A2 External Influences

International Competitiveness and economic growth

Objectives

By the end of the lesson all students should understand:

• International competitiveness and economic growth

• How productivity relates to international competitiveness

• International competitiveness and the UK

• How the UK may continue economic growth into the future

A2 External Influences

International Competitiveness

A2 International Competitiveness

• Tasks: (all tasks must be completed in the lesson)

1. Read the information sheet provided and highlight

2. Answer the following questions:

• What is the world trade organisation and what is its purpose?

• How might a fall in exchange rates influence a firms international competitiveness?

• How might a low inflation rate in the UK compared with other countries influence a UK firms international competitiveness?

3. Complete the Clarks case study on Page 366-367 – photocopy provided in lesson

Answers• What is the world trade organisation and what is its

purpose?

• A group of over 100 countries that are committed to the encouragement of free and fair international trade through the elimination of barriers.

Answers• How might a fall in exchange rates influence a

firms international competitiveness?

• A strong pound e.g. £1=$2 means exports in the US from the UK are cheaper and more competitive. Imports from US to the UK are more expensive and less competitive.

• And vice versa for a weak pound e.g. £1=$1.2

£1 = $2

£1 = $1.5

A Rise in Exchange Rates

UK US

$75

$75Average TV price in the US market

£50

$100

£1 = $1

£1 = $1.5

A Fall in Exchange Rates

UK US

$75

$75Average TV price in the US market

£50

$50

Answers• How might a low inflation rate in the UK compared

with other countries influence a UK firms international competitiveness?

• If UK prices are rising slower than in other countries because of low inflation exports will be cheaper and more competitive.

• High inflation in UK compared with other countries = faster rising prices of exports, therefore less competitive

A2 External Influences

Economic growth

Economic Growth

• An increase in the level of economic activity or real gross domestic product (GDP)

Effects of economic growth on business

• Growth provides ideal conditions for firms.

• Firms can expand and take advantage of new opportunities.

• Incomes rise.

• Less risk of new venture failure.

• Provides security for firms.

• Businesses have more confidence in business planning.

Activity: Read the information sheet

ActivityWhat is the impact of economic growth on the following

areas complete the table at the bottom of the worksheet:

• Sales• Profit• Investment• Employment• Business expansion plans• Businesses strategy for new products• Businesses ability to reposition themselves in the market• The environment

Answers

• Sales – incomes = demand/sales for elastic goods e.g. non-food, DVDs etc. Inferior goods may see a fall in sales.

• Profits - as sales , may allow price increase

• Investment – Firms invest in expansion as demand rises

Answers

• Employment – production = more jobs, or existing workers work harder. Labour market may ‘tighten’ and there may be insufficient skilled workers available.

• Business Expansion – More easily achieved without taking rivals market share, may result in diseconomies of scale such as communication and organisation structure problems.

• Businesses new products – consumer buying more so more opportunities to introduce newer products and extend product ranges.

Answers

• Businesses ability to reposition themselves in the market – During economic prosperity easier to try new opportunities.

• The environment – negative externalities may occur e.g. congestion, pollution. Therefore regulation is needed.

Professor Michael Porter Video Questions

Answer the following questions based on the video about Michael Porter’s analysis of productivity, international competitiveness, economic growth and the UK: (Write down your answers)

• What is productivity?

• What is the productivity gap?

• Why is the UK less internationally competitive than its rivals?

• How can the UK improve its international competitiveness?

Video Answers

• Productivity – the efficiency of firms at converting their inputs into outputs

• Productivity gap – difference between the UK’s lower rate of productivity when compared with foreign rivals such as the US

Answers

Reasons for lower international competitiveness:

• Lower productivity

• Less investment in training and capital investment (technology)

• Lower skilled middle management

• Low investment in research and development and less innovation

• Strong £ making exports more expensive abroad and foreign imports cheaper

AnswersWays to improve international

competitiveness and continue economic growth:

• Investment in:• Training• Technology• Research and development to encourage

innovation

Training

Modern equipment and technology

Productivity Gap

Produces 6 units per hour

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Produces 2 units per hour

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Motivation

Management style