Explains how multinational corporations are able to be more competitive, competitive advantage, Porter's Generic Strategy, and movements in exchange rate and how this affects competitive advantage
Theme 4 Topic 6
Global Competitiveness
Competitiveness – the ability to successfully sell your product in comparison with rival offerings
Multinational corporations (MNCs) may be able to be more competitive due to:
Economies of scale
Gaining access to cheaper and better resources by global sourcing of products
Tapping into better knowledge and innovation by carefully choosing the location of their R&D
headquarters
Competitive Advantage – the advantages a business has over its rivals
Porter’s Generic Strategies model sets out the ways a firm can hope to achieve competitive advantage. This
can be summarised into two options:
Cost Competitiveness Differentiation
Cost Leadership – trying to be the lowest Differentiation – offering something different and unique
cost provider compared to rivals
This enables the firm to charge This enables higher prices to be charged through
very low prices adding value
E.g. Easyjet cuts its costs by E.g. despite the huge breweries formed through
eliminating tickets, check-ins and global mergers, smaller craft breweries are able to
meals on flights compete by offering more unique beers to serve local
E.g. Pure Gym use technology to markets
allow customers to enter 24/7 Large firms can also differentiate e.g. iPhone offers
with little need for staffing fingerprint recognition for security
Cost Competitiveness – enabling a firm to compete by minimising the production costs e.g. labour
Differentiation – competing by offering a unique feature compared to rival firms
Brand Identity – a sign, symbol or logo which makes a product or service stand out from rivals in the eyes of
the consumer
Localisation – the ability to tailor products or services to local cultures and tastes
Movements in Exchange Rates and How Can This Affect Competitive Advantage?
Exchange Rate – the price of one currency expressed in terms of another
Strong Pound Imports Cheaper Exports Dearer
Effect on Exporting:
A weaker currency can make goods cheaper if selling them overseas
An appreciating currency can have the opposite effect, making exporting goods more expensive so is
bad for exporters
The impact depends on how price elastic demand is e.g. a price inelastic exporter would see little
impact on demand if the exchange rate altered
Effect on Importing:
If the pound depreciates, imports become more expensive. This could mean prices have to increase,
making the business less competitive
However, if all businesses in a market have to increase their prices due to a differing exchange rate,
the impact is less threatening
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