4.2.5 Global competitiveness Flashcards
How do exchange rates impact global competitiveness?
- if the pound appreciates, against other currencies then UK exports to other countries will be more expensive, imports will be cheaper (SPICED)
- If the pound depreciates against other currencies, then UK exports will be cheaper, imports will be more expensive (WPIDEC)
What happens during a boom in relation to exchange rates?
During a boom, sterling will appreciate since people will be greater confidence and demand for the pound. This will make exports more expensive but imports cheaper for customers possibly creating a current account deficit (where M>X).
What will there be more of during a boom (in terms of economy)?
- more leakages
- less injections and FDI
What does a boom ultimately lead to in terms of international competitiveness?
a net loss as the current account will worsen and there will be fewer injections.
How do exchange rates impact business?
- resource and supply (importing costs)
- prices
- transfer pricing
- strategy for growth (international merger? or new production location)
- greater business confidence leading to investments
- conversion of hot money.
What is hot money?
capital that is stored in institutions depending on the interest rates and transferred elsewhere when beneficial.
Who are the winners of exchange rate change?
- businesses exporting into international markets
- businesses earning substantial profits overseas to repatriate.
Who are the losers of exchange rate change?
- businesses importing goods/services
- overseas businesses trying to compete in the domestic market
How do firms gain a competitive advantage on a global scale?
Product differentiation that is distinct
Cost minimisation
(Poters Generic Strategies)
What is cost advantage?
where a business is able to produce its product at a lower cost than the competition exploiting economies of scale
What is the rationale behind cost leadership(/advantages)?
price competitive
works on consumers that are price elastic
What is differentiation advantage?
where a business is able to differentiate its product from the competition such that consumers perceive greater value (added value)
How to methods of competitive advantage link to global mass and niche?
cost focussing may not be beneficial as no economies in niche markets
differentiation leadership may not be viable as it’s hard to achieve in mass markets
How can businesses add-value?
- USP
- branding (Becomes less price elastic due to loyalty)
- quality
- ethical stance (increasing)
- customer service
- sustained promotional activity
- supplies - traditions and origin
- design mix (function, economic manufacture, aesthetics)
- recruitment and customer service
- distribution channels
- distinctive capabilities (innovation, architecture, reputation)
How do skill shortages impact international competitiveness?
- greater wages equate to increased fixed overheads which may pass the price onto consumers giving rise to inferior goods
- impacts all businesses
- could alter output and productivity lowering quality
- If opting for differentiation focus, a company would be less likely to be able to provide customer service as a USP or reputational distinctive capability.
