global markets and business expansion Flashcards
what 9 factors are considered by a business looking to expand and shift production to another country?
- cost of production
- skills + availability of workforce
- infrastructure
- location in a trading bloc
- government incentives
- ease of doing business
- political stability
- natural resources
- likely return on investment
cost of production - in relation to lower wages
the assumed reason for lower costs in many countries is lower wage costs, however it’s also associated with how labour intensive the production process is. For many products, even lower cost countries, production will be capital intensive
labour intensive meaning
describes a business process that relies more on people than machinery
capital intensive
describes a business process that relies more on machinery than people
what is cost differential often down to
the ability to source materials and components more cheaply abroad, along with lower costs of land and business services
why should a business assess the skills and availability of workforce
the skills required to operate machinery may not always be available in less economically developed locations because of the lack of a strong education system of little manufacturing experience
why is infrastructure an important factor
transport and utilities must be up to scratch for modern manufacturing facility to be able to reliably service markets designed to serve. (why mnc tend to improve infrastructure)
why is location in a trading bloc an important factor (Brexit example)
when Britain was a member of the EU, it became an extremely attractive manufacturing base for non-euro firms as they can serve the European market and avoid tariffs
(government incentives) why are governments keen to attract foreign companies to set up production in their country?
- job creation
- extra tax revenues
- a boost for local suppliers
- increasing skill levels among labour force
- potentiometer for a positive impact on the balance of payments
what government incentives will governments use to attract a business to their country
- grants to help purchase land and machinery
- tax breaks
- investment in local infrastructure
- investment in local training
ease of doing business as an assessment factor
a business will assess how much regulation, government interference and inefficiency it may suffer from. typical issues:
- days to start a business
- days to wait for a construction permit
- days to get electricity
- total tax rate as a % of profit
- days to import an item
- days to enforce a contract
political stability factor
shifting production abroad is a very hefty investment, if the government changes frequently and makes drastic policy changes as a result, it will be much harder to plan for the future of the business in this location
natural resources
having access to natural resources is an attractive factor for a business further back in the supply chain.
bulk resources are expensive to transport over, if these firms select locations near a plentiful supply of natural resources it can work out much easier for the firm
likely return on investment
cheaper locations will seem more attractive as the initial investment is lower, but this can provide limitations to the likely future of revenues the location can earn.
