4.2.5 Global Competitiveness

Benefits of Global Competitiveness for MNCs

Larger economies of scale from global operations -> cost-competitive
Global sourcing of materials -> Best quality materials/most cost-effective
MNCs can diversify risk -> Reduce dependence on one revenue stream -> Increase resilience to economic shocks
Brand strength -> Price inelastic demand with better reputation and stronger attraction of customers

🔗 Exchange rate – The market value of one economy's currency against another

🔗 Appreciation – A rise in the market value of a country's exchange rate against another currency.

Imports become cheaper -> Lower raw material costs for businesses -> Lower cost per unit -> Able to lower prices whilst maintaining profit margins -> Increased sales volume and revenue -> More globally competitive
Exports more expensive -> Foreign buyers need more of their currency to purchase goods -> Deterrent for value-conscious customers -> Lower sales -> Less globally competitive

🔗 Depreciation – A fall in the market value of a country's exchange rate against another currency.

Exports cheaper -> Cheaper for foreign buyers with their currency -> More attractive to value-conscious customers -> Higher demand for products abroad -> Increased global competitiveness
Imports more expensive -> Higher cost of raw materials for business -> Higher cost per unit -> Upward pressure on price to maintain profit margins -> Less attractive to foreign buyers -> Less globally competitive

Price elasticity of demand – The more elastic PeD is, the more significant the impact.
Economic growth in other countries – Recessions in other countries will mean depreciation in the exchange rate will have no effect
Cause of fluctuation in the exchange rate – Fluctuations from uncertainty could make business uncompetitive due to a lack of consumer confidence in other countries

Offering the same products/services as competitors at a lower cost -> Larger profit margins
Or the business could choose to reduce prices and maintain the same profit margins whilst offering a lower price to customers -> More appealing -> Higher sales revenue overall

Modifying aspects of a product to meet customer demands and differentiate from the competition
Higher quality products with a USP -> Can command a higher price -> Demand is inelastic due to unique product/service -> Profits rise
However, a firm needs protection if it uses differentiation. Examples of protection include:
- Brand recognition -> Increased exposure for the product and loyal customers' trust it meets their demands
- Intellectual property -> Prevents other businesses from copying ideas and therefore allows businesses to differentiate

Access to cheap and/or high skilled labour gives firms a competitive advantage
Cheap labour -> Lower total cost per unit -> Lower prices whilst maintaining profit margins -> Higher sales and increased global competitiveness
High skilled labour -> More efficient and higher quality products -> Lower cost per unit with increased output via HR economies of scale and can now command higher price due to quality -> Increased sales and profit
Skill shortages are detrimental to businesses:
- Due to a lower supply of highly skilled labour, firms may have to pay higher salaries to attract them to work for them which increases the financial burden on the business and cost per unit
- A business may be forced to employ low-skilled labour who are inefficient (wasteful) and less productive. This would cost per unit to rise (D.O.S) and higher prices wouldn't warrant higher sales due to a lack of customer satisfaction