310ch11.ppt

GLOBAL GLOBAL LOCATION LOCATION DECISIONSDECISIONS

Chapter 11Chapter 11

Prepared by Mark A. Jacobs, PhD

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2

LEARNING OBJECTIVESLEARNING OBJECTIVES

You should be able to: Explain the impact of global location decisions on a

supply chain. Identify the factors influencing location decisions. Understand the impact of the Regional Trade

Agreements on location decisions. Use several location evaluation models. Understand the advantages of business clusters. Understand the importance of sustainable

development

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3

CHAPTER OUTLINECHAPTER OUTLINE

• Introduction • Global Location Strategies • Critical Location Factors• Facility Location Techniques• Helpful On-Line Information for Location

Analysis • Business Clusters• Sustainable Development

Introduction

Facility location must be part of the firm’s supply chain strategy.

Companies can locate anywhere in the world due to increased globalization, technology, transportation, & open markets.

Location still matters- industry clusters show that innovation & competition are geographically concentrated.

Global location decisions involve location of the facility, defining its strategic role, & identifying the markets it serves

Location Strategies

Dr. Kasra Ferdows suggests 6 location types Offshore factory - low cost investment & labor costs. Source factory - plant mgmt involved in supplier

selection & production planning. Server factory - firm uses government incentives & low

exchange risk & tariff barriers to reduce taxes & logistics costs.

Contributor factory - firm involved in product development, production planning, procurement decisions, & developing suppliers.

Outpost factory - embedded network of suppliers, competitors, research facilities for materials, components & products.

Lead factory - firm is source of innovation & competitive advantage of the organization.

Location Factors

Regional Trade Agreements (RTA) & WTO

World Trade Organization (WTO) successor to the General Agreement on Tariffs/Trade (GATT). Functions include:

Administering agreements, Forum for trade negotiations, Trade disputes, Monitor trade policies, Aid for Developing countries International organizations.

Location Factors (Continued)

RTA & the WTO (Continued) European Union (EU): [1950] Set up after the WWII, the

EU consists of 27 membersNorth American Free Trade Agreement (NAFTA): [1994]

among the U.S., Canada, & MexicoSouthern Common Market (MERCOSUR): [1991]

among Argentina, Brazil, Paraguay, & Uruguay Association of Southeast Asian Nations (ASEAN):

[1967] in SE Asia Common Market of Eastern and Southern Africa

(COMESA)

Location Factors (Continued)

Competitiveness of NationsDegree to which a country produces goods & services which meet the needs of international markets, while maintaining or expanding personal real income over time. Made up of 323 criteria, grouped into 4 factors –

1. Economic performance (79 criteria)2. Government efficiency (72 criteria)3. Business efficiency (71 criteria)4. Infrastructure (101 criteria)

Location Factors (Continued)

Rank Global Competitiveness Report (WEF)

World Competitiveness Yearbook (IMD)

1. Switzerland US2. Finland Singapore3. Sweden Hong Kong4. Denmark Luxemburg5. Singapore Denmark6. US Switzerland7. Japan Iceland8. Germany Netherlands9. Netherlands Sweden10. UK Canada

2006-07 World Competitiveness Rankings

Location Factors (Continued)

Table 11.2

Institutions Infrastructure Macroeconomic stability Health & primary

education Higher education &

training Goods market efficiency

Labor market efficiency Financial market

sophistication Technological

readiness Market size Business sophistication Innovation

Location Factors (Continued)

12 Pillars of Competitiveness

Government Taxes & Incentives Several levels of government must be considered

when evaluating potential locations. Countries with high tariffs discourage importing

goods into the country. High tariffs encourage multinational corporations to

produce locally. Many countries have foreign trade zones (FTZs)

where materials are imported duty-free as inputs to production

Location Factors (Continued)

Currency Stability Impacts business costs & consequently location decisions.

Environmental Issues Trade liberalization creates need for environmental

cooperation NAAEC – North American Agreement on Environmental

Cooperation Coordination on environmental issues will mitigate

Greenhouse gas production & Ozone depletion Production of Nitrogen & Sulfur Dioxide Deforestation

Location Factors (Continued)

Access & Proximity to Markets Relocation to China not just for cheap labor but for access

to the market In the service industry, proximity to customers is even

more critical Convenience is a factor in consumer choice

Labor Issues Labor availability, productivity, & skill Unemployment & underemployment rates Wage rates; turnover rates; labor force competitors Right-to-work laws

Location Factors (Continued)

Access to Suppliers & Cost Supplier proximity influences the delivery of materials

& effectiveness of the supply chain.

Utility Availability & Cost Supply of electricity has not kept pace with the high

speed of development. In heavy industries the availability & cost of energy

are critical considerations. Telecommunication costs have dropped dramatically.

Many organizations now have back office operations & call centers internationally to serve the U.S. market.

Location Factors (Continued)

Quality-of-Life Issues Education Economy Natural Environment Social Environment Culture/recreation Healthcare Government/politics Mobility Public Safety

Location Factors (Continued)

Land Availability & Costs As land & construction costs in big cities continue

to escalate, the trend is to locate in the suburbs & rural areas.

Location Factors (Continued)

Location Techniques

The Weighted-Factor Rating Model Compares the attractiveness of several

locations along a number of quantitative & qualitative dimensions.

Identify the factors Assign weights to each factor. The weights

sum to 1. Determine a score for each factor. Multiply the factor score by the weight, then

sum the weighted scores The location with the highest total weighted

score is the recommended location.

Location Techniques (Continued)

Helpful Online Information for Location AnalysisWeb sites that provide useful information for use

in location analysis: www.developmentalliance.com was developed by

the International Economic Development council & Conway Data, Inc

www.mappinganalytics.com was developed to aid in site selection for a wide array of businesses

Business Clusters

Geographic concentrations of interconnected companies & institutions.

Research parks & special economic/industrial zones serve as magnets for business clusters.

Reasons for success- close cooperation, coordination, & trust among

clustered companies fierce competition among rival companies companies recruit from local skilled workers