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Questions and Answers
Explain how a country's political instability could directly affect a company's decision to establish a production facility there. Provide two specific potential consequences.
Explain how a country's political instability could directly affect a company's decision to establish a production facility there. Provide two specific potential consequences.
Political instability can lead to loss of assets like factories and supplies due to conflict. It may also endanger employees, making the location unattractive for production.
A company requires a specific mineral that is only available in Country X. Describe two different strategies the company could use to obtain the material and discuss a potential drawback of each.
A company requires a specific mineral that is only available in Country X. Describe two different strategies the company could use to obtain the material and discuss a potential drawback of each.
The company could establish a production facility in Country X, but that may involve high setup costs. Alternatively, it could import the mineral but that may be expensive, or subject to tariffs.
What are some of the initial expenses a business incurs when setting up production in another country?
What are some of the initial expenses a business incurs when setting up production in another country?
Expenses include moving the factory, setting up new production lines, buying machinery, and hiring staff. It also involves moving operations such as HR and hiring key staff such as managers with local knowledge.
A company is considering moving production to a country with abundant natural resources but a less developed infrastructure. What are two potential challenges and one potential benefit of this move?
A company is considering moving production to a country with abundant natural resources but a less developed infrastructure. What are two potential challenges and one potential benefit of this move?
Explain how fluctuating exchange rates between two countries could impact a company's profit margins after moving its production facility to the foreign country. Discuss both positive and negative scenarios.
Explain how fluctuating exchange rates between two countries could impact a company's profit margins after moving its production facility to the foreign country. Discuss both positive and negative scenarios.
Flashcards
Political Stability
Political Stability
The stability of a country's government and political system. High stability is attractive for business.
Natural Resources
Natural Resources
Raw materials that occur naturally in a country, that are needed for the business.
Production Location
Production Location
Setting up production where the needed raw materials originate may be cheaper than importing them.
Return on Investment (ROI)
Return on Investment (ROI)
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Business Expenses
Business Expenses
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Study Notes
Political Stability
- Political stability affects the business community; production can't move to war zones.
- Businesses risk losing factories, resources, supplies, and employees in war zones.
- The most attractive production locations have the highest political stability.
- In 2020, the average political stability index across 194 countries was -0.07 points.
- Liechtenstein had the highest index in 2020, at 1.7 points
- Afghanistan had the lowest in 2020, at -2.73 points.
Natural Resources
- Businesses might set up production in a country if raw materials don't occur naturally in the UK.
- Importing cocoa beans, coffee beans, rice, or pineapples may be more expensive than relocating production to the country of origin.
- A business might need raw materials from a specific country to manufacture their products.
- Importing materials is costly if a business chooses not to locate near the resources.
- Importing materials will increase production costs and reduce overall profits.
- Countries with more natural resources will score higher when determining a business production location.
Return on Investment
- Ranking countries requires additional research, discussion, and judgment.
- Setting up production in another country is expensive.
- Examples of expenses setting up production in a new country include:
- Moving a current factory
- Setting up new production
- Buying machinery
- Hiring staff
- Moving operations like HR
- Hiring key staff like managers with local language knowledge
- Investors need assurance that the expenses will be covered by future profits.
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Description
This lesson explores the impact of political stability and natural resources on business decisions. Political stability is crucial for production, as businesses risk losses in unstable regions. Access to natural resources also influences location choices, potentially leading companies to set up production in resource-rich countries.
