4.2.5 Global Competitiveness Flashcards

1
Q

What is global competitiveness?

A
  • The ability of a business to perform better than its rivals across markets in different countries

Fluctuations in exchange rates can influence the competitiveness of business

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2
Q

What is an exchange rate?

A
  • The value of one currency in terms of another currency
    Currency appreciation & depreciation have different impacts on a business
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3
Q

What is currency appreciation?

A
  • An appreciation of the exchange rate means the value of a currency increases against another currency

E.g. if £1= $1.60 & then increases to £1 = $1.80, the value of the £ has appreciated against the US$

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4
Q

What are the advantages & disadvantages of currency appreciation on global competitiveness?

A

Advantages:
- If businesses import raw materials & components from abroad, they will now be cheaper

This will help the business to reduce their costs & possibly increase their profit margin

Disadvantages:
- If businesses exports goods/services to foreign consumers, the goods will be more expensive for international customers
May lead to a fall in sales as consumers now shift demand to domestic businesses

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5
Q

What is currency depreciation?

A
  • A depreciation of the exchange rate means the value of the currency decreases against another currency

E.g. If £1 = $1.60 & then falls to £1 = $1.20, the value of the £ has depreciated against the US$

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6
Q

What are the advantages & disadvantages of currency depreciation on global competitiveness?

A

Advantages:
- If businesses export goods/services abroad, they become more competitive because their products are cheaper to purchase
- In the domestic market, there may be less competition from foreign firms as imports are now more expensive for domestic consumers to purchase

Disadvantages:
- If a business imports raw materials or components from abroad, they are now more expensive
This leads to an increase in costs for a business, which could then be passed onto consumers in the form of higher prices

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7
Q

What are the two acronyms used to help explain the impact of exchange rates?

A

S.P.I.C.E.D:
- Strong Pound Imports Cheaper Exports Dearer (dearer means more expensive)

W.P.I.D.E.C:
- Weak Pound Imports Dearer Exports Cheaper

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8
Q

How can global competitiveness increase?

A
  • When a firm has a competitive advantage
  • Two factors that provide competitive advantage include cost leadership & differentiation
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9
Q

What is cost leadership and differentiation?

A

Cost Leadership:
- When a business becomes the lowest cost producer in their industry
Cost leadership can be achieved using strategies such as:
- Increasing productivity of their workforce
- Using machinery & technology efficiently
- Outsourcing
- Offshoring

Businesses can utilise this position as a cost leader to reduce their prices or keep their prices the same, which results in an increase in profit margins

Differentiation:
- Occurs when business makes the characteristics of their products/services different to those of their competitors

Methods of differentiation include developing a strong brand, better design, better quality & customer service

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10
Q

What is the impact of skills shortages?

A
  • If a business is unable to find the labour w the required skills, it will affect their ability to gain a competitive advantage
  • Cost leadership could be difficult to achieve if workers lack skills, as they may not be as productive
  • This could increase unit costs due to factors such as waste
  • Product differentiation is less likely to occur where workers lack the skills & expertise to produce highly differentiated products
    In order to overcome these issues, a business can use outsourcing & offshoring to access the skills needed for their business
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