4.2.5 - Global Competitiveness Flashcards
Def global competitiveness
Measures the ability of a business to succeed against both domestic rivals and foreign competitors in international markets
Benefits of competing effectively on a global scale
- dominating their domestic markets with minimal penetration from imports
- easy of entry and strong competitiveness in foreign markets due to global brand recognition
2 ways MNC can secure a competitive advantage
- minimising costs
- differentiation
Main factors affecting competitiveness
Price and quality of domestic goods and services to be relative to foreign products
Contexts of competitiveness of global firms (3)
- companies which report on export markets
- companies who domestic market is subject to competition from imports
- companies which need to import significant quantities of raw materials
3 factors that influence the relative price of imports and exports
- relative costs of production
- relative productivity of labour
- exchange rates impact on the price of imports and exports
Def exchange rates
Is the price of one currency expressed in terms of another currency
What happens when the pound appreciates against other currencies
The UK exports to other countries will be more expensive
What happens when the pound depreciates
Then UK exports will be less expensive
When companies rely of export markets, what happens when the pound falls
Products will seem cheaper in foreign markets, boosting export sales
When companies whose domestic market is subject to competition from imports pound falls what will happen
Imported products will become more expensive, increasing competitiveness of domestic producers in their home markets
What will happen when companies which need to import significant quantities of raw materials pound falls
Imported materials will cost more, pushing production costs unless the same materials can be sourced at home
Three key strategies to achieving cost leadership
Reasoning productivity, outsourcing and offshoring
How do businesses gain productivity
Increasing efficient use of resources such as Human Resources and tangible non-current assets
Def outsourcing
Means contracting another business to perform a business function on your behalf. Frequently production performed in a lower cost country
Def offshoring
Means moving one of more business functions to a foreign country, usually to take advantage of lower labour costs
Why does outsourcing give a competitive advantage
Reduces running costs, so can free up capital and space to invest further into processes that you can do cheaper than anyone else
How does offshoring give competitive advantage
Transferring businesses successful methods abroad due to high unit costs
Who suggests differentiation can give a competitive advantage
Porters three generic strategies
How does porter say differentiation can be achieved
- distinctive design
- branding
- performance
So that customer perceive greater advantage
Def skill shortage
When there is a lack of skilled workers in the industry
How do businesses find themselves a skill shortage
Companies rail to plan for future workforce needs to fail to train workforce
How do businesses overcome shortage of staff usually
Poach them from other businesses with higher salary, lower profit margin, increasing prices, reducing competitiveness
Why is skills shortage bad
Demand for highly skilled workers outstripping supply, imbalance in global economy, replaced by machinery, increases labour costs, reduced creative output
What happens when there are national skill shortages
Businesses may need to consider outsourcing abroad and relocating to where skills are more readily available
