Assessment Of A Country As A Production Location

Question 1

Businesses have to consider 9 factors when choosing a country as a production location

What are they

Answer 1

1) Costs of production
2) Skills and availability of workforce
3) Infrastructure
4) Trading blocs
5) Ease of doing business
6) Government incentives
7) Political stability
8) Natural resources
9) Likely return of investment

Question 2

Describe costs of production as a factor of production location

Answer 2

• Main reason businesses move production overseas is foreign workers can be paid lower wages. Useful for businesses that don’t need skilled labour
• Cost of land and office space tends to be cheaper overseas
• Utilities like electricity and water might also be cheaper abroad

Question 3

Describe skills and availability of the labour force as a factor of production location

Answer 3

• Locate production to a country with a supply of labour with the right skills
• Locate where there’s lots of available workers. E.g. move to a country where there’s high unemployment rate

Question 4

Describe infrastructure as a factor of production location

Answer 4

• If transport links like roads, railways and ports could cope with firms imports and exports
• Availability and quality of service and support industries like IT support and banks. Make it easier and quicker to set up production
• Standard and effectiveness of security and law enforcement. E.g. firm may not invest in a country with high crime rates

Question 5

Describe trading blocs as a factor of production location

Answer 5

• A firm may locate production to a country in a trading bloc. Therefore can reduce tariff payments on imports and exports

Question 6

Describe ease of doing business as a factor of production location

Answer 6

• Firm should consider a country’s regulations. E.g. environmental laws with a limit of pollution a firm can produce during production. Sticking to these laws can be expensive and difficult
• Businesses might consider moving production to countries that are close to the markets they want to sell to. Make distribution of products to market easier and cheaper

Question 7

Describe government incentives as a factor of production location

Answer 7

Businesses want to locate production in countries that have government incentives like:

• Lower corporation tax rates
• Offering loans with low interest rates to move their production
• Grants for training staff from the country they’re moving production to

Governments provide these incentives to encourage FDI, which brings money into the country through increased employment and tax revenue

Question 8

Describe political stability as a factor of production location

Answer 8

• Firm might avoid politically unstable countries. Risk of government seizing its assets, and makes planning difficult for future
• Businesses may avoid certain locations because of corruption. E.g. where officials demand bribes to grant licenses and permissions, increasing costs and bad publicity for the business

Question 9

Describe natural resources as a factor of production location

Answer 9

• Locate in a country that has raw materials they need, reducing delays and costs of transporting materials
• Firms that rely on agriculture often located in areas with best climate and environment for their crops.

Question 10

Describe likely return on investment as a production location

Answer 10

• Firms will look at long-term return on investment when deciding where to locate. This is how much money they’re likely to get back from moving production, compared to how much they’ll spend on moving
• Might use investment appraisals to compare return on investments of different potential locations