4.2.5 - Global Competitiveness

Question 1

Exchange Rates

Answer 1

Exchange rates are defined as the value of one currency in terms of another

Question 2

SPICED

Answer 2

Strong
Pound
Imports
Cheaper
Exports
Dearer

Question 3

WPIDEC

Answer 3

Weak
Pounds
Imports
Dearer
Exports
Cheaper

Question 4

Appreciation and Exports

Answer 4

• If the £pound appreciates, gets stronger against other currencies then UK exports to other countries will be more expensive

• This may mean that the business that exports, out of the UK, has lower sales or may have to reduce their prices in other countries to keep demand levels up

• As the pound appreciates – gets stronger – against other currencies then imports to the UK will be cheaper

• Businesses that sell imports will have lower costs, and therefore may enjoy higher profits

Question 5

Depreciation and Exports

Answer 5

• If the £pound depreciates - gets weaker against other currencies it will make exports to those countries cheaper
• The business can decide to either:
• Keep prices to other countries the same and enjoy the higher profit
• Lower prices to other countries and gain market share and more revenue from extra sales

• If a business imports while there is depreciation it will make those imports dearer
• If the imports are raw materials to make other products in the UK then these products will cost more to make and be more expensive for the consumer which may affect demand, sales revenue and profit

Question 6

What is Competitive Advantage?

Answer 6

A competitive advantage is an advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices.

Question 7

Two methods of achieving Competitive Advantage

Answer 7

1) Low cost leadership
2) Differentiation

Question 8

Low Cost Leadership

Answer 8

• With this strategy a business will seek to produce the same quality products as its competitors at a lower price
• The industries typical of this strategy are standard mass produced items
• Large businesses typically do well as they can benefit from the largest reduction in average costs and EOS
• They may gain cost leadership due to;
• Good resources management
• Efficient production methods
• Waste minimisation

Question 9

Differentiation

Answer 9

• With this strategy a business will produce a unique product or give a unique service
• They may be similar products but each will have some attributes which set it aside from the competition. Kotler suggested;
• Performance
• Style – TGI restaurants
• Design
• Consistency
• Durability
• Reliability – Eveready battery bunny • Reparability
• With a uniqueness the business can charge a premium price to its market segment

Question 10

Skill shortages and their impact on international competitiveness

Answer 10

• The lack of ability to find skilled workers can cause a decline in competitive advantage
• Those businesses that follow a differentiation strategy will suffer the most from skills shortages

Question 11

Skills shortages and competitive advantage

Answer 11

• Not enough talent coming through to take UK businesses into the digital era to make them competitive on a global scale
• Many careers are developing and very fluid due to the fast changing world of IT, telecoms and the Internet
• Skills shortages of critical jobs will cause UK business to lose their competitive advantage