4.1.9 International COmpetitiveness

• International competitiveness


  The ability of a nation to compete successfully overseas and sustain improvements in real output and living standards
• Ways countries can compete

  • Price competitiveness
  • Non-price competitiveness (quality of goods/services, rate of innovation)
• Relative unit labour costs


  How much labour costs per unit of output
• Generally, the cheaper the relative unit labour costs, the more competitive the country in manufacturing
• Countries with lower labour costs like China, India and Bangladesh are more competitive in manufacturing
• Higher prices could compete if a niche market is targeted or by using product differentiation
• The more productive a country becomes, the lower its unit labour costs, making it more internationally competitive
• Relative export prices


  The ratio of one country's export prices relative to another country, expressed as an index. The lower the relative export price, the more competitive the country.
• Factors influencing international competitiveness

  • Ability to attract FDI from MNCs
  • Ability to produce or attract entrepreneurs
  • Ability to attract (skilled) labour from abroad
  • Unit labour costs
  • Exchange rate
  • Quantity and quality of skills possessed by a nation's workers
  • Flexibility of labour
  • Economic stability
  • Tax policies
  • Regulation
  • Rate of innovation
  • Interest rates
• The UK government has tried to increase competitiveness by lowering the corporation tax rate from 21% to 20% in 2015
• The UK government has established the 'Red Tape Challenge' to simplify regulation for businesses
• In France, there are excessive employment laws that make it hard for small enterprises to compete
• Rate of innovation


  Calculated by the proportion of GDP invested in new capital. If a country innovates more, they are likely to develop new, more advanced technology that can help them become more competitive.
• Non-price factors such as availability, reliability, quality, design and innovation are more important than price factors
• The UK's low interest rates

  Have encouraged spending, increasing AD and growth, but could be a deterrent for foreign investors
• A depreciation of the pound would result in a lower return on investment for investors, which might reduce demand
• Competitiveness is limited by exchange rates in other countries
• Benefits of being internationally competitive

  • Vital in the light of the global economy
  • Firms can reach out to more consumers
  • Firms can gain economies of scale
• Problems of being internationally competitive

  • Economic importance of education and health spending could be considered
  • Innovation is not always successful and could lead to wasted funds
  • Lower tax rate might mean fewer tax receipts for government
  • Infant industries might find it hard to compete
  • Jobs might be offshored leading to domestic job losses
• As of 2015, the UK is the 9th most competitive country in the world, while Switzerland is the most competitive and Germany is 5th