Aidan Ferris

a) The UK fell from 9th to 12th place in The Global Competitiveness Index between2007 and 2008. Examine the factors which might have caused a decrease in theInternational 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.

Aidan Ferris

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 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.

Aidan Ferris

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.

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

Aidan Ferris

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

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)