4.2.5 Global Competitiveness

Question 1

Benefits of global competitiveness for MNCs

Answer 1

+ Larger economies of scale from global operations - cost effective
+ Global sourcing of materials - best materials / most cost effective
+ MNCs can diversify risk - reduce dependence on one revenue stream - increase resilience on economic shocks
+ Brand strength - price inelastic demand with better reputation

Question 2

Global competitiveness- exchange rates

Depreciation and impact on business

Answer 2

Depreciation and impact on business
If £ depreciates against other currencies - exports to those countries = cheaper
business can decide to -
- keep prices to other countries the same and enjoy higher profit
- lower prices to other countries + gain market share + more revenue - extra sales
If a business imports while there is a depreciation - imports dearer
If imports are raw materials to make other products in the uk than these products will cost more to make and be dearer
SPICED
strong pound imports cheaper exports dearer

Question 3

Effect of exchange rate depends on

Answer 3

Inflation - depreciation can cause inflation and this will lead to uncertainty
Recession - if weak £ exports lower but recession in country buying goods - demand = low
PED - price inelastic - lower price due to weak pound but won’t affect demand
Raw materials - effect on appreciation or depreciation depends on how many raw materials business buys
Competition - effect of appreciation or depreciation depends on how competitive the market is that the business trades in

Question 4

Product differentiation as a source of competitiveness

Answer 4

Porter
Cost or differentiation advantage
Low cost - same quality as competitors at lower prices (low production costs)

Question 5

Skills shortages

Answer 5

• lack of workers with right qualifications in the industry
• businesses that follow differentiation strategy = more vulnerable to skills shortages as they will require more skilled staff
• skills = key driver of productivity and source of competitive advantage
  however other developed countries are outperforming the UK of measure of skills (especially among younger people) which could threaten our ability to compete internationally

Question 6

What can be done to over come skills shortages by businesses

Answer 6

By business - raise wages
better training
collaboration with other firms in an industry as a whole
offshore activities with skills shortages
offshore to specialist providers providers

Question 7

What can be done to over come skills shortages by government

Answer 7

By government
Invest in vocational education
Provide firms and industries to offer more and better apprenticeships
Encourage inwards migration of overseas citizens with suitable skills
Provide tax and other incentives for firm to invest in training and education

Question 8

Off shoring

Answer 8

Involves relocation of business activities from the home country to a different international location
work done overseas
(outsourcing = someone else does work)
Resourcing - reverse of offshoring - involves repatriation of business activities from overseas back to the home country

Question 9

Benefits of Offshoring

Answer 9

Lower manufacturing costs
Potentially better skilled and higher quality
Makes use of existing capacity overseas
Take advantage of free trade areas

Question 10

Drawbacks of Offshoring

Answer 10

Longer lead times for supply
Implications for corporate social responsibility
Additional management costs
Impact of exchange rates
Communication - language and time zones