4.2.3 Assessment of a country as a production location Flashcards
Why is infrastructure a factor to consider when deciding where to locate production ?
• A business will need to assess if the country have adequate road, rail, sea and air transport systems so goods can be exported and imported easily
• The business will also need to know if the country have suitable buildings and premises where the goods could be manufactured
• The country have a reliable power system e.g. in Ethiopia power cuts are a daily occurrence
What is a trade bloc?
A group of countries situated in the same region that joined together and enjoy trade free of tariffs, quotas , and other forms of trade barriers
Examples of Trade blocs?
- NAFTA - North American Free Trade Agreement ( Canada , Mexico and USA)
- SAARC - Southern Asian Association for Regional Cooperation ( Afghanistan , Bangladesh , Bhutan , India , Maldives , Nepal , Pakistan and Sri Lanka)
- ASEAN - Association of Southeast Asian Nations ( Malaysia , Philippines, Singapore , Laos , Vietnam and Indonesia)
- EU - European Union ( Germany , Italy , France , Netherlands , Spain and Belgium)
- CEFTA - Central European Free Trade Agreement ( Czech Republic, Hungary , Poland , Romania and Slovakia)
What are Government incentives?
• The government of a country may offer incentives for businesses to set up there
• Tax incentives are given to companies in the hope that foreign investors will bring in capital to support economic development and create local employment
Importance of EODB when deciding where to manufacture?
• EODB rank will help a business to find out the time period required to start a business and the number of paperwork obstacles to be overcome
• EODB higher rank implies that the business could start quickly reducing start-up costs and this may be a good reason to choose a location
• The business may require high skills and good infrastructure rather than cheap labour which may effect the decision of where to produce
Reshoring
Bringing production back home after using foreign production facilities for a period of time.
What are factors to consider when assessing a country as a location for production?
- locating production
- costs of production
- skills and availability of labour
- infrastructure
- location in a trade bloc
- government incentives
- ease of doing business
- political stability
- natural resources
- likely return on investment
Why is locating production a factor to consider when assessing a country as a location for production?
Locating production in a country with low costs of production can help reduce expenses and improve profit margins. Similarly, having access to skilled and available labor can help increase productivity and reduce labor costs.
Why is infrastructure a factor to consider when assessing a country as a location for production?
Infrastructure, including transportation networks, telecommunications, and energy supplies, is essential for efficient and cost-effective production. A location in a trade bloc can provide businesses with access to a larger market and lower trade barriers.
Why is government incentives a factor to consider when assessing a country as a location for production?
Government incentives and ease of doing business can create a favorable business environment and reduce regulatory burdens, while political stability can provide a secure operating environment for businesses.
Why is access to natural resources a factor to consider when assessing a country as a location for production?
Access to natural resources can be critical for businesses that rely on them in their production process, while assessing the likely return on investment can help businesses make informed decisions and allocate resources effectively.
Why is the like return of an investment a factor to consider when assessing a country as a location for production?
1.The likely return on investment is a critical factor to consider when assessing a country as a location for production because it is a measure of the profitability of a business venture. The return on investment (ROI) is the ratio of the net profit of a business to the total amount invested, expressed as a percentage.
2.A higher ROI means that the investment is more profitable, while a lower ROI may indicate a less favorable business environment, making it riskier to invest in that location. Therefore, the likely return on investment is a crucial factor to consider when assessing a country as a location for production.
Advantages of being in a trade bloc?
1.Access to a larger market: Trade blocs involve a group of countries that have agreed to reduce or eliminate trade barriers between them. This creates a larger and more accessible market for businesses within the trade bloc, enabling them to reach more customers and expand their operations.
2.Reduced trade barriers: Trade blocs can also reduce trade barriers such as tariffs, quotas, and regulations. This can lower the cost of doing business and increase the competitiveness of businesses within the trade bloc.
3.Increased political and economic cooperation: Being a part of a trade bloc can promote political and economic cooperation among member countries, creating a more stable and predictable business environment. This can increase investment and trade flows within the bloc, as businesses feel more confident about the stability of the region.
Disadvantages of being in a trade bloc?
1.Loss of sovereignty: Joining a trade bloc often involves giving up some degree of control over trade policy, as decisions are made at the bloc level rather than at the national level. This can limit a country’s ability to protect its own industries and may result in unfavorable trade deals for some sectors.
2.Dependency on other members: Trade blocs are interdependent, meaning that changes in one member’s economic or political situation can have a ripple effect on other members. This can create vulnerability for smaller or less developed economies within the bloc, as they may be more susceptible to economic shocks from larger and more dominant members.
3.Compliance with bloc rules and regulations: Membership in a trade bloc can also require compliance with a set of common rules and regulations, which may not always align with a country’s own policies and priorities. This can create tensions between member states and can limit a country’s ability to pursue its own economic or social goals. Additionally, compliance with bloc rules and regulations can sometimes require significant time and resources from businesses, particularly smaller ones, which can create additional costs and hurdles to doing business.
