1. Aidan Ferris
a) The UK fell from 9th to 12th place in The Global Competitiveness
Index between
2007 and 2008. Examine the factors which might have caused a
decrease in the
International competitiveness of the UK’s goods and services. (20)
International competitiveness is the ability of a business or a country to
compete effectively in international markets. It is important that a country
manages to stay competitive with other countries and international markets,
as without it, countries will see a decline in the growth of their economies
and, and watch their larger markets struggle to function. (good start –
could link to balance of trade, employment & living standards as
well, ie the economic objectives)
A factor that might have caused a decrease in the international
competitiveness of the UK’s goods and services could be low amounts of
injections into the market. A lack of investment doesn’t allow the market to
improve and grow at the same speed as other competing markets in other
countries.
Another likely factor is low research spending. Low research and development
alters the improvement of the goods and services, and can cause a fall in
customer satisfaction. As the market is less efficient on how they produce due
to lower injection, the consumer may suffer, as prices won’t fall in comparison
to other rivals. Due to this, customers may begin to import their goods from
other countries, causing issues for the countries trade balance.
Another factor for a decrease could be due to out-dated and poor
infrastructure. This factor will mainly affect the services department and the
transportation of goods. Poor infrastructure will directly impact on the
transportation industry within the country, as a lack of roads and rails will see
a decline in the countries efficiency, making them less competitive with other
countries. Also, as the UK focuses on a lot of exports, a decline in their docks
and harbours, including airports could see a large decline in the amount of
goods they export. This therefore means that there is less injection into the
economy, causing it to grow at a slower rate.
If there aren’t enough new skilled workers entering the market, there will
become a point where there will be a shortage of workers, causing the
efficiency of the market to fall, as there aren’t enough workers to meet the
demand. In response to this, quality of goods may fall, as firms may still want
to meet quotas with less amount of workers, meaning goods may be made in
a rush.
Also, another factor would be due to the recession, which occurred in 2008.
This event would’ve caused a large decline in consumer spending, causing an
effect on the goods and services market. As people were more inclined to
2. Aidan Ferris
stay in and save money, this also had an effect on the services market e.g.
public transportation, airlines.
In evaluation, countries all over the world were affected by the global
depression of 2008, so a lot of competing markets were also struggling to
perform along with the UK.
International competitiveness does not necessarily have to do with
price. If firms are inefficient, but still producing an excellent product
compared to other countries/firms, then they will remain
competitive. Ie Some UK clothing manufacturers out-perform cheap
imports from China as consumers are prepared to pay higher prices.
In addition, not all firms in the UK have become uncompetitive.
There are several that remain market leaders in their field.
Pharmaceuticals and Japanese car manufacturers are two
manufacturing examples, whilst the finance sector remains
competitive as well.
b) Evaluate strategies, which may be used by businesses and
governments to improve the competitiveness of a country’s goods
and services. (20)
International competitiveness is the ability of a business or country to
compete effectively in international markets. One strategy that could be used
to improve the competitiveness of a country’s goods and services could be
investment into training and education, where people can learn the skills
required to become more efficient within the industry. If people were to
specialise, they will be repeating the same job on a daily basis, therefore
becoming more productive on how they produce in the same given time
frame.
Another strategy that could be used would be that the government could
lower taxation e.g. corporation tax and VAT, which could allow businesses to
lower their prices to the consumer. With lower prices, this will allow the
country to become more competitive with their rivals.
In order to help business grow within the industry, the government can
promote incentives for investors to invest into the sector. This direct
investment would allow businesses to innovate and improve their produce
through research and development. An improved product will allow the
businesses within the industry to continue competing with other competitors,
as consumers will be attracted to the better product.
In order to further aid businesses, the government could subsidise
departments in need of a cash flow injection to promote the growth of the
company. The subsidy would allow businesses to invest in new machinery and
skilled workers, so that they can become more efficient.
3. Aidan Ferris
By introducing new trade barriers, a country would be able to control what is
coming and going out of their borders, which can benefit the local industries.
If the government were to introduce a quota and tariff on imported goods,
this would stop consumers from within the country from buying the produce,
and instead buy the local goods.
In evaluation, trade barriers would cause conflict between trade partners, as
they would simply retaliate with the same action, if not worse, causing trade
to halt. Also, cutting corporation tax only affects profits and not production
costs, therefore the business may not even lower their production costs for
the consumer, but keeps the money they have saved. Also, unless the
subsidy the governments gives is direct, the business can use the money for
whatever they want, and maybe not use it for useful things e.g. new
machinery.
Other policies a govt could use include:
Any relevant supply side policies including…
Privatisation
Education and training
Investment tax relief
Improvements in infrastructure
Cutting unemployment benefits
Removal of regulations e.g. health and safety,
environmental, employment protection
Encourage immigration.
If appropriate examples are given, you could also discuss:
Devaluation of currency (evaluate using J curve &
Marshall/Lerner)
Increase in trade barriers (diagram required)
Evaluation could include:
Costs to businesses of expenditure on new capital equipment
Costs to government: difficult to finance at time when fiscal
deficit is rising rapidly
Time frame: some measures could take a considerable time to
have an impact
Increased inequality e.g. if unemployment benefits are cut
Danger of increased exploitation of workers and of the
environment if regulations are relaxed
These policies could be offset by other factors e.g.
appreciation of the currency; rising wage costs
4. Aidan Ferris
Measures used by businesses could include:
Research and development resulting in improved designs or
new products
Investment in new technology
Investment in capital equipment
Pricing strategies (e.g. limit pricing)
Improved reliability of products
Better customer service
Off shoring/out sourcing
Evaluation will tend to focus on short term costs issues or loss of
control (off shoring/outsourcing)
