Question

Many developing countries seek to develop export markets, because people in wealthier countries have more ability to buy products than people in their own countries. They can produce goods more cheaply due to lower labor costs, and often, fewer environmental restrictions on production. What factors would a company consider in deciding where to locate its production? What factors would a developing country consider in deciding whether to increase environmental protections?

Answer 1

It is seen that several developing countries emphasizes on creation of export markets because it increases the foreign exchange brought to the country, provides employment and increases demand for goods.

A company considers various factors when deciding to locate its production. Some of them are:

1) Wages and skills: One cost of a company is labour cost it is essential that the company considered to establish itself at a place where the wages are going competitive and the level of skill among the people in the area is suited to the needs of the company this would ensure a large group of labour to be chosen from and hence would provide the company more choices in terms of recruiting which would help the company to get the best skilled workers

2) Security: securities is an important factor when a company decides where to locate its production because the insurance policies ,all the matters relating to the security of goods are essential for the company. This would also be necessary to ensure the safety of the workers and employees.

3) Transportation network: accessibility of transportation is an important factor when the location of the company is considered. This is because and efficient transportation network would reduce the cost of transport , would ensure that the goods are safely delivered. This would increase the consumer confidence in the company. Also it would ensure that the workers have easy access through various transportation.

4) Laws of the area: the company would want to establish itself in a area where there are less taxes. This would lead to lesser costs and more profits. This is because when the legal costs are less amd the rules and lax or are hardly implimented, the firms are able to increase their profit margins.

The factors a developing country would consider would be

Given it is developing and has lower skilled workers or labourers, less employment opportunities ,poor health conditions , enforcing environmental protection laws would not be one of the the necessary conditions a developing country would want to have . Rather it would like to focus on the poverty ,poor sanitation and hygienic conditions and the corruption of the country.

Another factor is that if there are strict environmental laws in a country especially developing country it makes investments in the country unattractive and hence the companies who would want to establish themselves in a developing country like to set up the production in another country where the laws are lax and there are less restrictions on environmental protection. Also the costs of government to establish and implement these laws or to have tradable permits and other such environmental permits, would be high and hence the government would be discouraged to take up such protections.

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