4.2.5 Global Competitiveness

• • Global competitiveness is the ability of a business to perform better than its rivals across markets in different countries
•  Exchange rate - the value of one currency in terms of another currency
• Advantages of Appreciation

  If businesses import raw materials & components from abroad - now cheaper.

  Help business reduce costs - increase profit margin.
• Disadvantage of Appreciation

  Business exporting service/good to foreign customers - good will be more expensive for foreign customers.

  May lead to a fall in sales as consumers now shift demand to domestic businesses.
• A depreciation of the exchange rate means the value of the currency decreases against another currency.
• An appreciation of the exchange rate means the value of a currency increases against another currency.
• Advantages of Depreciation

  • Business export abroad - more competitive as products are more cheaper to purchase.
  • In domestic market - less competition from foreign firms as imports more expensive for domestic customers to purchase.
• Disadvantages of Depreciation

  Business importing raw materials from abroad - more expensive.

  Increase in costs which is passed onto customers in the form of higher prices.
• Global competitiveness increases when a firm has a competitive advantage
• Two factors that provide competitive advantage include cost leadership and differentiation.
• Cost leadership is when a business becomes the lowest cost producer in their industry.
• Strategies to achieve cost leadership

  • Increased productivity of workforce.
  • Using machinery/technology efficiently.
  • Outsourcing.
  • Offshoring.
• • Businesses can utilise cost leadership to reduce their prices or keep their prices the same, which results in an increase in profit margins.
• Differentiation occurs when the business makes the characteristics of their products/services different to those of their competitors.
• Methods of differentiation


  Developing a strong brand.

  Better design

  Better quality products/ customer service
• Impact of skill shortage


  Affects ability to gain competitive advantage

  Affects cost leadership - employees without required skills = less efficient & quality.

  Increase cost due to factors like waste.

  Product differentitaion will not happen if employees don't have the skills and expertise to produce highly differentiated products.
• Overcoming skill shortage


  Use outsourcing & off shoring to access skills needed.