Location And Scale A2

Question 1

Explain the importance of location and scale

Answer 1

-there is often a need to decide upon location of new business or relocating or expanding an existing one
-Selection of best site or optimal location—-will have sig effect on overall success of business

Question 2

What are the three key characteristics related to location decisions?

Answer 2

Strategic in nature-as they are long+ have an impact on whole business
Difficult to reverse if an error of judgement is made -due to the cost of relocation
Taken at highest management level -they are not delegated to subordinates

Question 3

Define optimal location

Answer 3

Is a business location-that gives the best combination of quantitative and qualitative factors

Question 4

What are the quantitive factors that have an impact on optimal location

Answer 4

These are factors-measurable and financial terms + will have a direct impact on either cost of a site or revenues from it+ it’s profitability
-Labour costs
-Site or other costs such as building
-Transport costs
-Sales revenue potential
-Government grants

Question 5

What are the quantitative factors affecting optimal location

Answer 5

Non-measurable factors-may influence business decision decisions
-Safety
-Room for further expansion
-Managers preference
Ethical considerations
Environmental concerns
Infrastructure

Question 6

Explain local national and international location decisions

Answer 6

Issue considered so far could apply to any location decision— new start-up business+ relocation of existing business or or expansion of existing business
-These issues are all relevant whether the location decision is regional+ national+ international one

-Local location decisions— refer to bsts that often have one branch or office+ generally near the owners home
-National location decisions— apply to much larger bsts that operate on several or many branches in different regions in one country
-International location decisions— apply to businesses that operate in more than one country ( multi nationals)

Question 7

Define globalisation

Answer 7

Is the increased movement of goods?+ people.+ finance from one country to another.
-It has connected the entire world and this has made the countries engage with each other much more as compared to past times

Question 8

What are the benefits of globalisation?

Answer 8

Globalisation has allowed bsts to relocate their bst internationally+ enjoy several benefits such as

-Access to new natural resources
-Ability to avoid trade barriers
-Able to take benefits of government support
-Cut down cost such as labour costs

Question 9

Define multi site location

Answer 9

This is where the bst— operates from more than one location
Mostly large businesses operate on more than one site

Question 10

What are the advantages of a multi site location?

Answer 10

-Greater convenience for customers eg McDonald’s restaurants in every town
-Lower transportation costs
-Cost advantages of multi sites in different countries
Production based companies -reduce the risk of supply disruption if there are technical or industrial problems in one factory

Question 11

What are the disadvantages of a multi site location?

Answer 11

Coordination problems between locations
Potential lack of control + direction from senior management based at head office
-Different cultural standards+ legal systems in different countries+ and the business must adapt to these differences
If sites are too close to each other -may be a danger of cannibalism-where one location take sales away from another location

Question 12

What are the reasons of offshoring

Answer 12

1 to avoid trade barriers-of showing can minimise needs of importing products after production+ this will eliminate need to pay import tariffs leading to a fall in cost for bst

2 access to well qualified staff— of showing might allow bst to get access off better skills+ qualified staff
Quality of staff can directly affect success of business

3 of showing allows access to global markets-allowing bst to sell products throughout the world+ get access to new customers= increase sales+ profit potential of the bst

Question 13

What are the problems of? Offshoring or reasons of reshoring

Answer 13

Cultural differences — challenge for offshore outsourcing
-Cultural norms + values of two different cultures can often be different — can lead to misunderstandings + conflict due to cultural barriers

-Supply chain concerns—-there may be loss of control over quality+ reliability of delivery with overseas manufacturing plants
-Using just in time manufacturing may become risky if important supplies have to be shipped thousands of miles to an assembly plant

-Communication/language barriers— distance of a problem for effective communication
Eg face-to-face direct contact is less likely
Problem is made worse when some operations are abroad + when company employees+ suppliers or customers use a different language altogether

Question 14

Define scale of operation

Answer 14

Is level at which the business is operating?
-Larger the scale of operation- —-more inputs the business will be using+ higher the output it will be producing
-Ability of a business to produce output also define its scale of operation
-Maximum possible output can only be increased— in long-term term— by employing more of all inputs

Question 15

What are the factors that influence the scale of operations?

Answer 15

Owners objectives— they may wish to keep the business small+ easy to manage

Capital Available -if this is limited-then growth will be less likely

Size of market the firm operates in-a very small market-will not require large scale production

Number of competitors — the market share of each firm-may be smaller if there are many rivals

Scope for economies of scale — if these are substantial-each business is likely to operate on larger scale

Question 16

Define internal economies of scale

Answer 16

Economies of a scale-is the reduction in a firms unit cost of production-that results from an increase in the scale of operations

Question 17

What are the reasons for cost and benefits of internal economies of a scale?

Answer 17

1 purchasing economies
-when bsts by the inventory in large quantities-able to gain discount discounts from bulk buying— reduces unit cost of each item bought+ gives firm advantage over small bst which buy in small quant

2 marketing economies
Larger firms have various cost benefits in relation to marketing of their products
-Discounts over large television advertisements+ owning a distribution network

3 financial economies
Larger bsts have access to much larger sources of finance+ banks usually offer lower interest rates
-Allows larger businesses to raise finance-much cheaply compared to small bsts

4 managerial economies
Larger businesses able to afford specialist manager— such as marketing manager+ qualified accountant- -their efficiency leads to decreased average cost

5 technical economies
-Larger business is able to afford modern production methods+ innovative technologies— leading to decreased average cost

Question 18

What are the factors that lead to an increase in average costs as a business grows beyond a certain size?

Answer 18

-Poor communication— as bst grows-the communication network may get slow+ inaccurate— can lead to lower efficiency+ increased average costs

-Low morale— in larger bsts- x it gets difficult to establish close relations btw workers+ top management— this may mean low moral+ low efficiency of workers

-Slow decision making— it often takes longer for the decisions made by managers- to reach all workers
-Slow decision-making may create problems+ increase average cost of the bst

Question 19

How can we avoid this economies of scale?

Answer 19

Decentralisation-this is passing down authority to lower levels of management
-Middle or lower management will now be in control+ coordination will become easy

Reduce diversification -this is where bst focuses on its score activities— rather than stepping into different bsts

Management by objectives -this is where objectives are broken down into sub objectives+ individuals are given responsibility to deliver their area of objectives