Theme 4 - 4.2.5 - Global Competitiveness

Question 1

What are exchange rates ?

Answer 1

They are defined as the value of one currency in terms of another

Question 2

What is Spiced ?

Answer 2

Strong
Pound
Imports
Cheaper
Exports
Dearer

Question 3

What happens for exports if the pound appreciates ?

Answer 3

If the pound appreciates, gets bigger against other currencies - then UK exports to other countries will be more expensive

This is because if the pound goes up for example 1GBP = 1 euro and then it goes to 1GBP = 2 euro then if you want to keep the same amount of profit so 1GB and you sell your product for 1 euro then you would have to increase your price to 2 euro so that you still get 1 GBP or you will suffer a loss

Overall if pound strong - exports become more expensive so that means that the business would have lower sales or would have to reduce their prices to keep their demand levels up

Question 4

Why might the pound depreciating - becoming a weak pound - be a good time for a business to try exports ?

Answer 4

This is because if your goal is to sell abroad - to expand into new markets - and if you want to for example make one pound of profit each time you sell a product and your exchange rates are 1GBP = 1.20 euro then your prices in abroad would have to be 1.20 euro so that you can transfer this into 1GBP.

So if the pound goes up in price for example to 1GBP = 1.40 euro then the business would have to charge the customers more to get the same 1GBP profit

So if the pound becomes weaker then that means you can be more price competitive as your price would be smaller and this could boost sales - or you could even just keep your price the same so that you get more profit

So if a business has never exported - then the pound depreciating might be a good indication to try and start

Question 5

What happens to imports if the pound appreciates - becomes strong ?

Answer 5

The imports become cheaper as you can now buy more products for less - so if you are buying raw materials such as flour for cookie business and 1GBP = 1.50 euro - so you all ways buy 1.50 euro worth of flower but then the pound gets stronger so then 1GBP = 2 euro
So now you can buy 2euro worth of flower with only 1 GBP

So therefore they would have more raw materials and can make more cookies and so the business could have lower prices so more demand or you can charge the same price or you can have higher profits

Question 6

If the pound depreciates then what happens to imports ?

Question 7

If the pound depreciates then what happens to imports ?

Answer 7

If the pound depreciates then imports will be dearer - meaning that you will get less for the same amount of money - as if you buy flour for 1 GBP and 1GBP=1.50euro then you will get 1.50euro worth flower but if the pound depreciates to 1GBP=1.30 euro then for the same pound you will get less amount of flower as you only get 1.30 euro worth of flower

So if the imports are raw materials then the products will be more expensive to make and therefore you might have to up the prices and this might ruin demand - however this depends on price elasticity OR you could keep the same price but operate at a loss or at a reduced profit

Question 8

What is competitive advantage ?

Answer 8

“A competitive advantage is an advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices.”

So like lower prices than competitors or a USP or a promotion like 2for1

Question 9

What are the 2 ways to achieve competitive advantage?

Answer 9

• Low cost leadership
• differentiation

Question 10

What is low cost leadership ?

Answer 10

With this strategy a business will seek to produce the same quality products as its competitors at a lower price

The industries typical of this strategy are standard mass produced items

Large businesses typically do well as they can benefit from the largest reduction in average costs and EOS

They may gain cost leadership due to;
• Good resources management
• Efficient production methods
• Waste minimisation

Question 11

What is differentiation ?

Answer 11

With this strategy a business will produce a unique product or give a unique service

They may be similar products but each will have some attributes which set it aside from the competition. Kotler suggested:
• Performance
• Style – TGI restaurants
• Design
• Consistency
• Durability
• Reliability – Eveready battery bunny
• Reparability

With a uniqueness the business can charge a more premium price to its market segment

Question 12

How do skill shortages impact international competitiveness and what business strategy will it most effect ?

Answer 12

• The lack of ability to find skilled workers can cause a decline in competitive advantage

• Those businesses that follow a differentiation strategy will suffer the most from skills
shortages - this is because you would usually need skilled workers to add certain value to your product by differentitation

• Not enough talent coming through to take UK businesses into the digital era to make them
competitive on a global scale

• Many careers are developing and very fluid due to the fast changing world of IT, telecoms
and the Internet

• Skills shortages of critical jobs will cause UK business to lose their competitive advantage