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.