Global competitiveness (4.2.5)

Question 1

What does Global Competitiveness mean?

Answer 1

It’s the ability of a business to perform better than it’s rivals across markets in different countries.

Question 2

What factor can influence the competitiveness of a business?

Answer 2

Fluctuations in exchange rates can influence the competitiveness of business

Question 3

What is an exchange rate?

Answer 3

An exchange rate is the value of one currency in terms of another currency

Question 4

What is a Currency Appreciation? E.g.?

Answer 4

Appreciation of the exchange rate means the value of a currency increases against another currency.
E.g. if £1= $1.60 and then increases to £1 = $1.80, the value of the £ has appreciated against the US$

Question 5

What are the advantages of Currency Appreciation on Global Competitiveness?

Answer 5

-If businesses import raw materials and components from abroad they will now be cheaper which will increase a businesses profit margin as reduced costs for business

Question 6

What are the disadvantages of Currency Appreciation on Global Competitiveness?

Answer 6

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

Question 7

What is a Currency Depreciation? E.g.?

Answer 7

Depreciation of the exchange rate means the value of the currency decreases against another currency. E.g. If £1 = $1.60 and then falls to £1 = $1.20, the value of the £ has depreciated against the US$

Question 8

What are the advantages of Currency Depreciation on Global Competitiveness?

Answer 8

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

Question 9

What are the disadvantages of Currency Depreciation on Global Competitiveness?

Answer 9

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

Question 10

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

Answer 10

SPICED- Strong Pound Imports Cheaper Exports Dearer (more expensive)
WIDEC- Weak Pound Imports Dearer Exports Cheaper

Question 11

When does Global Competitiveness increase? When a firm has a what?

Answer 11

A competitive advantage

Question 12

What are two factors that provide a competitive advantage?

Answer 12

Cost Leadership and Differentiation

Question 13

What does Cost Leadership mean?

Answer 13

When a business becomes the lowest cost producer in their industry

Question 14

How can Cost Leadership be achieved?

Answer 14

-Increasing productivity of workforce
-Using Machinery and technology efficiently
-Outsourcing
-Offshoring

Question 15

What can businesses do to their advantage when they are the lowest cost producer in their industry?

Answer 15

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

Question 16

What is Differentiation?

Answer 16

Occurs when the business makes the characteristics of their product/services different to those of their competitors

Question 17

What are some methods of differentiation?

Answer 17

-Developing a strong brand
-Better design
-Better quality and customer service

Question 18

What is the impact of a skills shortage?

Answer 18

This will affect a businesses ability to gain a competitive advantage. Cost leadership and Product differentiation could be difficult to achieve if workers lack skills and so aren’t as productive and lack the skills to produce differentiated products

Question 19

How can a business overcome these issues of a skills shortage?

Answer 19

Outsourcing and Offshoring to access the skills needed for their business