Global competitiveness — Edexcel A-Level Business
Test yourself on Global competitiveness with PEARSON EDEXCEL A-Level practice questions.
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Global competitiveness explained
A currency movement changes the price a foreign customer sees without anything changing in the factory.
Read the full explanation
A strong pound makes imports cheaper and exports dearer, the point behind the SPICED reminder, and a weak pound does the reverse. Treat it as arithmetic: at a rate of 1.30 dollars to the pound a car listed at 20,000 pounds costs an American buyer 26,000 dollars, and if the rate slips to 1.10 the same car costs 22,000 dollars, a discount the exporter never had to fund. Whether that helps depends on price elasticity of demand, because an inelastic luxury gains little extra volume, and on import content, because a weak pound simultaneously raises the bill for foreign components, fuel and dollar denominated debt.
b) Competitive advantage through: cost competitiveness; differentiation
Porter's generic strategies split advantage two ways: win on cost so the business can undercut rivals and still profit, or offer something customers value enough to pay more for. Cost advantage is about cost per unit rather than wage rates, so it is driven by labour productivity, output divided by the number of employees, by capacity utilisation, actual output divided by maximum possible output multiplied by 100 and expressed as a percentage, and by buying power over suppliers; Aldi sells a narrow range at very high volume for precisely this reason. Differentiation rests on brand, design, patents, quality and service, and shows up as demand that is less price elastic. The model is blind to hybrids, since lean producers such as Toyota reached quality and low cost together.
c) Skill shortages and their impact on international competitiveness
A shortage bites in three places. Wages are bid up, so unit labour cost rises even when output per worker is unchanged; vacancies leave equipment idle and lead times long, so orders go elsewhere; and the missing skills are usually the engineering, digital and technical ones behind quality and innovation, which erodes non price competitiveness. The British shortage of heavy goods vehicle drivers in 2021 emptied shelves and pushed haulage rates sharply higher, while the German dual apprenticeship system is the comparison examiners expect. Every response costs money now for a return later: training, which invites poaching unless retention improves, automation, which raises fixed costs, or relocating work to where the skill already exists. Watch labour turnover, leavers divided by average staff multiplied by 100.
Your focus
- a) The impact of movements in exchange rates
- b) Competitive advantage through: cost competitiveness; differentiation
- c) Skill shortages and their impact on international competitiveness
Global competitiveness exam tips
Marking Points
- Convert correctly and show the working: multiply the sterling price by the dollars per pound rate to get the dollar price, and divide to come back the other way.
- State the direction with a reason, that a weaker pound lowers the foreign currency price of exports and raises the sterling cost of imports, then apply it to the named business.
- Bring in price elasticity of demand, since a fall in export price only raises revenue when demand is price elastic, and say which the case product is.
- Balance the two sides of the same movement for a business that both exports and imports, and mention hedging, forward contracts or producing abroad as a natural hedge.
- Define the advantage through cost per unit, not price, and support it with a calculation such as labour productivity or capacity utilisation from the extract.
- Show the payoff of differentiation in the numbers: a higher price per unit, a wider contribution per unit, and demand that holds when rivals discount.
- Name Porter's generic strategies and place the business on them, including the stuck in the middle risk when it neither leads on cost nor stands apart.
- Evaluate sustainability, asking whether a rival can copy the cost base or the feature, and for how long a patent, brand or scale advantage actually protects it.
- Separate the price effect from the volume effect, higher wages raising cost per unit, and unfilled vacancies cutting output, capacity utilisation and delivery reliability.
- Link the shortage to non price competitiveness, since quality, design and after sales service depend on exactly the skills that are missing.
- Quantify with the tools available, labour turnover as leavers divided by the average number employed multiplied by 100, and labour productivity as output per employee.
- Evaluate the responses against each other, training versus automation versus offshoring, weighing cost now against benefit later and the risk that trained staff are poached.
Examiner Tips
- 💡Calculation questions here are short and precise, so label the units, pounds or dollars, at every line of working and quote the rate you used.
- 💡In evaluation, the strongest limiting factor is usually elasticity or hedging, so keep one of them for the conclusion rather than spending it early.
- 💡Expect a short calculation followed by an analyse question, so read the number first and let it become the evidence in the chain rather than a detached answer.
- 💡For the extended question, choose one criterion, usually whether the advantage is defensible over time, and judge consistently against it throughout.
- 💡This is frequently examined alongside motivation theory, so a retention argument using Herzberg motivators or Maslow needs earns application credit here.
- 💡In an evaluation, the decisive factor is usually time, because training and migration policy work over years while an order book is lost in months.
Common Mistakes
- Inverting the rate, dividing by the exchange rate when converting pounds into dollars, which reports a fall in price as a rise.
- Assuming a weak pound is simply good news, ignoring imported raw materials, energy and components that immediately cost more in sterling.
- Treating a short term movement as permanent, when a business with hedging in place or fixed price contracts may feel nothing for a year.
- Equating low wages with low cost, when a country with higher pay but much higher output per worker can have the lower unit labour cost.
- Calling any well known business differentiated without naming the feature customers pay extra for and the evidence in the extract that they do.
- Treating stuck in the middle as a proven law, when hybrid competitors combining lean cost control and quality are the standard counter example.
- Assuming a business can simply raise pay, without following through to the effect on unit costs, on prices and on existing staff who expect the same rise.
- Treating training as a free remedy, when it takes time, reduces output while it happens and is wasted if labour turnover stays high.
- Blaming skill shortages for every problem in the case when the extract points to demand, exchange rates or capacity instead.