Global Competitiveness - Competitive advantage 4.2.5

Global competitiveness - is the ability of a business, usually a MNC, to perform better than its rivals across markets in different countries. This can be achieved through performance on price and quality or customers' perception of these factors. 

Competitive advantage - is an advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices.  

Cost competitiveness - the differences in unit costs between competitors.

Outsourcing - A practice used by companies to reduce costs by transferring portions of work to outside suppliers rather than completing it internally. Outsourcing is an effective cost-saving strategy when used properly.

Offshoring - When a company moves various operations to another country for reasons such as lower labour costs or more favourable economic conditions in that other country.

This topic is split into two;

1. Competitive advantage through cost competitiveness
2. Competitive advantage through differentiation

COMPETITIVE ADVANTAGE THROUGH COST COMPETITIVENESS

Cost competitiveness can be achieved through 4 ways;

1. Cost leadership
2. Outsourcing
3. Offshoring
4. Economies of scale

Michael Porter, Porter's Strategic Matrix, suggests that businesses can gain a competitive advantage through having the lowest cost.

The key to a competitive advantage is to ensure unit costs are lower than those of competitors, achieveing cost leadership. With this strategy, the objective is to become the lowest-cost producer in the industry.

Cost leadership can be achieved in a number of ways;

• High productivity workforce
• High capacity utilisation
• Lean and efficient distribution
• Lean production
• Innovative technology

For Germany, which has productivity rates about 30% higher than in the UK, the secret has been heavy investment in training and new technology.

Outsourcing  is another method of gaining cost competitiveness, at least in the short term. By giving the work to specialist (or low-wage) suppliers, the business can gain lower unit costs and a competitive advantage. Companies such as Sports Direct outsource warehouse work to agencies that employ staff on minimum-wage, "zero-hours" contracts. The key reasons for this is cost minimisation as the production process can be undertaken at a reduced costs in comparison to the domestic economy. Closeness to market will reduce transport costs for businesses and might allow for easier access to consumers, particularly if operating in the country being targeted e.g. Jaguar Land Rover have set up production in China. As well as this they will take advanatge of economies of scale from operating in larger international markets and having access to more specialised suppliers and services. 

However, offshoring includes the fact that public and employee relations may suffer due to moving jobs abroad, higher costs such as training, poor customer services and risks to legal protection for key business information such as patents and brands.  

Offshoring is another method of gaining cost competitiveness, the main difference being that the business keeps full control of the function it is basing overseas. This is often done to take advantage of another business's specialised skills, which will help them to improve their quality, cost effectiveness and worker flexibility. For example, Apple outsources the production of its iPhone to Foxconn in China. 

Advantages of outsourcing are similar to those of offshoring and also include the business being able to focus on its own core areas, and savings on spending on new production facilities. 

Disadvantages of outsourcing are also similar to those of offshoring but also include a potential loss of customer service and brand recognition as outsourcing businesses may work for many other different customers.  

Economies of scale is the last method of achieveing cost competitiveness. 

• Purchasing economies of scale, where global businesses can buy supply in bulk means that they are able to obtain massive discounts and lowering unit costs. 
• Technical economies of scale allow them to lower unit costs by investing heavily in the best machinery making it quicker to produce better quality mass market goods at a lower price.
• Marketing economies of scale allow them to have global brand awareness reducing the cost of having to do different branding in each country.

As a result global businesses will have significant competitiveness from being low cost organisations.

COMPETITIVE ADVANTAGE THROUGH DIFFERENTIATION

This can be achieved in a number of ways;

• Establishing a strong brand images for a good or service
• Making the USP of a good/service clear
• Better design or innovation

With high competition in most markets, global businesses will try to differentiate themselves from the competition in order to sell. Global businesses have the ability to differentiate by adapting the actual product in some way or by distinguishing the product through advertising and branding. Massive marketing budgets allow this to happen.

With significant budgets available for R&D it is likely that product innovation is ongoing with new ideas being developed and new products coming into fruition. This continuous range of new products, often with wide product ranges, allows the business to develop brand loyalty so that it has major market share that will last well into the future. 

The fact that global businesses patent and trademark a large range of products ensures that they create significant barriers to entry meaning that other businesses find it difficult to product similar products. Businesses producing products in developed economies such as the UK cannot easily compete on price with emerging economies such as China and so instead they look to differentiate their product on quality.