Business 5.4

Question 1

The reasons for a specific location of production

Answer 1

Physical retailers emphasises a lot on selecting locations in consideration of the amount of foot traffic and the demographics of potential customers in the area.

→ Expensive brands prefers to sell in a location where high-income customers are likely to go.

The reasons a business would choose one location over the other can be investigated through a STEEPLE analysis.

Question 2

Benefits of optimal location

Answer 2

• Lower cost
• Being closer to the customer
• Overcoming trade barriers

Question 3

Qualitative location factors

Answer 3

Room for further expansion.

Manager’s preferences.

Labour supply.

Ethical considerations.

Infrastructure.

Competition.

Laws.

Access to suppliers.

Question 4

Quantitative location factors

Answer 4

That cost the company money or reduce the amount needed to operate in a certain area.

• Capital costs such as building, equipment costs, etc.
• Labour costs
• Transport costs
• Potential market size
• Disposable income
• Government grants or subsidies.

Question 5

Sociocultural factors of location

Answer 5

Business chooses to locate nearby their target market with the right sociocultural characteristics because:

• Quantitative reason: It best support their marketing and the costs of transportation.
• Qualitative reason: It best fits the business’ strengths of ties and knowledge of the local community. Internal stakeholders including owners and employees may have a preference for the quality of life in an area.

Question 6

technoloigcal factor of location

Answer 6

Business chooses their location according to following impacts of technological factors such as:

• Accessible efficient transport networks, allowing customers to visit stores and suppliers to deliver raw materials. Double sales whilst reducing costs.
• Increase in remote working ande-commerce, choosing to work from anywhere as orders can be delivered from anywhere to anywhere.

Question 7

Economic factors of location

Answer 7

Business chooses their location according to the economic situation their (land and facilities):

• Busy areas with high density to increase chance of attracting customers. Though, demand is high so renting and buying is also expensive.
• Availability, quality and cost of labour.→ Choosing skilled workers from one country and less skilled workers from another according to the business’ needs.
• Availability of suppliers. Lowers transportation cost if many suppliers near by.
• Clustering where similar business converge together so that a larger customer base comes to a location where the businesses are.

Question 8

Environmental and ethical factors of location

Answer 8

Environmental and ethical factors

The location of a business can have ethical implications as follows:

• Region with lower labour costs or weaker environmental protections would be considered unethical location decisions. Even if the lower cost seems appealing.
• Selecting areas in need of higher wage payment or regenerating ecological systems enhances the business’ CSR impacts.

Question 9

Political and legal factors of location

Answer 9

Business considers the political and legal environment of their location as:

• Areas of political unrest will lead to a chaotic economy and disrupted supply chains.
• Different countries’ regulations may impact businesses to import and export its resources.→ Benefits of another place is gone if tariffs are imposed.
• Governments may provide help to business if they locate in an area of high unemployment in order for the government to reach their own economic objectives.

Question 10

Ways of re-organising production, both nationally and internationally

Answer 10

Outsourcing (subcontracting)
Insourcing
Offshoring
Re-shoring

Question 11

Advantages and disadvantages of Outsourcing (subcontracting)

Answer 11

Outsourcing (subcontracting)involves a business hiring an external company to carry out a task that it could do itself.

A subcontractor is an external business that is hired to carry out a task on behalf of a business.

Benefits of outsourcing

• Clear arrangement of productions.
• Reduces investment costs for building and running factories as subcontractors are responsible of it.
• Less worry on production costs when demand drops as terminating partnerships with subcontractors can help. Thus, lower costs in the short term.
• Can concentrate on core activities.
• Can increase capacity when demand is high.

Limitations of outsourcing

• Loss of control, business cannot regulate production which may result in scandals for major consumer retailers, i.e. quality issues.
• Ethical issues may arise in subcontractor.
• Deliveries may not always be reliable.

Question 12

Advantages and disadvantages of Offshoring

Answer 12

Offshoringis the relocation of a business function to another country.

Benefits of offshoring

• Can lower costs due to lower wage payments and increase productivity.
• Less strict regulations as they’re usually in less developed or developing countries.
• Government incentives for foreign investments.
• Host country has more job opportunities, allowing economic movement.

Limitations of offshoring

• Increased difficulty in operations, communication and transportation.
• Scandalous. Regularly criticised for unethical practices such as exploitation of labour in low-income countries.
• Environmental damage as some countries has weak environmental protection laws policies.
• Potential cultural conflicts.
• Quality standards may vary.

Question 13

Advantages and disadvantages of Insourcing

Answer 13

Insourcinginvolvesending contracts with external suppliers to undertake previously outsourced business functions.

Benefits of insourcing

• In control and manage commercial secrets.
• May produce of higher quality or save costs if outsourcing did not meet such expectations.
• Help with supply chain issue.
• Creates jobs for local economy.
• Suitable for start-ups and smaller organisation.
• Has internal stakeholders with relevant skills, experience and know-how generally used.

Limitations of insourcing

• Employees may not have required knowledge to perform needed tasks.
• Companies wanting to expand overseas market cannot rely on growth strategy.

Question 14

Advantages and disadvantages of re-shoring

Answer 14

Re-shoringinvolves bringing back production to the domestic country from a location abroad.

Benefits of re-shoring

• Business has control of production processes and can be ware of supply chain situation, allowing higher quality products.
• Cost advantages.
• Domestic government provides financial incentives for businesses as it allows domestic employment opportunities.
• Allows higher effectiveness in managing supply chains.
• Reduced risks involved with offshoring.
• Not operating across different time zones.
• Helps producers avoid tariffs.

Limitations of re-shoring

• May result in higher costs of production.
• Expensive costs of reshoring.
• Lacks local expertise.
• Workers may be resistant to the change.
• Supply chains would need to be redeveloped.
• Workers abroad would lose their jobs. Something governments would care about.