assessment of a country as a production location

Question 1

what does production include ?

Answer 1

• it includes both manufacturing and any services associated with the business (e.x: call centres).
• it is a different process from choosing a country as a potential market for customers.

Question 2

what are the 9 factors that need to be assessed when deciding on a production location ?

Answer 2

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

Question 3

cost of production

Answer 3

• businesses want to keep production costs low, as this can help them:
  –> increase their profit margin
  –> allow them to sell at a lower price to gain a competitive advantage.
• producing goods in mature markets can be expensive, so businesses may chose to off-shore production processes.
• businesses may choose to locate production in a market where the labour costs are lower.

Question 4

skills and availability of labour force

Answer 4

• the skills of a workforce is important, as it directly impacts the quality of the goods/services produced in an economy.
• businesses need to consider factors like: literacy rates and whether the workforce has the right skills needed for the business.
• a large unemployed population, means a large pool of candidates to recruit from. however, this will depend on the skills required for the vacant position

Question 5

Infrastructure

Answer 5

• this includes: ease of transport (e.x: adequate road, rail, sea and air), suitable premises for manufacture and reliable power/healthcare systems.
• businesses need to consider the infrastructure needed as this will affect the production process.

Question 6

location in a trading bloc

Answer 6

• a business located in a market within a trade bloc will be able to access many advantages, like:
  –> reduced protectionist measures
  –> free trade movements
• some businesses may start production in a country as a way into a trading bloc.

Question 7

likely return on investment

Answer 7

• assessing the likely return on investment in different markets will reduce the risk of the initial investment not being paid for.
• setting up production in another country can prove to be costly and so investors need to know that these expenses will be returned in due course.

Question 8

natural resources

Answer 8

• some businesses may require a natural resource only available in certain countries, so decide to produce there in order to source it effectively.
• it is important that a business has easy access to its raw materials as this can help to:
  –> reduce transportation costs
  –> reduce any potential delays to the production process.

Question 9

• political stability

Answer 9

• the instability of a government in power leads to more uncertainty.
• businesses may be at risk of not gaining a return on their investment in a country with political instability.
• a business in a country with political instability is more likely to have disruptions to production.

Question 10

ease of doing business

Answer 10

• this refers to the time period required to start a business and the number of bureaucratic obstacles to overcome.
• a 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

government incentives

Answer 11

• businesses may be offered incentives by the gov (e.x: grants, business loans and tax breaks).
• tax incentives are given by countries in hope that foreign investors will bring in capital to support economic development and create local employment.