global competitiveness

Question 1

APPRECIATION exchange rates

Answer 1

• negative for exporters = prices rise for their goods = business may need to lower prices but may lose revenue
• good for those that import raw materials = cheaper costs = more profit
• problem = rise of foreign competition as they appear cheaper when bought from overseas

Question 2

DEPRECIATION exchange rates

Answer 2

• positive for exporters = prices appear cheaper so increase in demand = maintain prices to see increased revenue
• bad for those that import raw materials = higher cost per unit = passed onto customers or do they accept lower profits
• foreign competition declines as they appear more expensive

Question 3

effect on exchange rate depends on:

Answer 3

• Inflation; high UK inflation reduces the positives of a stronger £
• Recession; reduces impact of changes as demand for things are low regardless of the rate
• PED; If goods are price inelastic then the price change won’t effect demand
• Raw materials; effect of appreciation or depreciation depends on how many raw materials the business buys
• Competition; effect of appreciation or depreciation depends on how competitive the market is that the business trades in
• Fixed contracts for currency – pre determined and don’t change with fluctuations

Question 4

skill shortages

Answer 4

• A skills shortage is when there is a lack of workers with the right qualifications in the industry
• Businesses which follow a differentiation strategy are more vulnerable to skills shortages as they will require more skilled staff ;Design, innovating, product development
• This can lead to outsourcing/offshoring or recruiting from abroad
• Requires investment by businesses and governments

Question 5

competitive advantage: differentiation

Answer 5

• With this strategy, a business will produce a unique product or give a unique service
• With a uniqueness, the business can charge a premium price to its market segment
• Vital if the core product is essentially the same – create uniqueness in other ways

Question 6

competitive advantage: cost competitiveness

Answer 6

• Porter’s Strategic Matrix – competitiveness from being either a lowest cost operator or having high differentiation, in a mass or niche market
• Cost leadership = being the lowest cost operator in the market
• Efficient (lean) production - e.g. Ryanair have faster plane turnaround times
• High capacity utilisation
• Highly trained employees
• Waste minimisation
• JIT stock control
• Outsourcing – 3rd party ownership
• Offshoring – moving activities to another place
• Vertical integration