4.2.3 - Assessment of a country as a production location

Question 1

What factors are there to consider when choosing a production location

Answer 1

• costs of production
• skills and availability of labor force
• infrastructure
• location in trade bloc
• government incentives
• ease of doing business
• political stability
• natural resources
• likely return on investment

Question 2

What is cost of production

Answer 2

• Producing goods in the UK is expensive
• We have to import a great deal of the raw materials that do not naturally occur in this country e.g. Cocoa
• We have a high standard of living and a high national minimum wage in comparison to other countries
• Businesses that want to compete will need to move their production to another country but may keep the design or head office in the UK. This is offshoring
• Main cost of production is the wages of employees
• It stands to reason that a country which pays lower wages would be more attractive as a production location

Question 3

What is skill and availability of labour force

Answer 3

• The UK has low unemployment compared to other countries (4.o5%)*
• A large unemployed population means a large pool of candidates for every position
• This will depend on what skills the business needs to succeed.
• If it is following a differentiation strategy then it may need more skilled staff than a low cost strategy

Question 4

What is infrastructure

Answer 4

• One factor to consider when deciding where to locate production is the infrastructure of a country
• 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

Question 5

What is a trading bloc

Answer 5

• Some businesses may start production in a country as a way into a trade bloc.
• For example Honda, Nissan and Toyota all have manufacturing plants in the UK to gain access to the lucrative rich and developed EU market for cars
• EU is the world’s largest trading bloc, which accounts for some 20% of global GDP and approximately 500 million people.

Question 6

What are government incentives

Answer 6

• 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
• Africa is losing $2 billion a year in tax breaks for foreign businesses

Question 7

What is ease of doing business

Answer 7

• The Ease of doing business (EODB) is an index published by the World Bank
• This is a mixture of 11 indicators such as; labour regulations, construction permits, land availability and time taken to build a warehouse
• The EODB looks at 190 countries worldwide and aims to encourage countries lower down the rankings to reform their business practices

Question 8

What are natural resources

Answer 8

• Remember you are trying to decide where to locate.
• You may need raw materials from that country
• If you don’t locate there you may have to import which could be expensive
• This will push up the costs of your production
• This will reduce your profits

Question 9

What is Likely return on investment

Answer 9

• If a business sets up production in another country this is expensive :
• Moving factory
• Setting up new production
• Buying machinery
• Hiring staff
• Moving operations such as HR
• Hiring key staff such as managers with local knowledge (language)
• Investors will need to know that these expenses will be returned with profits