IB Business Management 5.4 Location

Learning Outcomes The reasons for a specific location of production AO2 The following ways of reorganizing production, both nationally and internationally: AO3 outsourcing/subcontracting offshoring insourcing

Key Question Location, Location, Location….. Why is the decision on where to locate production so important?

Location matters because…. The wrong location can have huge impacts on: Operational costs Customer service levels Quality Also, changing location if the wrong decision is made can be very expensive

International and national location decisions Brainstorm and create a mindmap of the factors which would affect a firm’s decision on where to locate their production. Make sure that you consider these areas….. Labour Inputs Land Transport Political/ Economic Community/Social

Labour Factors Cost of labour Skill of labour Language Employment legislation

Inputs Availability and cost of raw materials Availability and cost of energy Lead times from suppliers

Land Cost of land (rent or buy) Availability of suitable land/premises Opportunities for expansion Infrastructure What might make these factors more/less important?

Transport Issues affecting the cost/time of transporting raw materials and finished goods Distance to suppliers Distance to customers Proximity to rail, road, air, links What might make these factors more/less important?

Political/Economic factors Political stability Grants/Incentives Business assistance available Import/Export tariffs Exchange rate stability Inflation rates Red tape/legislation

Community/Social factors Nearby facilities and amenities Proximity to competitors (external economies of scale) Support services Natural disasters

Is the Philippines an attractive location for locating production Write a list of pros and cons of the Philippines as an international location

What factors would be the most important for these businesses? Location Decisions

A car component manufacturer who supplies to Toyota

A Foxconn Factory to produce iPhones

A potato farm supplying McDonalds

An insurance company call centre

Are the following statements true/false. Explain why…. Task

Businesses will always locate as far away from their competitors as possible

The cheapest location is usually the best one to pick

It is more important for tertiary sector businesses to locate near to their customers

Manufacturing businesses must locate close to their suppliers so they can get their raw materials quicker

Location and the changing environment…… How could these issues impact on business location decisions?

The rise of E-Commerce

Decrease in shipping costs

Task Watch the video…… ‘How containerization shaped the modern world’

The work of the World Trade Organization (WTO) to ensure that trade flows as smoothly, predictably and freely as possible.

Emerging Markets

Relocation

Think…. Industrial inertia describes a stage at which an organisation chooses to run in its current location although the main alluring factors are gone. Why might a firm be reluctant to relocate? What factors might make a business consider relocation? Relocation is usually a decision that is costly in the short-term but cost saving in the long term

Difficulties of Relocation: Physical Relocation costs Loss of skilled and loyal workers Possibly new suppliers needed Potential damage to corporate image Redundancy payments Loss of production during transition phase

Question…. Which of the tools you have covered in the BM syllabus might be useful for businesses who are: Deciding whether to relocate or stay in their current location? Trying to decide between 3 alternative locations for their new factory?

Reorganising Production Outsourcing/subcontracting Offshoring Insourcing Reorganising Production

Task Write 2 mark definitions for the following terms: Outsourcing/subcontracting Offshoring Insourcing

Outsourcing/Subcontracting Production – Key Questions Why might businesses make the decision to outsource/subcontact? What difficulties might be encountered?

Off-Shoring– Key Questions Why might businesses make the decision to Off-Shore? For which types of business might this be a particularly attractive option? What would the key factors affecting the choice of country be? What difficulties might be encountered?

Insourcing– Key Questions Why might businesses make the decision to insource? What would insourcing involve? How might this impact on business costs? What difficulties might be encountered