Grade 12A

IBDP Business management

Case study – Business location in the UK

September 16, 2019

Indo European Foods to manufacture ethnic foods in the UK

‘There is a huge potential market for our authentic Indian spices, sauces, pastes and chutneys in the UK
and the rest of Europe,’ said the operations director of Indo European Foods. By locating a factory in
eastern England, the company will be able supply this market more quickly, efficiently and profitably
than importing directly from India. Felixstowe offers the business a suitable site of more than 9,000
square meters, close proximity to ports, excellent rail links and east-west road connections via the A14.
‘This area also gives us a good base for finding a suitably skilled multicultural workforce,’ added the di-
rector.

Electrolux factory closed in Durham with loss of 500 jobs

An Electrolux cooker factory in Durham has closed with the loss of 500 jobs. It had been making in-
creased losses. Until recently, the company believed this was still the best location for manufacturing
cookers and invested £7 million in the plant with the aid of a government grant of £1.6 million. Now the
company believes that the pound sterling exchange rate and wage and other cost pressures make it un-
competitive and have decided to switch production to a factory in Poland. It has been estimated that the
break-even level of production at this new plant will be less than half of the UK factory.

1. a. Define the term ‘suitably skilled workforce’. [2 marks]

A suitably skilled workforce is comprised of workers who are specialists, or have specialised qualities and
skills which is pertinent to the work they are delegated to do. This would essentially mean that the
workforce has already gone through college or training for the work they’re designated to, and they are
generally more skilled than the normal workers.

b. Briefly explain the term ‘government grant’. [3 marks]

A government grant is a monetary reward and payment which is provided by a government for
an investment or any of the sorts of projects that have the potential in giving advantages to the
society. While the government usually does not expect the firms paying back, they still encour-
age the firms to promote why they deserve to obtain that grant through proving their sustaina-
bility is prominent and they don’t give adverse effects to society.

2. Explain why a good location is important to any one of these businesses. [6 marks]

A good location is very crucial for a firm as it gives them the option on perhaps how to maximize their
profits as well as diminishing the incurring costs. For instance, the firm needs to lower their costs; They
can do so by locating the business near the source of suppliers and also easier transport links to also
lower transport costs- or to maintain prominence by staying a densely populated area for the retail firms
to find its market more easily. As for Indo European foods, if they opt to locate a factory in Felixstowe’s
UK, it will be beneficial in the sense that it is close to ports and they have rail links and more so that the
transport costs are way lower when they want to deliver goods at a quick rate. In addition to that, for a
firm like Indo European food to locate itself in the UK is beneficial as they are able to use about more
than 9000 kilometres as there are skilled multicultural workforces around the place. Another reason
why location is very crucial for Indo European foods, is that the firm can produce their goods at a much
cheaper rate since it is the firm’s home nation as a domestic. This would negate the old process of hav-
ing to import goods and incurring more costs; Location is important as it also determines more profita-
bility. Lastly, this would mean that the firms choose their locations through the fact that they under-
stand and can communicate with their customers in the UK and in Europe as there are less cultural barri-
ers.

3. Analyse four factors referred to in the cases that influenced these two location decisions. [8
marks]

There are various factors and considerations that has influenced the discussed locations. In accordance
to the case studies, the factors include: Labor, Government Assistance, Market Location, Raw Materials
and Transport Costs. As for Indo-European foods, the company opts to locate themselves to the UK. For
one, this is because the UK would allow the firm to be more profitable; This is because the location will
lower the transport costs as it is close to a part as well as some rail links, allowing them to receive or
produce in the UK as opposed to having to import their materials or their finished goods either way. An-
other factor is also because a huge part of the potential customers that they consider as their market
are in Europe. By locating to the UK, Indo European foods are able to communicate with their customers
much more efficiently, without much language or cultural barriers. Finally, for Indo European Foods, lo-
cating in the UK would also give access to a pool of skilled labour workers, that the firm can use for per-
haps the designated work.

As for Electrolux, a major decision for their change and move to Durnham may have stemmed from the
government aid and assistance that they received. This was equivalent to about 1.6 million pounds as
that is one of the many reason why they relocate there. In the case study, it is also mentioned that the
exchange rate existing is relatively higher, which is why relocating to Poland may actually instead help if
the government intervention is not too involved. This would affect the way in which the firm can be
more active in the production process.

In all, the main factors that are involved in this specific location decisions from the case studies are: La-
bor, Government Assistance, Market Location, Raw Materials and Transport Costs.

4. Discuss the problems and benefits that Electrolux might experience following the decision to re-
locate in Poland. [11 marks]

First of all, relocating to Poland for Electrolux are because of a few reasons. To avoid the consequences
from fluctuating exchange rates seem to be a benefit for relocation; This would also negate the whole
costs and wage pressures in pertinent to it. Although, as Electrolux was first still in the Durham, they did
receive a grant as huge as 1.6 million pounds sterling, which was one of the initial reasons for their loca-
tion being in Durham. While relocating to Poland they may not receive it, and despite so, there are a few
benefits that will come from a new location for the factory being in Poland. For one, Electrolux may find
more skilled labour for their production, which will increase efficiency. Relocating might open up oppor-
tunities for better labour which might prove to be beneficial for Electrolux. Furthermore, relocating to
Poland will make Electrolux more competitive; This is because the currency is more stable than it is in
Durham and there are less costs, like labour costs. There’s also a bigger opportunity for profitability, as
the break even level for the factory in Poland will be half of the one in UK. However, relocating to Po-
land may have its own issues. For one, if Electrolux manages to produce their products in Poland for a
cheaper cost but with unethical values, this might ruin their brand image, which might lead to customers
to opt for a more ethically correct brand, which will decrease sales and revenue. Moreover, Electrolux
might have to incur more costs in terms of transport as their channels of distribution widened, and cus-
tomers may prefer more cheaper options.

All in all, relocating to Poland specifically for production does stem a few benefits for Electrolux such as
the fact that they might be able to find more skilled workers, as well as a more stable currency. Alt-
hough, disadvantages should also be considered like unethical methods of productions like hiring minors
to work, as well as more costs like transport.