Assessment of a country as a production location — Edexcel A-Level Business
Verified courseTeaching note checked against the official specification.
Assessment of a country as a production location explained
Choosing where to produce is a supply side question.
Read the full explanation
The trap is to read the answer off the wage rate; what matters is unit labour cost, the wage divided by labour productivity. Skills, infrastructure and roads decide whether the plant can run at the assumed output. Building inside a trade bloc buys tariff free access to the region. Grants move the numbers but rarely turn a poor site into a good one. Ease of doing business and access to natural resources are crucial for operational viability. Everything ends in appraisal: average rate of return is average annual profit divided by the initial outlay, as a percentage, balanced against political stability.
Your focus
- Calculate and interpret unit labour costs and investment appraisal metrics to assess production locations.
- Evaluate the impact of infrastructure, trade blocs, and government incentives on location decisions.
- Assess qualitative factors such as political stability, ease of doing business, and natural resources when choosing a production site.
Assessment of a country as a production location exam tips
Marking Points
- Convert wage rates into unit labour cost before comparing sites, because differences in output per worker often reverse the ranking.
- Name an investment appraisal method and show the working: payback is the time taken for cumulative net cash flow to cover the initial outlay, and average rate of return expresses average annual profit as a percentage of it.
- Explain tariff jumping investment, where producing inside the bloc avoids the common external tariff on every unit sold there.
- Balance quantified factors against qualitative ones such as political stability, ease of doing business, access to natural resources, and ethical sourcing.
Examiner Tips
- 💡Expect a calculation of payback or average rate of return followed by a twenty mark question on the location decision, where the calculation is the evidence for your judgement.
- 💡State units every time: months or years for payback, a percentage for the return, and currency per unit for cost.
- 💡Name the decisive factor in your judgement and the condition that would change it, such as wage inflation running ahead of productivity growth or a change in political stability.
Common Mistakes
- Comparing hourly wages across countries with no reference to output per worker, which is the single most common error in this topic.
- Mishandling average annual profit by forgetting the residual value or by dividing across the wrong number of years.
- Assuming a government incentive is permanent, when grants and tax holidays usually expire and can carry clawback conditions.