5.4 Flashcards
what is this unit all about?
One of the most important decisions of an organization is where it will Locate the business (or relocate it , as the business grows).
The decision that a business makes on where to locate its production facilities, will affect costs and hence the profitability. So this decision obviously depends on different factors that need to be taken into account and also will affect the production.
what is the first and general thing that a business needs to take into consideration with location?
Starting up might be easier that relocating, since relocation might be needed due to different reasons, such as: expansion, merger or larger premises.
There is a difference between locating or relocating a business. Nevertheless, the factors can be used for both cases.
what are the 10 factors to be taken into aaccout when a business is choosing a location?
Costs, Competition, Type of land, Markets, Familiarity with the area, Labour Pool, Infrastructure, Suppliers, Government and National, Regional and International factors.
expand on cost?
Costs – a key factor that will arise from the cost of : Land, Labour and Transport.
expand on competition?
Location of Competition is key to locate or relocate a business. There is a balance between a “gap” in the market and be near competitors. The Concept of Cannibalistic Marketing lies in this category.
Cannibalistic Marketing - the practice of slashing the price of a product or introducing a new product into amarketof established product categories
expand on type of land?
Type of land – different types of land are suited for different business (i.e. ski resorts)
expand of markets?
a place where most products are traded. This of course changed with the introduction of e-commerce.
expand on the familitairity with the area.
could help with network in the area but also can miss a better or more appropriate location.
expand on labour poor?
what type of workers are needed for a specific business (i.e. university graduates or school leavers). It also refers to places with a high level of unemployment, that will help create more jobs in the area
expand on infastructure?
refers to infrastructure such as telephone, electricity, internet etc. Also, how accessible services are, depending of the type of business
expand on suppliers?
how close and available suppliers are. For different types of business this is key
expand on goverment?
the role of the Government is crucial for some business that might consider relocating to a deprived area. The Government might offer help in the form of Subsidies or grants. It’s “win-win” situation“. The Government can also offer “tax relief” in some cases.
expand on national, regional and international factors?
nowadays business do not need to be located near the immediate vicinity. Sources of communication changed immensely (i.e. call centres). This also refers to the fact that Trading Blocs such as EU or NAFTA might have influence in opening a business that serves the whole market
how do youu analyse the affect of globalisation on location?
This is best analysed in terms of “push factors” and “pull factors”, affecting the main 4 areas of: Operations Management, HR, Marketing and Finance.
what is a pull factor and can you give some examples?
how to attract a company towards a specific location. For the company it might me attractive to relocate abroad due to:
Improved communications
Dismantling of trade barriers
Deregulation of the worlds financial markets
Increasing size of multinational companies.
what is a push factor and give examples?
how to push a company to relocate overseas. There are some internal factors that may drive the companies to move overseas, such as:
Reduce Costs
Increase market share
Use extension strategies
Use defensive strategies
What ways of organizing production, both nationally andn internationally will we study?
Outsourcing (subcontracting)
Offshoring
Insourcing
Reshoring
expand on outsourcing?
Outsourcing (or subcontracting) - The practice of employing another business (as a third party) to perform some activities that might help the organization to focus in their core activities. For example, a School’s main activity is teaching, so it might outsource catering, cleaning services, administrative duties. Other examples are: marketing, head-hunters, external auditors.
In general, a growing number of production or service related work is conducted by outsourcing businesses and geographic presence is not requires.
what is an extra bit on outsourceing you need to be aware of?
Another popular form of outsourcing is the creation of “call centres” in countries such as India (lower labour costs). So, by calling a Citibank number for customer service, you will be automatically placed with a call center in India, whose operators will respond to you. Sometimes, they even have an American accent and also a name that is western of origin, so the customer thinks they are in the USA.
what is offshoring?
When a business moves its manufacturing base to a different country this is known as offshoring. The idea behind offshoring is that, similar to the reasons to select a location, there are benefits related to the labour costs, the market or the raw material resources.
The process of offshoring manufacturing will invariably mean that the company headquarters remains in a separate location, this presents different challenges in decision-making.
what question is raise with offshoring and how do you answer it?
The question that is naturally raised, of course, is whether the benefits outweigh all the costs associated with the challenges.
In order to ensure that the company that has made the decision to offshore does not suffer a loss in quality control, supervisors and a host of other manages and lead employees are routinely sent from the country of origin to ensure that the standards are maintained.
what is the difference between outsource and offshore?
Outsourcingrefers to an organization contracting work out to a third party, while offshoringrefers to getting work done in a different country, usually to utilize cost advantages.
The biggestdifferenceis that whileoutsourcingcan be (and often is) offshored,offshoringmay not always involvedoutsourcing.
expand on insorrcing?
Insourcing is the exact opposite of outsourcing and basically implies that the business has decided to no longer subcontract its operations.
This is an ongoing trend in countries where the costs now outweigh the benefits. In other words, labour may have gotten more expensive. Transportation costs are prohibitive or tax credits have been provided by the local government to incentivize companies to bring back the manufacturing and therefore jobs.
Expand on reshoring?
Reshoring is the reverse of offshoring. it involves a business returning production or operations to the host country that had previously been moved to a different international location.
