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