15.2: Where to Produce? Flashcards
What factors should an international firm consider when deciding where to locate its production activities?
An international firm should consider country factors, technological factors, and production factors to minimize costs and improve product quality.
What are country factors and how do they affect production location decisions?
Country factors include political and economic systems, culture, and relative factor costs which influence the benefits, costs, and risks of doing business in a country.
These factors determine where economic, political, and cultural conditions are conducive for manufacturing activities.
How can location externalities influence where to produce?
Location externalities, such as the presence of a skilled labor pool and supporting industries, can play an important role in deciding where to produce.
Clusters of related activities can create benefits and synergies for manufacturing in certain locations.
Why are fixed costs and minimum efficient scale important in the decision-making process for production locations?
High fixed costs of setting up production facilities can dictate serving the world market from a single location, while a low minimum efficient scale allows for dispersing production to multiple locations, which can help in local responsiveness and currency risk hedging.
What is flexible manufacturing and how does it impact location decisions?
Flexible manufacturing allows for the production of a variety of products at lower costs by reducing setup times and improving machine utilization.
This technology enables a firm to produce customized products for different national markets without incurring significant cost penalties.
What is mass customization and how does it relate to production location?
Mass customization is the use of flexible manufacturing technologies to produce a wide variety of products at costs similar to mass production.
This approach allows companies to be responsive to specific consumer tastes and preferences without the need for multiple production sites.
What factors are essential when deciding where to locate production facilities for an international firm?
An international firm must consider product features, production factors, and strategic roles for production facilities.
How do product features affect location decisions for production facilities?
Product features such as the value-to-weight ratio and whether the product serves universal needs impact whether production is centralized or decentralized.
When is concentrating production facilities in a centralized location preferred?
Concentrated production is preferred when there are significant country-specific differences, low trade barriers, important location externalities, stable exchange rates, high fixed costs, and high minimum efficient scale, especially if the product has a high value-to-weight ratio and serves universal needs.
What conditions favor the decentralization of production facilities?
Decentralization is favored when
country-specific differences are minimal,
trade barriers are high,
location externalities are not significant,
exchange rates are volatile,
fixed costs and
minimum efficient scale are low,
and the product has a low value-to-weight ratio and does not serve universal needs.
What are the strategic roles of production facilities?
Strategic roles include
offshore factory,
source factory,
server factory,
contributor factory,
outpost factory,
and lead factory,
each with distinct functions ranging from cost-saving to innovation driving within the company.
What are the hidden costs of foreign production locations?
Hidden costs can include
high employee turnover,
poor workmanship,
low productivity,
and poor product quality,
which may not be immediately apparent but significantly affect the bottom line.
