promotion (advertise/sponsor)
- customer service
- ethical stance (CSR, mission statement, social enterprise)
- USP
- R&D
- product development
skills shortage
not enough specific “talent” in a particular field of employment
volume of workers “ability” is limited
“shortage” supply of labour
forces wages to increase
costs increase = decrease profits
prices increase = decrease sales = competition
common reason business off shores (labour cheaper overseas)
more likely to affect businesses who follow differentiation strategy staff skills = key for differentiation
skills shortage definition & examples
when there is a lack of workers with the right qualifications in the industry
-HGV drivers, NHS workers, Bricklayers
how can businesses overcome skills shortages?
- raise wages
- offer training (on and off the job)
- offshore to find supply of labour
- joint ventures, global merger (horizontal integration = collaborate with other firms)
- use capital intensive where possible
- headhunt
- fringe benefits
- outsource to specialist providers
governments overcome skills shortages by ??
- invest in training (provide tax and incentives invest training/education)
= new courses = fund programmes = subsidise training - migration policy (suitable skills)
- raise wages in the public sector (inward migration)
- pension schemes
- make professions inclusive (promotion)
- national curriculum changes
- invest in vocational education
- make sure offer more/better apprenticeships
how does skill shortages impact global competitiveness
increased costs(associated) = increased prices = decrease competitors/competitive dependent on PED, stance, diff leadership
how does exchange rate affect business
prices can change due to ER - elasticity or substitutes
profits returned to domestic country (repatriating)
cost of raw materials (imports)
profit margins change
barriers to entry fluctuate
converting cash receipts from customers overseas
repatriating
sending money back to own country
