Global Competitiveness

Question 1

What are they two ways businesses can get a competitive advantage

Answer 1

• Reducing costs

- Differentiation

Question 2

What is cost competitiveness

Answer 2

When a business has relatively low costs compared to competitors, which allows it to charge lower prices

Question 3

Advantage of cost leadership

Answer 3

• Low costs mean can charge lower prices, therefore attract customers to increase market share.

Question 4

Difference between cost competitiveness and cost leadership

Answer 4

• Cost competitiveness= Low costs compared to competitors

- Cost leadership= When a firm has lowest production costs compared to its competitors, making similar quality products

Question 5

Businesses with low quality products aim for cost competitiveness or cost leadership

Answer 5

Businesses that make low quality products aim for cost competitiveness.

They can reduce costs by buying low quality raw materials.

E.g. Primark have low quality clothes and is cost competitive, allowing it to charge lower prices than competitors

Question 6

What’s differentiation

Answer 6

When a product is seen to have unique features that are not possessed by its competitors

Question 7

Advantage of differentiation

Answer 7

• Charge higher prices, effective for price inelastic products
• Used to attract customers

Question 8

Disadvantage of differentiation

Answer 8

• Another firm can copy a business’s USP, unless there’s a barrier to entry. For example, a strong brand name

Question 9

How can cost competitiveness be achieved

Answer 9

• Lowering production costs. Could be done by offshoring production

Question 10

How can differentiation be achieved

Answer 10

• Could outsource, work to specialist producers to keep quality of products high.

Question 11

Some industries in certain countries don’t have enough skilled workers to make their products ……..

Answer 11

This can reduce competitiveness of a firm by increasing costs of production as a firm would have to offer higher wages to attract them

E.g. Firms that lacks staff have to offer higher wages to attract people with skills and knowledge. Increasing costs, making a firm less competitive than one based in a country with more skilled labour

Question 12

Result of a firm being forced to use less skilled staff

Answer 12

Leads to inefficiency (wasteful) and less productive. Would cause cost per unit to rise (diseconomies of scale) and higher prices wouldn’t warrant higher sales due to a lack of customer satisfaction

Question 13

Disadvantage of training unskilled staff

Answer 13

• High costs in short-term.

- Risk the firms investment will be lost if staff members leave

Question 14

What’s the result of having a skill shortage in a whole country

How do country’s and businesses try and stop this

Answer 14

Make it less internationally competitive.

To stop this from happening, some countries and businesses offer incentives to attract skilled workers such as higher wages

Question 15

What do businesses that rely on product differentiation need

What happens if they don’t posses this

Answer 15

• High levels of skills and expertise to make unique products, therefore these firms will be more affected if there’s any skill shortage.
• If they cant recruit workers with right skills, they may not be able to meet customer demand

Question 16

What’s a way to get round having a skill shortage in the country

Answer 16

A business can use outsourcing and offshoring

Question 17

How do exchange rates affect global competition

When the pound appreciates

Answer 17

• If the pound appreciates against the euro, UK exports will become dearer making them less competitive on global market
• Imports into the UK will be cheaper when pound appreciates, so UK businesses that buy raw materials from overseas will have lower costs, therefore more competitive in the UK market
• However, a foreign competitor that exports completed products into the UK may also have lower prices, making it more competitive than UK firms

Question 18

How do exchange rates affect global competition

When the pound depreciates

Answer 18

• When the pound depreciates, UK exports become cheaper which will make them more competitive on global market
• Imports into UK will become dearer, so a UK business that imports raw materials will have higher costs, making it less competitive in UK market
• A foreign firm that exports its products into the UK, will also have higher prices when currency depreciates, making it less competitive than UK firms