Infrastructure as the Backbone of the Business

Good infrastructure is the backbone of each business and poor infrastructure negatively impacts businesses. Therefore, every Government should strive to improve its infrastructure to make the business environment more conducive. When setting up a business, an entrepreneur will first consider how conducive the environment is. One factor that is central to the decision-making process is the infrastructure. Examples of key infrastructure include good roads, affordable electricity, proper communication systems and much more. Let’s dig deeper into how each of these affects a business.

Good Road Network

A business depends on roads as the number one infrastructure to be able to succeed in business. The first reason is that the roads determine the reachability of raw materials.  A business needs to connect to the suppliers of raw materials, and therefore they need to have a good road network. Additionally, for the suppliers to find it worthy to supply a certain business, they will consider if the road network to that business location is good enough for them to easily reach it and through cost-effective means.

Likewise, the business needs to have a good road network to be able to reach clients and make profits from sales. A proper road network will also enable the business to reach the market in a timely manner, often before other competitors. A poor road network means a delay in delivering products to its customers, and therefore a business risks losing its market share.

While the above is an oversimplified hypothetical, the critical role that roadways play in business should not be underestimated. Even for businesses that do not produce a physical product, roads in good condition make it so that everything from employees to printer paper can arrive at your business in an efficient manner.

This is exemplified in countries where infrastructure is non-existent or difficult to erect. Take this example from Dr. Wendy Garland who explains how infrastructure impacts business:

“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.”

In this example, the use of air and boat transportation is far costlier than road transportation would be if the infrastructure existed.

Good Communication and Technology Infrastructure

Cell phones are a good example of a communication infrastructure. However, cell phones depend on things like a robust cellular network to be able to communicate with the other users in the system. Imagine doing business in a place where there is poor network coverage. You will not be able to communicate with your customers and the staff who are working in different locations. Technology is also an infrastructure that is essential because, without technology, many businesses would not be able to make use of digital tools that enable many businesses to have a competitive advantage. India, once known for its textile and clothing industries, took advantage of telecommunication infrastructure and is now a leader in outsourced telemarketing and support and contact centers. This was only possible as a result of technology infrastructure.

Affordable and Reliable Power Source

Competitive advantage greatly depends on the operating cost. For a business to succeed, they need affordable and reliable power. Frequent power interruptions greatly affect the functioning of a business and also affect the productivity. This is because for a business to deliver to clients, the production line has to be functional, and therefore the business needs to have reliable power. On the other side, the power source should be affordable. If power is expensive, it eats into the profits by increasing the operational cost. Businesses prefer starting up in countries where the cost of power is low.

It is the responsibility of the government to make sure that they have proper roads, affordable electricity and also good communication network within their jurisdiction. This will ultimately provide more foreign direct investments. While this post does not discuss how a government should fund these projects, generally tax revenue is a great way to do this. However, this can often be much more difficult for governments to achieve in practice.

It is ultimately a cycle in which the country with the best business environment will succeed at attracting business.