Assess how important government policies, other than taxation, are to a business when deciding where to locate its operations. (12)

Government policies primarily affecting business consist largely of decisions affecting market regulation and public spending. For some businesses, higher than average levels of regulation are likely to be a concern to a business located in that nation. In the food industry, regulation is likely to be similar across markets of similar levels of development, therefore not a major a concern for a group such as Associated British Foods: however, in high technological or quaternary industries, such as pharmaceuticals, higher regulation on product testing and safety standards in particular will raise costs. For a chemist such as GlaxoSmithKline, increased regulation on product testing is likely to lead to longer and more rigorous testing procedures. This means that fixed costs will rise as larger drugs trials would have to be conducted for longer, while reducing the total numbers of drugs that have been approved by the regulators and are available in the market. This means that a greater proportion of GSK’s capital would be tied up in development, leading to a greater potential for cash flow problems and therefore potentially lower future investment from internal sources in the event that a major drug is discovered to cause harmful side effects and therefore has its development discontinued. Spending on education may also be important to some businesses. If a country spends more per student, assuming good standards of teaching and classroom facilities, the overall level of education of the workforce will rise in the medium- to long-term, particularly as those holding secondary-level graduates are much more likely to attain higher education qualifications at privately-run institutions. This means that, particularly for high-tech development and manufacturing businesses such as BAE Systems, training costs will be significantly lower as target employees will already have many of the skills required for high-tech development. This also means that worker productivity will be high sooner after joining the company, leading to faster development of new products or improvements to existing ones. This means that both the variable and fixed costs per unit of new high-tech developments, such as the Eurofighter Typhoon, will be lower. As these products are largely price inelastic due to their high-price, high-quality market segments, BAE Systems would therefore be able to absorb the lower costs, leading to increased profit margins, and therefore higher profits overall. However, government policies must be taken into account as part of the wider picture. A country with very high levels of education and good standards of regulation is also likely to have higher labour costs – however, the impact of these labour costs will vary depending on the market in which the business operates. Tertiary and quaternary businesses such as BAE Systems or GlaxoSmithKline are more likely to be concerned with government policies on regulation and education, while primary and secondary businesses such as Tata Steel are more likely to look for lower labour costs, depending on the capital intensity of their production processes. However, Other factors must also be taken into account when locating a business, including the proximity of the nation to the target markets affecting transport times and cost, and the impact of any tariff or non-tariff barriers, or lack thereof, due to trade blocs or protectionism.