The factors a business assesses when judging a country as a market or as a production location, including market size and growth, incomes, infrastructure, costs, skills, political stability and risk, and the use of this analysis in deciding whether and how to expand.

What this theme is asking

OCR wants you to explain the factors a business weighs when judging a country either as a market (somewhere to sell) or as a production location (somewhere to make), and how this analysis informs the decision to expand and how to do it. This is a frequent Component 3 evaluation topic.

Assessing a country as a market

The crucial nuance is that population is not the same as a market. A country of 100 million people is only a large market for a product if enough of them have the income to buy it. So a firm looks at incomes and their distribution, not just headcount, to size the realistic, affordable segment.

Assessing a country as a production location

A common trap firms fall into is chasing the lowest labour cost without checking infrastructure, skills and stability. A very cheap location with frequent power cuts, poor transport and an unskilled workforce can prove a false economy, because production is unreliable and the hidden costs mount.

Using the analysis to decide whether and how to expand

The assessment informs both whether to enter and how. A large, growing, accessible market with manageable risk may justify direct entry; a risky, unfamiliar market may be better entered cautiously through a joint venture with a local partner (sharing knowledge and risk) or by exporting first. A strong production location may justify offshoring the firm's own plant; a riskier one may favour outsourcing to a local firm. The country analysis and the entry-method choice go together.

Examples in context

Western firms have targeted emerging economies such as those in Asia for their fast-growing middle classes, while recognising that headline population overstates the affordable market. Manufacturers have chosen production locations on a mix of low cost and adequate infrastructure and skills, sometimes reshoring when cheap locations proved unreliable or when wages rose. Many firms enter unfamiliar, higher-risk markets through joint ventures to gain local knowledge and share the risk.

Try this

Q1. State two factors a firm should consider when assessing a country as a production location. [2 marks]

• Cue. Labour and land costs, infrastructure, workforce skills, proximity to markets or materials, exchange-rate risk, or political stability.

Q2. Analyse why a large population alone does not make a country a good market. [6 marks]

• Cue. A product is only affordable to those with sufficient income, so the firm must assess income levels and distribution to find the realistic market, developed as a chain in context.