4.2.3 Assessing a Country as a Production Location

Question 1

What is setting up production locations in other countries?

Answer 1

Different process from choosing a country as a potential market for customers
- Production includes both manufacturing & any services associated w the business e.g. call centres

Question 2

What are the factors that need to be assessed before setting up production facilities in another country?

Answer 2

• Government Incentive
• Ease of doing business
• Political stability
• Natural resources
• Return on investment
• Location in trade blocs
• Infrastrucutre
• Skills & avaliability of labour force
• Costs of porduction

Question 3

Why is the costs of production an important factor?

Answer 3

• Businesses want to keep costs of production low as this can help them increase their profit margin
  OR
• Allow them to sell at a lower price to gain a competitive advantage

Question 4

Why is the skills & avaliability of labour force an important factor?

Answer 4

• The quality of the workforce is important as this will directly impact quality of the goods & services produced in an economy
• Businesses will need to consider factors such as literacy rates & whether the workforce has the right skills needed for the business
• Businesses may choose to locate production in a market where the labour costs are lower

Question 5

Why is infrastrucutre an important factor?

Answer 5

• Businesses need to consider the infrastructure needed such as roads as this will affect the production process.

E.g. the transportation of raw materials for the production process

Question 6

Why is location in a trading bloc an important factor?

Answer 6

• A business located in a market within a trade bloc will be able to access many advantages such as reduced protectionist measures

E.g. Japanese companies Nissan & Toyota have invested in manufacturing facilities in the UK (prior to Brexit) to gain access to the EU market

Question 7

Why is the return on investments an important factor?

Answer 7

• Assessing return on investment in different markets will reduce risk of initial investment not being paid for

Investment appraisal techniques (payback method, average rate of return & discounted cash flow) can be used to tell a business what their potential return on investment could be

Question 8

Why are natural resources an important factor?

Answer 8

• Important that business has easy access to their raw materials as this can help to reduce transportation costs & help to reduce any potential delays to the production process

Question 9

Why is political stability important?

Answer 9

• Businesses may be at risk of not gaining a return on investment in country with political instability
• A country w political instability will be subject to corruption, lack of law enforcement & higher levels of crime
• It is more likely to have disruption to production

An economy w a stable economy & government is seen as a less risky investment for a business

Question 10

Why is the ease of doing business an important factor?

Answer 10

• Business will want to locate in an area where there is limited bureaucracy, so the process of establishing production facilities is not delayed or does not incur high costs

Question 11

Why are government incentives an important factor?

Answer 11

• Businesses may be offered incentives (e.g. grants, business loans and tax breaks) by the government