4.2.3 Assessment of a country as production location

Question 1

What are the factors looked at when assessing a country for production location?

Answer 1

• costs of production
• skills and availability of workforce
• infrastructure
• location in trade bloc
• government incentives
• ease of doing business
• political stability
• natural resources
• likely return on investment

Question 2

Cost of production

Answer 2

• in competitive mass markets, low cost of production is key (natural resources, labour, additional costs like health and safety)
• low wage cost economies attract FDI in order to take advantage of the labour force
• cost minimisation
• land cost might be significantly lower
• producing goods in the UK is expensive
• businesses that want to compete will need to move their production but may keep their design or head office in the UK

Question 3

Skills and availability of labour

Answer 3

• unemployment rates - high unemployment rates = large pool of people to choose from
• depends on what skills are needed
• if its following a differentiation strategy then it may need more skilled staff than a low cost strategy

Question 4

Location in a trade bloc

Answer 4

Locating in a trade bloc such as the EU, NAFTA and ASEAN allows easier access to markets within those countries, with lower export taxes.
– FDI will be invested into countries that reside in a trade bloc
– Sometimes countries can get favourable access to trade blocs despite
not being members e.g. Norway and the EU.
– Some businesses may start production in a country as a way into a trade bloc.
– Honda, Nissan and Toyota all had manufacturing plants in the UK to gain access to the lucrative rich and developed EU market for cars

Question 5

Government incentives

Answer 5

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
– Governments wish to transfer intellectual property e.g. the skills and knowledge base of the new business locating in the country.

Question 6

Natural resources

Answer 6

Some economies possess an abundance of natural resources that can be used for economic gain e.g. fossil fuels such as gas and oil and minerals such as diamonds and metals.
– Production is often set up to be located with close proximity to these resources
– MNCs often move to these countries

Question 7

Likely return on investment

Answer 7

A business will take into account all factors and decide whether the return on investment is worthwhile.
– Heavy investment is required to move into new countries. Location in a foreign country is dynamic

Question 8

Infrastructure

Answer 8

• communication
• transport
• accessibility

Question 9

ease of doing business

Answer 9

• bureaucracy
• labour
• legislation

Question 10

Political stability

Answer 10

• corruption
• cpi
• stability