Assessing a Country as a Production Location (Edexcel A Level Business)

Costs of production

• Businesses want to keep costs of production low as this can help them increase their profit margin or allow them to sell at a lower price to gain a competitive advantage

Skills and availability of labour force 

• The quality of the workforce is important as this will directly impact the quality of the goods and services produced in an economy
  
  • Businesses will need to consider factors such as literacy rates and whether the workforce has the right skills needed for the business
• Businesses may choose to locate production in a market where the labour costs are lower

Infrastructure 

• Businesses need to consider the infrastructure needed such as roads as this will affect the production process.
  • E.g the transportation of raw materials for the production process 

Location in a trading bloc 

• A business located in a market within a trade bloc will be able to access many advantages such as reduced protectionist measures 
  • E.g. Japanese companies Nissan and Toyota have invested in manufacturing facilities in the UK (prior to Brexit) to gain access to the EU market

Return on investments 

• Assessing the return on investment in different markets will reduce the risk of the initial investment not being paid for
  
  
• Investment appraisal techniques (payback method, average rate of return and discounted cash flow) can be used to tell a business what their potential return on investment could be

Natural Resources 

• It is often important that a business has easy access to their raw materials as this can help to reduce transportation costs and help to reduce any potential delays to the production process

Political Stability 

• Businesses may be at risk of not gaining a return on their investment in a country with political instability
  • A country with political instability will be subject to corruption, lack of law enforcement and higher levels of crime
  • It is more likely to have disruption to production
• An economy with a stable economy and government is seen as a less risky investment for a business

Ease of doing business 

• A business will want to locate in an area where there is limited bureaucracy, so the process of establishing production facilities is not delayed or does not incur high costs

Government Incentives 

• Businesses may be offered incentives (e.g. grants, business loans and tax breaks) by the government