4.2 assessing a country as a production location Flashcards
cost of production
they would want to ensure that costs are kept as low as possible, as the business could then gain a competitive
a business would also look for a country with lower labour costs
skills and availability of labour
skilled workers is important for a business maintaining quality standards.
if a business wants cheap labour, they would have to invest a lot in training and skilling the workers, but if they invest in skilled labour, it would come at a cost, meaning it is often better to focus on specialised workers
infrastructure
a business would be attracted to strong transportation links, good broadband networks and good education (workers). all of these factors would be considered before opening a factory
location in trade bloc
some business like to avoid trade barriers, like tariffs and quotas, meaning they would set up a factory within a trade bloc
government incentives
governments are usually keen to attract FDI because of the benefits it brings, like income and employment, they would do this by providing incentives to businesses to locate their facilities in their country, things like interest-free loans, tax breaks and cheap land
ease of doing business
it is important to consider a location where it is easier to do business as trading restrictions can be expensive for businesses
political stability
businesses would avoid countries with unstable and corrupt governments, as it could lead to a large financial loss, there is also risks of kidnappings in countries like Mexico, so businesses would avoid setting up there
natural resources
businesses needing natural resources, like mining businesses would prefer to set up in a location that is near a mine for example
likely return on investment
businesses would use quantitative techniques to help make their final decision
what are the 3 quantitative methods?
payback method
average rate of return
discounted cash flow
what is a payback method?
the calculation of how long it takes for a business to recoup the initial investment
what is average rate of return?
net return is divided by the initial investment and expressed as a percentage
