Legal Factors & Location (Edexcel IGCSE Business)
Revision Note
Written by: Lisa Eades
Reviewed by: Steve Vorster
The Impact of Law on Business Location
Laws are rules created by the government of a country with the aim of regulating the actions of its citizens and businesses
Regulation is the process of enforcing the laws that have been created and ensuring that businesses abide by them
Governments and local authorities can incentivise businesses to locate in particular areas
In areas of high unemployment or industrial decline grants or reduced tax rates may be offered to businesses that create jobs or improve communities
In some cases, businesses are deterred from locating in particular areas
E.g. In areas of outstanding natural beauty, strict bylaws or city ordinances may regulate the type of business activity that is permitted
E.g. A country with strict environmental laws might not be an attractive location for a manufacturing company that produces a lot of waste
The presence or absence of laws can affect a businesses choice of location in two ways
1. Less economically developed countries
Less economically developed countries often have fewer laws and less enforcement of their existing laws, which is likely to be attractive to some businesses
Businesses enjoy lower costs as they have to meet fewer legal requirements, such as safe handling of waste material
Labour can be paid very low rates as no minimum wages exists
Employees and customers have less opportunity to pursue legal action
2. More economically developed countries
Developed economies with extensive laws can be attractive to businesses who desire to locate in region with
Good infrastructure
Highly-skilled workers
High standards of living
Laws and their Impact on Location
Type of Law | Areas of Impact | Examples |
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Employment law |
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Environmental law |
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Consumer law |
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The Influence of Trade Blocs on Business Location
A trading bloc is a group of countries that come together and agree to reduce or eliminate any barriers to trade that exist between them
There are different levels of economic integration ranging from relatively low integration in a bilateral agreement to high integration in a monetary union, e.g. the Eurozone
Globally, there were more than 420 regional trade agreements in effect in 2022
Each subsequent type of trading bloc has increased levels of economic integration
Examples of trade blocs include the EU (European Union), NAFTA (North American Free Trade Agreement) and ASEAN (Association of Southeast Asian Nations)
Diagram: Major Trade Blocs in 2023
Major trade blocs include the EU, ASEAN and NAFTA
A free trade area is a bloc in which countries agree to abolish trade restrictions between themselves but maintain their own restrictions with other countries, e.g Canada – United States – Mexico Agreement (CUSMA)
Diagram: How a Free Trade Area Trading Bloc Works
Mexico, Canada and the USA have a free trade agreement but can deal individually with Cuba as they see fit
In the diagram above, Mexico, Canada and the USA have reduced or eliminated many trade restrictions between themselves
The USA refuses to trade with Cuba and has placed a complete ban on all exports/imports to Cuba
Canada trades with Cuba but imposes tariffs on all imports
Mexico trades freely with Cuba
Businesses may look to locate their operations in a trade bloc country in order to avoid paying tariffs or other restrictions such as quotas
Examiner Tips and Tricks
Trade blocs and other trading arrangements are often in the news. Using contemporary examples in your longer answers can improve their quality and support your analysis by giving it more depth.
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