Introduction

• Optimal location: business location that gives the best combination of quantitative and qualitative factors.

Factors influencing location decisions

• Quantitative factors: measurable factors in financial terms and will have a direct impact on either the costs of a site or the revenues from it and its profitability.

  • Site and other capital costs such as building or shop-fitting costs

  • Labor costs

  • Transport costs

  • Market potential

  • Government grants

• Qualitative factors: non measurable factors that may influence business decisions.

  • Safety

  • Room for further expansion

  • Managers’ preferences

  • labor supply

  • Ethical considerations

  • Environmental concerns

  • Infrastructure

• Other locational issues:

  • Pull of the market

  • Planning restrictions

  • External economies of scale

  • Multi-site locations

Ways of reorganizing production - nationally and internationally outsourcing

• Outsourcing: using another business (a “third party”) to undertake a part of the production process rather than doing it within the business using the firm's own employees

• Subcontracting: practice of assigning to another business (the subcontractor) part of a contract for example, a specialist activity that makes up part of construction contract.

• Reasons for outsourcing:

  • Reduction and control of operating costs

  • Increased flexibility

  • Improved company focus

  • Access to quality service/resources

  • Freed-up internal resources

• Potential drawbacks to outsourcing and subcontracting:

  • Loss of jobs within the business

  • Quality issues

  • Customer resistance

  • Security

• Offshoring: relocation of a business process done in one country to the same or another company in another country.

  • Potential limitations of offshoring:

    • Language and other communication barriers

    • Cultural differences

    • Level of service concerns

    • Supply-chain concerns

    • Ethical considerations

Insourcing

• Insourcing: reverse of outsourcing as it is undertaking a business function or process within the business rather than contracting it to another business.

• Inshoring: ending offshoring contracts with overseas suppliers and returning functions or processes to business operations in the home country.