5.4 Location

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.