Global Competitiveness (Edexcel A Level Business)
Revision Note
Written by: Jennifer Aryiku
Reviewed by: Steve Vorster
Exchange Rate Fluctuations
Global competitiveness is the ability of a business to perform better than its rivals across markets in different countries
Fluctuations in exchange rates can influence the competitiveness of business
An exchange rate is the value of one currency in terms of another currency
Currency appreciation and depreciation have different impacts on a business
Currency appreciation
An appreciation of the exchange rate means the value of a currency increases against another currency
E.g. if £1= $1.60 and then increases to £1 = $1.80, the value of the £ has appreciated against the US$
The Impact of Currency Appreciation on Global Competitiveness
Advantages of an Appreciation | Disadvantages of an Appreciation |
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Currency depreciation
A depreciation of the exchange rate means the value of the currency decreases against another currency
E.g. If £1 = $1.60 and then falls to £1 = $1.20, the value of the £ has depreciated against the US$
The Impact of a Currency Depreciation on Global Competitiveness
Advantages of Depreciation | Disadvantages of Depreciation |
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Examiner Tips and Tricks
Paper 1 and Paper 3 frequently question you on the impact of exchange rate changes on a business. The information may be presented as a) a written extract or b) a table or graph showing the fluctuations in the exchange rate. It is important to be able to explain whether an appreciation or depreciation has occurred
Acronyms to help explain the impact of exchange rate changes include:
S.P.I.C.E.D - Strong Pound Imports Cheaper Exports Dearer (dearer means more expensive)
W.P.I.D.E.C - Weak Pound Imports Dearer Exports Cheaper
You can use the ‘pound’ interchangeably with any other currency used in the exam
Competitive Advantage
Global competitiveness increases when a firm has a competitive advantage
Two factors that provide competitive advantage include cost leadership and differentiation
Cost Leadership and Differentiation
Cost Leadership | Differentiation |
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The Impact of Skills Shortages
If a business is unable to find the labour with the required skills, it will affect their ability to gain a competitive advantage
Cost leadership could be difficult to achieve if the workers lack skills, as they may not be as productive
This could increase unit costs due to factors such as waste
Product differentiation is less likely to occur where workers lack the skills and expertise to produce highly differentiated products
In order to overcome these issues, a business can use outsourcing and offshoring to access the skills needed for their business
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