5.4 Location Flashcards
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
starting up may be easier than relocating, since relocation may be needed due to different reasons, such as
expansion, merger, or larger premises
there is a difference between locating and relocating a business; nevertheless the factors can be used for both cases. there are 10 factors to be taken into account
Costs, Competition, Type of land, Markets, Familiarity with the area, Labour Pool, Infrastructure, Suppliers, Government and National, Regional and International factors.
costs
a key factor that will arise from the cost of : Land, Labour and Transport.
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 (i.e. Mc Donald’s) .
type of land
different types of land are suited for different business (i.e. ski resorts)
markets
a place where most products are traded. This of course changed with the introduction of e-commerce
familiarity with the area
could help with network in the area but also can miss a better or more appropriate location
labour pool
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 (i.e. Amazon)
infrastructure
refers to infrastructure such as telephone, electricity, internet etc. Also, how accessible services are, depending of the type of business (i.e. schools and hospitals for oil engineers)
suppliers
how close and available suppliers are. For different types of business this is key (i.e. seafood restaurant)
government
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.
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 (i.e. Nissan’s car factory in France to serve all Europe. Nissan’s factory was originally in England but had to relocate due to Brexit )
the impact of globalisation in 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.
pull factors
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
push factors
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
outsourcing (or subcontracting)
the practice of employing another business (as a third party) to perform some activities that might help the organisation focus in their core activities
In general, a growing number of production or service related work is conducted by outsourcing businesses and geographic presence is not requires.
examples of outsourcing
ex: a school might outsource catering
a hospital may electronically transmit x-rays of patients to radiologists in India to then compile reports so that these are retransmitted ready the next day in the USA.
offshoring
when a business over its manufacturing are to a different country
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.
how may a company ensure that it does not suffer a loss in quality control when deciding to offshore
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
so 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
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
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.
what is Force Field Analysis (FFA)
is a method for listing, discussing, and evaluating the variousforcesfor and against a proposed change. When a change is planned,Force Field Analysishelps you look at the big picture by analysing all of theforcesimpacting the change and weighing the pros and cons.
when was Force Field Analysis (FFA) established
It was developed by Kurt Lewin in 1951 using the concept of management of change, which focuses on the factors working for and against a planned change in the business.
Lewin argued that successful business tend to be constantly adapting and changing.
there are 4 steps involved FFA
- Determine the change factor and highlight it.
- After brainstorming ideas for the change, they are listed in a positive and negative manner. That is, driving forces (positive) and restraining forces (negative).
- Each factors is given a weight corresponding to the factor’s importance, from 1 (weak) to 5 (strong). Arrows maybe used her for simplicity.
- The forces then are all added up , totalling the scores for each of the forces. Of course, the highest value is the best decision
benefits (FFA)
- gives a clear answer to a difficult decision
- flexible, can be applied to many situations
- simple and visually attractive
limitations (FFA)
- is based on qualitative data, not quantitive issues
- involves interpretation in determining which factors to include
- is based of the estimates of the value of each individual factor
