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Assess the likely impact on Ebac Ltd of choosing the UK as a production location. - Edexcel - A-Level Business - Question 2 - 2018 - Paper 1
Question 2
Assess the likely impact on Ebac Ltd of choosing the UK as a production location.
Worked Solution & Example Answer:Assess the likely impact on Ebac Ltd of choosing the UK as a production location. - Edexcel - A-Level Business - Question 2 - 2018 - Paper 1
Step 1
Reasons for UK as a production centre
Answer
Ebac Ltd employs over 200 staff in its UK manufacturing centre, which allows for direct oversight of production quality and labor management. It benefits from exporting to continental Europe, although it has not fully followed competitors like Indesit that have moved production abroad.
Evidence suggests that while manufacturing costs in the UK are higher compared to some places in Europe, they remain competitive with countries like Italy, Germany, and France. As of 2016, the UK served as a single European market, enabling Ebac to access other EU members without significant tariffs or non-tariff barriers. Moreover, labor costs in the North East of the UK are lower than the national average, potentially enhancing Ebac’s profitability.
Additionally, Ebac's expansion strategy focuses on selling washing machines, which require distinguishing features. The UK location helps Ebac better understand customer preferences and needs.
Step 2
Counterarguments to choosing the UK
Answer
Despite the advantages, the UK has some of the highest production costs among the largest exporting countries. Competitors capable of producing at lower average costs, such as Haier, exploit economies of scale that Ebac may find hard to match.
There are also concerns about the future trading relationship with the EU, with 70% of the UK’s exports heading there. This uncertainty may raise the risk of product disruptions, tariffs, or stricter safety standards that could adversely affect Ebac's competitiveness in export markets. The reliance on skilled labor skilled in producing products like dehumidifiers and water coolers in the North East may also result in higher costs, as these products are usually quality-sensitive.
Step 3
Potential judgement on the impact
Answer
Ebac's strong community ties in North East England, as evidenced by its philanthropic foundation, indicate loyalty and a commitment to local production. However, they face a trade-off between maintaining higher production standards and controlling costs.
It may be that Ebac's specialized products benefit from UK production, but bulk products like washing machines could be more efficiently produced in lower-cost countries such as China or Indonesia. This situation could lead to a reassessment of where to locate certain production lines based on market dynamics, cost efficiencies, and quality demands.