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The Impact of a Country's Infrastructure on Businesses

Instructor: Wendy A. Garland

Wendy has a Ph.D. in Adult Education and a Master's Degree in Business Management. She has 10 years experience working in higher education.

A country's infrastructure impacts businesses in many ways. This lesson describes both hard and soft infrastructure, provides business examples of each, and discusses the cost and measurement of impact.

What is Infrastructure?

Infrastructure is an organizational system of resources that is needed for a society or business to run. Infrastructure can be classified as hard or soft. Hard infrastructure consists of physical systems that are needed to operate a country, such as transportation, telecommunications, energy, and water supply and sanitation. Soft infrastructure refers to institutions that maintain the health, economic, and social standards of a country, such as education, financial, government, emergency, and healthcare systems. Business are primarily concerned with hard infrastructure because it has a direct impact; however, soft infrastructure has a secondary impact and is important as well.

Different companies have different requirements of what is needed for their own critical infrastructure. Just as the name implies, critical infrastructure is infrastructure which is critical to a business. If a disaster hits, this is the minimal system needed to functionally operate.

Hard Infrastructure

  • Transportation

For developing countries, the lack of roads and highways can be a difficult and costly obstacle to overcome. For example, Papua New Guinea's two largest cities are not connected by roads due to the rugged terrain. Businesses rely on planes and cargo boats to transport goods throughout the country. Some even maintain separate facilities in both cities in order to keep transportation prices down. Coca-Cola, for example, has a bottling plant in both cities, even though they are less than 200 miles apart.

Developed countries, however, have existing road systems and highways. For these countries, it becomes an issue of quality of roads, capacity, and limiting of back-ups and traffic. Walmart, for example, has one of the largest trucking fleets in the United States. They rely on the highway system to transport their goods to all the stores across the country, so delays or poor road quality would significantly impact their availability of products.

  • Telecommunications

Telecommunications has significantly changed businesses all over the world. India, for example, was historically known for their textiles and clothing. Since the telecommunication infrastructure has developed, India is now recognized for outsourced telemarketing, customer service hotlines, and other phone-related industries. In addition, they are able to provide website development, hosting, and other information technology services at a lower price than most other countries, due to the combination of lower wages and information technology infrastructure.

Telecommunications has also increased the number of digital nomads, people who earn a living utilizing technology while traveling or living abroad. Tropical islands, such as Bali, are a haven for digital nomads who work remotely, either for companies or themselves. Companies can attract high quality people because they are not limited to location. Businesses also reduce their costs because they do not have large overheads for office space.

  • Energy

Energy infrastructure refers to not only the production of energy, but also storage and distribution. Energy networks include pipelines, wires, waterways, railroads, and other systems that transport energy. Businesses need to be concerned about the infrastructure of energy, as well as energy sources.

Developed countries need to be concerned with aging energy infrastructure and the cost associated with different forms of energy. They should also consider reusable and sustainable forms of energy, such as wind and solar power. Often the initial price is higher, but in the long term, it can save the company money and help establish the company as eco-friendly.

Developing countries are mostly concerned with the consistency of available energy source. Often the population and demand has outgrown the infrastructure, which limits the availability to businesses. Overcapacity can cause power loss or fluctuation, and businesses must have back-up generators to be able to operate when the main power supply isn't sufficient. This can be costly for generators, maintenance, and fuel.

  • Water Supply and Sanitation

Companies are also influenced by sanitation, sewer systems, and water supplies. This is very important, particularly in industries which require fresh water, such as a farming or bottling plants. They must also consider proper disposal of waste - especially dangerous waste like chemicals. Drinking water supply and basic sanitation are also important for the basic health and safety of employees.

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