Unit 5.4 Location

By the end of the chapter You should be able to …  Explain the reasons for a specific location of production  Discuss the following ways of reorganizing production, both nationally and internationally  Outsourcing or Subcontracting  Offshoring  In-Housing or Reshoring

Location of Production  Location is one of the most important decisions a business makes – where to locate production and if and when relocation is needed.  Factors in Locating a business  The following slides will explore what a business must consider:

Costs  Key factor to determine location – what are they?  Land  Labor – skilled workers cost money  Transportation – costs could be crucial  Bulk Increasing – (buying many components and building something bigger) – may make sense to be close to the market  Bulk Decreasing – (Buying in large quantities, turning into smaller products i.e. paper mills, slaughter houses) may make sense to be close to raw materials

Other Factors to Consider  Competition – where are they  Strike a balance between finding a gap in the market, and not being too close to direct competitors  Cannibalistic Marketing – a franchise sets up many branches in the same area  Type of Land  Land varies in its suitability for certain types of businesses  Markets  Because of technology you don’t have to be physically close to customers to sell to them  Familiarity with the Area  Can have both advantages (you know the area) and disadvantages (you may not look beyond what you are familiar with)

Other Factors to Consider  Labour Pool  Workers critical to business  Need to consider workers available, demographic changes, etc.  Infrastructure  Transport networks, electronic networks  Also consider services – education, housing for workers, etc.  Suppliers – can you get the supplies you need when needed?  Government – role of government crucial for a business  Laws – Labour laws, health, safety, etc  Taxes – major impact – obviously higher taxes cut into profits  Regional Trading Blocs – major impact on business decisions

Impact of Globalization on Location  Analyzed in terms of “push factors” and “pull factors”  Pull – what will “pull” a business into a certain country or area?  Improved communications  Dismantling of trade barriers  Deregulation of world’s financial markets  Increasing size of multinational companies  Push – what will “push” companies to operate overseas?  Reduce costs – productive and financial economies of scale  Increase Market Share – first mover advantage in a large market  Use Extension Strategies  Use Defensive Strategies

Outsourcing (subcontracting) and Offshoring  Outsourcing – using another business (as a third party) to complete part of the work  Can help a business cut costs and lower prices  Examples of outsourcing  Marketing – use of an ad agency  Production – licensing a producer to make your product  HR – hiring a “headhunter” to find staff  Finance – hiring accountants to run an external audit

Advantages/Disadvantages of Outsourcing  Advantages  Reduce costs  Allows a business to focus on core activities  Quality of core products should improve  Delivery time can be reduced  Can lead to improved capacity utilization; transfer of expertise  Disadvantages  Business becomes dependent on the supplier  Business has less control over final product  Dilution of the brand could be a problem

Offshoring – an extension of outsourcing  Having goods produced or services provided in another country  All advantages and disadvantages apply  International aspect intensifies some  Cultural differences  Communication can be difficult  Issues of quality and ethics

In-housing and reshoring  New trend – reversing outsourcing.  In-housing – performing peripheral activities internally again.  Reshoring – taking back jobs lost to subcontracting overseas  Seeks to refocus on quality  New trend in international business  Too early to evaluate the extent to which it will impact manufacturers

Key Terms  Outsourcing or subcontracting  Offshoring  In-housing or insourcing  Reshoring  Cellular Manufacturing

Revision Checklist  Job(customized) production is market-oriented - the customer or client decides what the product should be. Often production of a special, one- off production  Batch production creates a group of identical products, which can be customized  Mass production creates a high volume of identical, standardized products  Flow, line or process production is an aspect of mass production – constant flow of materials  Cellular manufacturing is a form of manufacturing which involves the team concept.