Influences on the Choice of Production Location (CIE IGCSE Business)

Trade barriers

• A business located in a market within a trade bloc will be able to access many advantages, such as reduced protectionist measures 
  • E.g. Chinese companies are increasingly locating operations in countries with trade agreements with the EU and the US to circumvent restrictions on products made in those countries

Financial incentives

• Governments may offer incentives (e.g. grants, business loans and tax breaks) to locate in their country as MNCs bring in investment, foreign currency and job opportunities

Access cheaper or skilled labour

• Businesses may choose to locate production in a market where labour costs are lower or where significant numbers of workers have specialist skills
  • Clothing brands frequently locate production facilities in lower-wage countries such as Bangladesh or Turkey, where skilled workers produce high-quality garments

Lower taxation

• Some countries tax businesses and their employees at very low rates
  • Ireland's low rate of corporation tax has attracted large multinationals, including Google and Microsoft, to the country

Alternative sources of raw materials

• Some countries have cheaper raw materials or are sources of rare raw materials that are used in the production process

Access to new markets

• Many businesses choose to locate near to customers in another country to reduce transport and distribution costs
   
• This is particularly important when markets in the businesses home country have become saturated
   
• External factors such as changes in the law may have made the home market unviable so growth may only be possible by moving the business to an alternative location

Planning regulations

• Regulations limit the operations of businesses in certain locations
  
  • Opening hours can be restricted
     
• Planning permission has to be agreed and granted before a business can build on or extend a site
  • The appearance of new buildings may be strictly regulated

• Brompton Bikes is the UK's  largest bicycle manufacturer
  • Its planning application for a new factory involves construction on a floodplain which will restore the local wetland and promote walking and cycling

Government grants or subsidies

• Grants and subsidies encourage businesses to set up and expand in areas of high unemployment, underdeveloped regions or those that have suffered from industrial decline
  
  
• This assistance could be grants or subsidies paid to businesses which do not normally need to be repaid

• The EU offers a range of grants to businesses that are prepared to set up or expand in less developed areas of the trade bloc to reduce differences in wealth between regions and between the various member states