Evaluate strategies which may be used by businesses and governments to improve the competitiveness of a country’s goods and services.
Competitiveness is the ability of a firm or a nation to offer goods and services that meet the quality standards of the local people and world markets at prices that are competitive and provide adequate returns on the resources employed or consumed in producing them.
Governments have an important role for improving the competitiveness of their country’s goods and services. Governments are able to change regulations and taxes according to what they believe about their country’s state of economy. For example, a government may decide to decrease the corporation tax in order to improve the competitiveness of a country’s goods and services. A decrease in the corporation tax will encourage new firms to set up and existing firms to invest. Corporation tax is a levy placed on the profit of a firm with different rates used for different levels or profits. They are taxes against profits earned by businesses during a given taxable period.
If there is a decrease in the corporation tax, it means that firms will have an increased retained profit since less money goes to the government revenue. This will allow firms to use this money to improve competitiveness. More spending on investment will be possible which will increase productivity. If the firms invest on capital goods such as machinery that will benefit the firm by producing at lower cost, then the firm might able to set lower prices in order to improve price-competitiveness.
For example the UK government reduced the headline corporation tax rate from 30% to 28% in 2007 Budget. Reducing corporation tax increased the retained profits for UK firms that can plough back into investment projects. This should help to boost the UK capital stock. It should also help the UK to keep attracting foreign direct investment which improves the competitiveness furthermore since British firms may gain from the advanced technology and innovation of foreign multinationals. (Technology transfer)
However, if the government decreases corporation tax, there might be some firms that decide to save the retained profits instead of spending on investment. This might be because there is a period of recession and firms might find it risky to invest. In addition many firms have chosen not to reinvest as they have been more concerned with making short term profits rather than investing in the future. If firms choose to save rather than invest their retained profits, a decrease in the corporation tax wouldn’t improve competitiveness.
Another measure to improve competitiveness is to increase government spending on education and training. If the government can improve the quality of teaching in schools and universities and encourage more people to go to university, then this should lead to increase in productivity of the workforce in the future. Greater productivity will lead to greater efficiency in firms which will in turn lead to lower average costs of production. This may improve the price competitiveness of UK goods and services. In addition it would improve the non price competitiveness since a more educated workforce is likely to be able to be more creative and innovative. Greater innovation should lead to better quality products and the creation of patents, copyrights, brands etc.
However, increased spending on education and training by the government does not always lead to increased global competitiveness. It will depend greatly on exactly how the money is spent. For example expenditure for improving school buildings or Ofsted inspections may not necessarily improve the effectiveness of the teachers and the quality of education. On the other hand spending on training teachers and advancing their professional development, might be a more effective means of improving educational standards in the future and increasing productivity. However even in this case the effects are not likely materialise until the longer term.
Another way in which the government can improve the non price competitiveness and price competitiveness in international markets is to encourage innovation and research. Tax allowances have been made available to businesses spending on innovation and research. However, there has also been a variety of programmes which enable some businesses to gain grants for research and development R & D and to set up knowledge transfer networks and universities. Such measures are likely to be more successful than tax cats since firms are given incentives to research and development through receiving tax concessions and from making connection to universities where they have the opportunity to learn about the latest scientific and technological advancements.
On the other hand businesses, are able to introduce a variety of measures to improve the competitiveness of the goods and services. These include increasing the level of investment on new technology, on staff training, on ICT, etc . One way by which businesses might improve the competitiveness of their goods or services is by increasing the spending on R & D. By increasing the spending on R & D, businesses will most probably benefit from product and process innovation.
If a business manages to create a unique and different product than the rest products in the market, it would be able to compete much more easily since consumers will prefer to buy the most innovated and technological updated products. For example Steve Job’s firm, Apple spent $758 million on R&D during the first fiscal quarter of 2012. If we take Apple as an example which is one of the most profitable companies, we clearly see that it has benefited from the heavy spending on R & D. It has come up with products such as the iPhone where the sales reached the number of 98,144,000 in the first three quadrants of 2012.
However, some businesses prefer not to spend on R & D because they do not think about the longer term. Also there are other firms that fail to spend on R & D. For example the procedure of R & D may result in no innovative products or procedures that will improve competitiveness and therefore.
Another way, by which businesses might improve competitiveness, is by improving productivity. Productivity is the output per worker. There are different ways by which productivity can be improved. For example if the firms increase the wages, workers might be motivated to work harder. Also, training can improve the knowledge and skills of staff.
Improved recruitment and selection may have the same effect which will increase productivity in the short term. If the business increases spending on training, workers will be more educated and informed about their job. This will increase the productivity since they will be able to produce more output at the same working hours and wages. If the productivity is increased, it means that more output will be produced at relatively the same costs. This will allow the firm to get bigger in size, lower the running and operational costs, increase income and gain a greater share of the market. This will increase both price and non-price competitiveness.
However productivity doesn’t always improve competitiveness. For example if training isn’t done effectively, and workers do not give attention or really care about the job, then they won’t improve their knowledge and skills, training will not improve productivity, and therefore productivity will not improve competitiveness. In addition, productivity might not improve competitiveness because in the case of increasing the wages in relation of the output the worker producers, there are workers that wouldn’t be motivated by an increase in their salary and therefore will not produce a greater output.
Productivity can be used as a measure to improve competitiveness only if it is used correctly and it can increase both price and non-price competitiveness. It can improve price competitiveness by allowing the businesses to set lower prices and improve non-price competitiveness by expanding as a firm and increasing its popularity.