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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 location
Answer
Ebac Ltd employs over 200 staff in its UK manufacturing centre, providing local expertise and reducing issues with hiring skilled workers abroad. The company exports to continental Europe, which is advantageous since it can avoid tariffs imposed on other markets.
Despite the higher average manufacturing costs in the UK compared to countries like China, Ebac benefits from lower labor costs in the North East. This could enhance profitability despite the higher overall costs because customer satisfaction can be prioritized through tailored service and products.
Ebac's expansion into selling washing machines indicates confidence in the UK market. Producing in the UK allows Ebac to respond quickly to customer needs and remain competitive.
Step 2
Potential counterbalance
Answer
The UK has some of the highest production costs among the top 25 exporting countries. Consequently, Ebac may face competition from larger manufacturers, like Whirlpool and Bosch, who can produce more affordably due to economies of scale.
Skill shortages and potential trading uncertainties posed by Brexit could further complicate Ebac's position. This might lead to increased costs and difficulties in maintaining product reliability if tariffs and safety standards complicate the export process.
Step 3
Potential judgement
Answer
Ebac has a longstanding commitment to the local community, evidenced by its foundation. However, this makes relocating production to a cheaper location challenging, as it risks damaging the company's local reputation.
While producing in the UK may seem pricier, the strategic benefits of local production must be weighed against the potential for reduced costs in lower-wage countries like China or Indonesia, particularly for large-scale products like washing machines, which could impact Ebac's market share and overall competitiveness.