Assessment of a country as a production location — Edexcel A-Level Business
Test yourself on Assessment of a country as a production location with PEARSON EDEXCEL A-Level practice questions.
7 days Premium · Then free forever · No card, no charge
Assessment of a country as a production location explained
Choosing where to produce is a supply side question, and the trap is to read the answer off the wage rate.
Read the full explanation
What matters is unit labour cost, the wage divided by labour productivity, which is output per worker per period, so a cheap location with low productivity or a high defect rate can cost more per unit than an expensive one. Skills, ports, power and roads decide whether the plant can actually run at the output the appraisal assumed. Building inside a trade bloc buys tariff free access to the whole region, which is why firms produce inside rather than export in. Grants, tax holidays and enterprise zones move the numbers but rarely turn a poor site into a good one. Everything ends in appraisal: average rate of return is average annual profit divided by the initial outlay, as a percentage.
Your focus
- a) Factors to consider: costs of production; skills and availability of labour force; infrastructure; location in trade bloc; government incentives; ease of doing business; political stability; natural resources; likely return on investment
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 the quantified factors against qualitative ones such as stability of government, ethical sourcing and the risk to brand reputation.
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.
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.