4.2.3 Assessment of a Country as a Production Location

• One way of assessing a country as a production location is the cost of production. For example, the UK is expensive due to high standard of living and National Minimum Wage compared to other countries, therefore a business may import raw materials grown abroad. Companies often move their production abroad and keep its head office in the UK - this is the process of offshoring.
• A business's main cost of production is the wages of its employees. Countries paying lower wages are therefore more attractive as a production location.
• One way of assessing a country as a production location is the skills and availability of a labour force. The UK has low unemployment, whereas a country with a large unemployed population can provide a large pool of candidates. If a business is following a differentiation strategy, it may need more skilled staff, therefore it can't follow a low-cost strategy.
• One way of assessing a country as a production location is its Global School Rankings, which assesses the level of skill in a country.
• Comparative advantage is the idea that some countries can make products better than others due to factors like the skills of locals, availability of raw materials, etc.
• One way of assessing a country as a production location is its infrastructure. A business needs adequate roads, rail, sea and air transport systems to import / export easily. It also needs suitable buildings and premises for manufacture.
• Some businesses start production in a country to get into a trade bloc.
• The EU is the world's largest trade bloc, accounting for 20% of global GDP.
• A country's government may offer incentives to attract a business to produce in that country. An example is tax incentives, which are given to countries so foreign investors bring capital to support economic development and create local employment.
• A way of assessing a country as a production location by looking at its Ease of Doing Business ranking. This involves a mix of indicators like labour regulations, construction permits and land availability. The Index looks at 190 countries worldwide and encourages countries to reform business practices.
• The ways of assessing a country as a production location are:

  • Cost of production
  • Skills and availability of labour force
  • Global School rankings
  • Infrastructure
  • Location in a trade bloc
  • Government incentives
  • Ease of Doing Business
  • Political stability
  • Natural resources / comparative advantage
• Deciding where to manufacture is important for a business, as better rankings mean that the business can start production quickly and reduce start-up costs. A business will want good returns on investments in the costs of production, so investors will want to know if expenses are detrimental.
• A business may choose a country as a production location for its natural resources. If a raw material is not naturally grown in a country, the business must import it. This can be expensive, so the business may move production to that country.