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.