Assessment of a country as a production location Flashcards
Explain cost of production as a factor in choosing a production location.
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
Explain skills and availability of labour force as a factor in choosing a production location.
The UK has low unemployment compared to other countries (4.05%)
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
A business may need a skilled labour force and one of the ways to assess if a country has this is to look at the global school rankings
Comparative advantage is the idea that some countries can make products better than others.
This may be down to a range of factors such as skills of the locals, availability of raw materials etc.
Explain infrastructure as a factor in choosing a production location.
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
Explain location in a trading bloc as a factor in choosing a production location.
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.
Explain government incentives as a factor in choosing a production location.
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
Explain ease of doing business as a factor in choosing a production location.
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
What is the importance of ease of doing business 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
Other factors may be important too such as labour costs, skills and availability of labour and infrastructure
Location may however depend on access to raw materials
The business may require high skills and good infrastructure rather than cheap labour which may affect the decision of where to produce
Explain political stability as a factor in choosing a production location.
Corruption in government, concerned investors
Damaged infrastructure
Workers unable to come to work, disruption, riots
Explain natural resources as a factor in choosing a production location.
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
Some countries have an advantage that they have natural resources that are not found elsewhere- You may need to set up production in another country because the raw materials that you need do not naturally occur in the UK
Explain likely return on investment as a factor in choosing a production location.
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
