Assessment of a Country as a Production Location (9BS0 4.2.3)
Choosing where to produce is among the biggest strategic decisions a global business makes. Edexcel 4.2.3 lists the assessment factors — costs of production, skills, infrastructure, trade-bloc location, government incentives and more — which you must apply and weigh against each other.
The Edexcel location factors
The specification identifies these factors for assessing a production location:
- Costs of production — wages, land, energy and materials; often the headline attraction of Asian locations.
- Skills and availability of labour — cheap labour is false economy without the right capabilities.
- Infrastructure — ports, power reliability, transport links and digital connectivity.
- Location in a trading bloc — producing inside a bloc gives tariff-free access to all its members.
- Government incentives — grants, tax holidays and subsidised sites offered to attract investment.
- Ease of doing business and political stability — the friction and risk surrounding operations.
- Natural resources — proximity to inputs for resource-based industries.
No location wins on every factor, so firms weight them by what their product needs most: labour-intensive assembly follows wages; precision manufacturing follows skills; bulky goods follow markets and ports.
Real location decisions
Dyson concentrates manufacturing in Malaysia and the Philippines, with its head office in Singapore: South-East Asia offers lower production costs than the UK, established electronics supply chains, engineering skills and proximity to Asian growth markets — a decision weighting costs, supplier networks and market access over home-country production.
Tariffs and politics increasingly shape the map. AstraZeneca announced a $3.5 billion US manufacturing and research investment in November 2024, expanding production inside its largest market as American policy favoured domestic supply — location as insurance against protectionism. Rising Chinese wages have pushed labour-intensive work to Vietnam and Bangladesh, where costs are substantially lower, a shift visible across clothing and electronics assembly.
Nissan's Sunderland plant shows bloc logic and its limits: built to serve Europe from inside the EU, its economics had to be renegotiated around rules of origin after Brexit under the UK-EU trade agreement.
Weighing factors and risks
Good analysis recognises interactions and hidden costs. Low wages attract, but productivity decides: if workers produce half the output, a 40% wage saving disappears. Distance carries costs cheap labour must beat — shipping, inventory tied up at sea, slower response to demand shifts and quality problems discovered late. These drove the recent interest in nearshoring and 'friendshoring', relocating production closer to markets or to politically aligned countries after pandemic and geopolitical shocks exposed long supply chains.
Government incentives can tip marginal decisions but rarely justify a poor location alone, and they invite bidding wars that later governments may reverse. Exchange-rate movements can erase cost advantages between investment and production.
For evaluation: match the weighting to the product (labour content, skill needs, weight-to-value ratio), stress-test against tariffs and currency swings, and remember reversal costs — a factory is a decade-long commitment, so resilience increasingly competes with cost as the deciding criterion.
Key terms
Practice questions
Explain one reason why low wages alone do not guarantee low production costs in a location. [4 marks]
Model answer guidance: Unit costs depend on productivity as well as wages. If workers in a low-wage country produce far less per hour — through weaker skills, training or equipment — the wage saving is offset by needing more labour per unit. A 40% wage advantage disappears if output per worker is half. Firms therefore assess labour cost per unit of output, not the wage rate in isolation.
Explain one benefit to a manufacturer of locating production inside a trading bloc. [4 marks]
Model answer guidance: Producing inside a bloc gives tariff-free access to every member market, avoiding external tariffs on all units sold there. Nissan's Sunderland plant was developed to serve European customers from inside the EU on exactly this logic. The saving applies to every sale, so for high-volume producers it outweighs many other cost differences. It also protects against future rises in external tariffs.
Discuss why a pharmaceutical business might expand production in the United States despite higher costs there. [8 marks]
Model answer guidance: The US is the world's largest medicines market, and producing inside it removes tariff exposure and pleases policymakers who increasingly favour domestic supply — motives visible in AstraZeneca's $3.5 billion US investment announced in 2024. Local production shortens supply chains for sensitive products, gives access to deep scientific labour markets, and can unlock incentives. Against this, wages and construction costs are high, and capacity duplicated across regions sacrifices scale. The decision trades cost efficiency for market access and political security — sensible where the market is large and protectionist risk is real.
Assess whether government incentives should be a major factor in a multinational's choice of production location. [10 marks]
Model answer guidance: Incentives — tax holidays, grants, subsidised land — directly cut investment and early operating costs, and where several sites are otherwise comparable they legitimately tip decisions; governments compete precisely because they know this works. However, incentives are temporary while the location is long-lived: a plant sited for a five-year tax break can be stranded for decades among weak suppliers and skills. Political reversals can also withdraw promised support. Incentives deserve weight as a tiebreaker between fundamentally sound locations, but fundamentals — costs, productivity, skills, infrastructure, market access — should drive the shortlist. Choosing a poor site for subsidy is buying a discount on the wrong asset.
Evaluate whether cost of production should be the most important factor when a UK manufacturer chooses an overseas production location. (20) [20 marks]
Model answer guidance: Cost matters enormously: in competitive markets, unit cost determines survival, and wage differences between the UK and Asian locations are large enough to transform margins — the logic behind Dyson's manufacturing in Malaysia and the Philippines and the migration of assembly towards Vietnam as Chinese wages rose. For labour-intensive, price-competitive products, cost is rightly decisive. However, cost advantages are contingent: productivity gaps, shipping, inventory and quality-failure costs can consume wage savings; exchange rates and tariffs can reverse the arithmetic overnight, as 2025's tariff rounds showed; and long supply chains proved fragile in recent shocks, pushing firms towards nearshoring and resilience. Skills, infrastructure, bloc membership and political stability determine whether low costs are deliverable at all. Overall, cost should be the leading criterion only for high-labour, low-complexity products; for skill-intensive or strategically exposed manufacturing, total risk-adjusted cost — including tariffs, resilience and quality — is the sounder test, so the best answer is that cost per unit delivered to the customer, not cost of production alone, should decide.
Examiner tips
- Quote the spec's factor list, then weight it for the product in the case — labour content and weight-to-value ratio drive the ranking.
- Dyson (Malaysia/Philippines) and AstraZeneca ($3.5bn US, 2024) give you contrasting motives: cost versus market access and tariff insurance.
- Bring in nearshoring and supply-chain resilience for current evaluation — cost versus risk is the modern location trade-off.
In The Business School simulation your students make these exact decisions in a live market against rival firms — every choice mapped to the specification. Free teacher demo, no installs, students join with a PIN.