Final answer:
EU policy impacts factory location decisions by setting standards that companies must adhere to, which, along with other factors like costs and infrastructure, influence where companies choose to establish new facilities. Environmental compliance in the EU may override the financial gains sought from weaker regulations elsewhere, integrating environmental considerations into broader strategic planning for factory siting.
Step-by-step explanation:
In the context of factory location, EU policy affects decision-making primarily through regulations that ensure a level of environmental and social standards. This influence means that companies are motivated to choose locations where they can remain in compliance with EU standards while also considering other factors such as labour costs, availability of capital, proximity to suppliers and customers, and quality of local infrastructure.
The notion of firms moving to countries with weaker regulations for cost savings is often overstated, as environmental costs tend to be a minimal part of the overall expenses of running a large industrial plant, which is typically between 1 to 2%. Accordingly, EU environmental regulations and policies might discourage relocating solely based on environmental cost savings, instead prompting a more holistic approach to siting factories within the EU.