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  3. PEARSON (PEARSON)
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  7. Unit 4 - Global business

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Summary Global Competitiveness
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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

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  • September 28, 2020
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  • 2019/2020
  • Summary

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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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