4.2.4. Assessment If A Country As A Production Location Flashcards
Factors to consider
-Cost of production
-Skills and availability of labour force
-Infrastructure
-Location in trade bloc
-Government incentives
-EODB
-Political instability
-Natural resources
-Likely return on investments
Cost of production
-Assumed lower costs for countries with lower wage costs but should consider how labour intensive production process is. For many products even in lower cost countries production is capital intensive.
Skills and availability of workforce
-Literacy is also an important skill as without it some countries will struggle to be seen ass attractive locations for production.
Infrastructure
-some multinational companies will take responsibility in improving local infrastructure in location they choose
Location in trading bloc
Vital pull factor for location is its presence within trading bloc. Without tariff free access to single market, foreign direct investment flows may fall considerably.
Government incentives
Government may be keen to attract foreign companies to set up production to:
-Create jobs
-Extra tax revenues
-Boost for local suppliers
-Increasing skill levels among local labour force
-Potential for +ve impact on balance of payments
Government need to use incentive like:
-Grants to help purchase land+machinery
-Tax breaks
-Investment in local training and infrastructure
Political stability
Policies will change with different governments.
-Level of investments needed to start producing is likely to be higher this investments take longer to pay back and generate +ve return on investments
Natural resources
Availability of natural resources play key role in attractiveness for businesses further among supply chain.
-Choosing a location near its supply of resources is beneficial as it reduces transportation costs etc.
Likely return on investments
Cheaper locations will seem more attractive since initial investment will be lower.
ROI in different markets will reduce the risk of initial investments not being paid for. Can use investment appraisal techniques to estimate potential returns