5.4 Location

Question 1

Location

Answer 1

Deciding on the best location for a new business - or relocating an existing one - are some of the most important decisions made by management teams.
Location refers to the geographical position of a business.
The location decision depends on many factors that can be generally grouped under quantitative and qualitative factors.

Question 2

Location decision

Answer 2

• 3 characteristics:
  Highest level of management – never delegated
  Difficult to reverse due to costs of relocating
  Strategic decision –Long term and impact in the whole business
  Location matters because the wrong location can have huge impacts on:
  Operational costs
  Customer service levels
  Quality

Question 3

Quantitative factors affecting location decisions

Answer 3

Availability, suitability and cost of land
The quantity, quality and cost of land are important factors when choosing a location.

Availability, suitability and cost of labour
The availability and quality of labour affect the level of wages paid to workers,

Proximity to the market (customers)
Retail and service industries will locate near markets as their customers demand convenience.
Bulk-increasing industries are better off being located closer to the market due to high transportation costs of getting the product to customers.

Proximity and access to raw materials
The location chosen by a firm may depend on the raw materials needed.
Retail and service industries will locate near their markets as customers demand convenience.
Bulk-reducing industries locate near the source of raw materials that are heavier and more costly to transport than the final product.

Government incentives and limitations

Question 4

Reorganising production

Answer 4

Reorganizing production often takes place by firms to take advantage of the best that locations nationally and internationally have to offer.
Ways of reorganizing production nationally and internationally
A) Outsourcing (subcontracting)
B) Offshoring
C) Insourcing
D) Reshoring

Question 5

Qualitative factors affecting location decisions:

Answer 5

Management preferences

Infrastructure
This is perhaps the most common qualitative factor affecting location decisions, including its impact on employees commuting to work.

Political stability

Low rates of taxation

Government restrictions and regulations

Ethical issues
Decisions regarding the international location or relocation of a business often include ethical issues.
Examples include:
Noise polluting firms move to remote areas to avoid complaints from residents.

Question 6

Offshoring

Answer 6

Offshoring: Extension of outsourcing. The relocation of a business functions and processes overseas. Offshore Outsourcing
Offshored functions can remain within the business (operating abroad) or outsourced to an overseas organization. (offshore outsourcing)
Production offshoring- manufacturing
Services offshoring – call centres

Question 7

Offshoring advantages

Answer 7

Advantages
Wages may be lower in other countries, allowing to reduce costs.
Employment laws in overseas nations may be less strict, it may be easier and cheaper for a business to operate.
Can focus on its core competencies.
Job creation and career opportunities in the host country.

Question 8

Outsourcing

Answer 8

A) Outsourcing (Subcontracting): is the use of third-party subcontractors for carrying out non-core activities of an organization in order to improve operational efficiency and reduce production costs.
Subcontractors (the outsourced firms) perform the non-core activities, without compromising quality
For example: Cleaning, accounting, security

Question 9

Insourcing

Answer 9

Insourcing, use of an organization’s own people and resources to accomplish a task which would otherwise have been outsourced.
Enables the business to retain full control of its operations.
Businesses have been unhappy with the substandard output associated with outsourcing, this has been a major reason for the growing practice of insourcing.
Advantages
Can be cheaper than using an outsourced provider.
Better control of its operations.
It helps to develop institutional knowledge
It maintains or creates jobs in the local and domestic economy.
It is suitable for start-ups with little or no experience in using subcontractors.
Disadvantages
Employees may not have the required knowledge, outsourced specialists could be more effective and productive.
Multinational companies that want to expand in overseas markets cannot rely on insourcing as a growth strategy.
Reshoring (the practice of bringing back business functions to the domestic country) can be expensive as the costs of insourcing are likely to be high.

Question 10

Offshoring disadvantages

Answer 10

Disadvantages
Unethical practices- exploitation of labour and mistreatment of workers in low-income countries
Concerns about quality control and quality standards
Affected by external environment, STEEPLE
Potential problems from cultural issues and language barriers, possibly leading to misunderstandings and conflict.
Can lead to redundancies in the domestic economy.
Can be problems due to a lack of local knowledge and awareness of local business etiquette.

Question 11

Outsourcing advantages

Answer 11

Advantages
Can concentrate on its core activities and strategy
Gains from the specialized services and cost advantages of the third-party partner
Can cut production costs and improve efficiency and profitability.

Question 12

Outsourcing Disadvantages

Answer 12

Disadvantages
Quality issues and concerns can arise
Requires effective communication
costs involved in monitoring and maintaining professional relationships with subcontractors
There can be potential conflict of interest with third party providers.

Question 13

Insourcing advantages

Answer 13

Advantages
Can be cheaper than using an outsourced provider.
Better control of its operations.
It helps to develop institutional knowledge
It maintains or creates jobs in the local and domestic economy.
It is suitable for start-ups with little or no experience in using subcontractors.

Question 14

Insourcing disadvantages

Answer 14

Disadvantages
Employees may not have the required knowledge, outsourced specialists could be more effective and productive.
Multinational companies that want to expand in overseas markets cannot rely on insourcing as a growth strategy.
Reshoring (the practice of bringing back business functions to the domestic country) can be expensive as the costs of insourcing are likely to be high.