Depends on a wide range of factors and determines how successful a firm is in selling exports and competing with imports. Price may be an important consideration for some products. Prices relative to those of the overseas competition will be affected by differing cost structures and by exchange rate changes. If the exchange rate depreciates, export prices can be cut.
Other important factors include design, quality, reliability and after-sales service – all the component aspects of competitive advantage. For some producers an important question concerns how effectively they have tailored the product to the needs of the market in question.
For some countries competitiveness is based on low labour costs. But countries with very high labour costs continue to compete well by relying on design and quality advantages as well as technical expertise.
Some multinational firms locate the labour-intensive parts of the production process in countries where labour is cheap (e.g. component assembly can be carried out in the Far East) while the capital-intensive stages of production stay in the country where they are based.