5.4. Location

  • Factors in choosing location of production
    • Quantitative factors
      • Availability, suitability, and cost of land
      • Availability, quality and cost of labour
      • Proximity and access to raw materials
      • Distance between raw materials and factory, factory to retail stores
      • Government incentives and limitations
      • Feasibility of e-commerce
    • Qualitative factors
      • Management preferences
      • Local knowledge
      • Infrastructure
        • Transportation networks
        • Communication networks
        • Support networks
      • Political stability and economic factors
      • Government restrictions and regulations
      • Ethical issues
        • e.g. pollution, job losses
      • Comparative shopping/clustering
        • Based on other businesses in the area
        • Similar vs. complementary goods
  • Relocation
    • Moving production to a different location
    • Maybe necessary due to higher rents or more attractive locations available
    • Limitations
      • Relocation costs
      • Lower morale of workforce
      • Loss of geographically immobile workers
      • Potential need to find new customers and suppliers
      • Loss of connection with local community
      • Possible damage to corporate image
      • Redundancy payments to employees
  • Location and business activity
    • Affects all functional areas of a business
      • HR – employees, local labor, wages by rivals, employees relocating
      • Marketing – different customers, availability of product, etc.
      • Production – resources, suppliers, competitors, quality
      • Finance – costs of land, licenses, regulations, etc.
  • Reorganizing production
    • Outsourcing/subcontracting
      • Transferring internal business activities to an external business/firm
      • Same as outsourcing in HR except in production perspective
      • Reasons for outsourcing
        • Activities are not of great importance
        • Business lacks specific skills
        • To cut costs
      • Advantages
        • High quality standards (from specialization)
        • Competitive prices (due to subcontractors)
        • Reduce labour costs
        • Business can focus on core activities
        • Improves workforce flexibility
      • Disadvantages
        • Redundancies
        • Affects morale
        • Requires careful monitoring of subcontractors
        • Presence of unethical practices
          • Can lead to stained brand image/reputation
        • Difficulty in quality management
        • ‘Cutting corners’
    • Offshoring
      • Extension of outsourcing
      • Relocation of business activities/processes abroad
      • Reduce costs but may affect quality of output
      • Same as offshoring in HR except in production perspective
    • Insourcing
      • Performing an otherwise contracted work internally
      • May involve bringing specialists in or training employees
      • Advantages
        • Greater control over business functions
        • May be cheaper overall (assuming business has the capacity)
        • Employees may be empowered
        • Boosts local economy
      • Disadvantages
        • Requires investment in either training or equipment
        • Employees may be overworked
        • Less focus on core business activities

 

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