3.2.2 Assessing potential of different economies

Question 1

Ease of doing business index

Answer 1

Factors that make a business easier or harder to run

Question 2

infrastructure

Answer 2

Transport and communication facilities

Question 3

commodity

Answer 3

Raw materials traded in bulk (iron ore, wheat, oil)

Question 4

levels of growth of disposable income

Answer 4

• Economic growth in economy as a whole suggests that income is rising → if demand is income elastic, demand may increase
• Which consumers have income growth → richer people = more profitable for luxury goods

Question 5

ease of doing business

Answer 5

• Time, cost, and minimal capital required to open new business
• Dealing with permits and regulations
• Ease with hiring/firing employees
• Tax payable as a share of gross profit
• Cost and time needed to export and import

Countries that make business conditions easier have seen real benefits to their countries → FDI

Question 6

infrastructure

Answer 6

• Trade needs transport to transport G/S and employees
• Communication line between buyers and sellers
• Basic utilities for developments
• Business that want trading relationships will not establish where infrastructure is lacking
• weak/unreliable infrastructure increases costs of production

Question 7

political stability

Answer 7

Businesses need stable political situation → high risk
- Corruption, political unrest → high in developing countries
- Problem with ethically motivated countries
- Hinder development of these countries → lack of FDI

Question 8

exchange rate

Answer 8

• Flexible and vary over time → uncertainty
• Cheaper domestic competition with foreign market with low exchange rate (imports dear with weak pound)
• Eg china and low price of YUAN → higher exports harder for imports to penetrate market
• Producing in country with low exchange rate can cut costs and open market
• Inflation rates?

Question 9

costs of production

Answer 9

• Firms do not care about selling in local markets if they want to offshore to reduce labour costs
• Tradeoff between need for cheap laboru and laboru with the right technical skills
• Labour or capital intensive? (need skilled labour)

Question 10

skills and availability of workforce

Answer 10

Availability, costs and qualities
- Skills and education of labour force
- Experience with tech
- Language skills?

CA
- Wage costs → china low cost labour force
- Training costs
- Ease of hiring labour → easier to make people redundant
- Labour markets less regulated in developing countries → more attractive to labour intensive firms

Question 11

infrastructure

Answer 11

• Need to access supplies, goods, communicate with stakeholders
• Weak infrastructure limits economic development
• Slows transport and raises cosyts
• Communication uncertain and hard
• Harder to maintain supply chains and production techniques
• Prevents efficient distribution of goods and services

Question 12

location in trade bloc

Answer 12

• UK firms rely on exports to EU
• Firms may locate production in countries within a trading bloc to access countries without trade barriers

Question 13

government incentives

Answer 13

• Governments encourage sources of FDI
• Reduces business tax rates to attract FDI

Question 14

political stability

Answer 14

• Want to establish where law is reliable, reduces risk
• If law enforcement is corrupt, cannot protect foreign investors interest
• Firms can have contracts and payments
• Firms want intellectual property rights protected

Question 15

natural resources

Answer 15

• Mining and oil: production in their natural reserves and export to high demand places
• China and commodity markets → belt road initiative
• Firms may not need to be near their raw materials due to transportation

Question 16

likely return on investment

Answer 16

• Which location is most profitable in the long run
• How can u forecast this?
• Emerging economies can be promising but also have high risks → unsustainable