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Factors affecting location decisions in international operations a Delphi study

B.L. MacCarthy
Operations Management Group, University of Nottingham, Nottingham, UK, and

W. Atthirawong
Department of Mathematics and Computer Science, King Mungkuts Institute of Technology Ladkrabang, Bangkok, Thailand
Keywords International business, Location, Delphi method Abstract Only a limited amount of research has been reported on factors inuencing international location decisions for contemporary manufacturing operations. In this paper a comprehensive set of factors that may inuence international location decisions is identied from an analysis of the existing literature. Results are presented from a Delphi study that used a worldwide panel of experts to investigate factors affecting international location decisions. Findings are reported on the motivations of rms in seeking to manufacture across national borders and the key steps that should be followed in making international location decisions. The top ve major factors identied that may strongly inuence international location decisions generally were: costs, infrastructure, labour characteristics, government and political factors and economic factors. Ten key sub-factors identied were: quality of labour force, existence of modes of transportation, quality and reliability of modes of transportation, availability of labour force, quality and reliability of utilities, wage rates, motivation of workers, telecommunication systems, record of government stability and industrial relations laws. Additional sub-factors of increasing importance include: protection of patents, availability of management resources and specic skills and system and integration costs. The factors identied have implications for management practice, for policy-making by governments and other agencies and for academic research in international operations.

Introduction Making location decisions for the production of products is a key aspect of strategic and logistical decision-making for manufacturing rms. The optimum locations may offer competitive advantage and may contribute to the success of an enterprise. The number of rms considering location on a worldwide basis continues to increase (Flaherty, 1996). A very wide range of factors may potentially inuence rms in deciding to locate production
International Journal of Operations & Production Management Vol. 23 No. 7, 2003 pp. 794-818 q MCB UP Limited 0144-3577 DOI 10.1108/01443570310481568

The authors are most grateful to all the panellists who participated in the study and the six academics and two industrialists for their valuable comments on an earlier pilot study. Because of length restrictions, the questionnaires have not been included here but are available from the authors bart.macarthy@nottingham.ac.uk, kawalail@kmitl.ac.th. or awarawut@ksc. th.com. In fact the questions and their form can be inferred from the questionnaire section of the paper and the sub-headings in the results section.

facilities across national boundaries. A great deal of attention has been paid in the research literature to critical factors in industrial location decisions for over a century (Jungthirapanich and Benjamin, 1995). However, the literature specically on international location decisions is more limited. Only a limited amount of research has been reported that discusses the factors recognised, and considered in practice, in international location decisions (Badri et al., 1995; Eenennaam and Brouthers, 1996; Atthirawong and MacCarthy, 2001). The study reported here addresses this gap in knowledge on international location decisions. In this paper, we identify from the literature a comprehensive set of factors and sub-factors that may inuence international location decisions. We then present the results of a Delphi study carried out to examine the motivations for international location decisions and the relative importance of different factors in inuencing international location decisions. A worldwide panel of experts that included academics, representatives from government bodies and consultants participated in the study. The results and implications of the study for international location decisions are discussed. In the next section, factors and sub-factors affecting international location decisions are identied and this is followed by a description of the Delphi process. The results of the Delphi study are then presented and their implications discussed. Factors relevant to international location decisions Factors inuencing international location decisions are discussed by Badri et al. (1995), Hoffman and Schniederjans (1994) and Canel and Khumawala (1996). Jungthirapanich and Benjamin (1995) provide a chronological summary of research studies undertaken between 1875 to 1990 on general industrial location, revealing that, frequently in the past, a limited number of quantitative factors such as transportation and labour costs were considered when rms made a location decision, but that more recently an increasingly wide range of both qualitative and quantitative factors have been evident. Costs are a major consideration in many international location decisions and there may be trade-offs between different types of costs. Qualitative issues such as social and political factors are also inuential in many international location decisions. A survey conducted by Badri et al. (1995) indicates that global competition and economic-related factors are more notable than conventional location factors such as transportation costs and climate when rms decide to do business abroad. A number of factors such as nancial incentives and tax structure may be inuenced or controlled by host governments and such factors will vary from country to country. The importance of the various factors may change signicantly over time (Epping, 1982). Location factors can be considered and classied in a variety of ways (Lee and Franz, 1979; Epping, 1982; Sule, 1994; Evans et al., 1990; Nahmias, 1993;

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Hoffman and Schniederjans, 1994; Barkley and McNamara, 1994; Burnham, 1994; Badri et al., 1995; Chase and Aquilano, 1995; Dilworth, 1996; Badri, 1996; Russell and Taylor, 1998; Dorneir et al., 1998; Badri, 1999). A detailed study of the literature was made to identify a fully comprehensive set of factors and sub-factors that are potentially relevant to international location decisions (Atthirawong and MacCarthy, 2000; MacCarthy and Atthirawong, 2001). These factors are summarised in Table I. There are 13 major factors identied. For each major factor a set of specic sub-factors are identied. This Table of factors and sub-factors covers both quantitative and qualitative aspects relevant to location decisions and includes operational, strategic, economic, political, social and cultural dimensions. This comprehensive set of factors and sub-factors is used in the Delphi study described in the next section. A number of techniques have been advocated in the literature to aid location decision making (Brandeau and Chiu, 1989; Sule, 1994; Revelle and Laporte, 1996; Hayter, 1997). The work reported in this paper focuses on understanding the factors that are motivating and inuencing international location decisions more generally and hence a research tool the Delphi approach capable of eliciting expert information is used. This approach is described below. The Delphi approach A Delphi study is a systematic, iterative process to elicit a consensus view from a panel of experts. The approach is often used as a qualitative forecasting technique but is also used to investigate and understand the factors that inuence or may inuence decision-making on a specic issue, topic or problem area. A single opinion may be incorrect, misinformed or tend to a narrow view. The Delphi approach uses a representative group of experts to generate a more accurate and more informed response than is obtainable from one individual. The method is different from brainstorming or other group approaches in that it avoids group interactions of individuals, which may result in induced responses. The approach helps to reduce the inuence of dominant individuals and to develop a consensus of expert opinion on subjective issues (Ray and Sahu, 1990; Azani and Khorramshahgol, 1990; Klassen and Whybark, 1994; Green and Price, 2000). An important feature of the Delphi approach is the reporting of divergent opinions in the absence of full consensus. The Delphi method was employed originally in the early of 1950s using military experts to estimate the likelihood of the effects of an atomic bombing (Linstone and Turoff, 1975; Benson et al., 1982). Since then its usefulness has been demonstrated in a range of areas outside of defence applications including forecasting (Lynch et al., 1994), strategic planning (Iverson and Jorgensen, 1986; Ray and Sahu, 1990; McKnight et al., 1991) and supply chain strategy (Harland et al., 1999). In operations and production management disciplines, Ray and Sahu (1990) employ the Delphi technique in investigating productivity management in India. Klassen and Whybark (1994) apply the Delphi method to

Major factors Costs

Sub-factors Fixed costs; transportation costs; wage rates and trends in wages; energy costs; other manufacturing costs; land cost; construction/leasing costs and other factors (e.g. R&D costs, transaction and management costs etc.) Quality of labour force; availability of labour force; unemployment rate; labour unions; attitudes towards work and labour turnover; motivation of workers and work force management Existence of modes of transportation (airports, railroads, roads and sea ports); quality and reliability of modes of transportation; quality and reliability of utilities (e.g. water supply, waste treatment, power supply, etc.) and telecommunication systems Quality of suppliers; alternative suppliers; competition for suppliers; nature of supply process (reliability of the system) and speed and responsiveness of suppliers Proximity to demand; size of market that can be served/potential customer expenditure; responsiveness and delivery time to markets; population trends and nature and variance of demand Close to parent company Location of competitors Quality of environment; community attitudes towards business and industry; climate, schools, churches, hospitals, recreational opportunities (for staff and children); education system; crime rate and standard of living Compensation laws; insurance laws; environmental regulations; industrial relations laws; legal system; bureaucratic red tape; requirements for setting up local corporations; regulations concerning joint ventures and mergers and regulations on transfer of earnings out of country rate Tax structure and tax incentives; nancial incentives; custom duties; tariffs; ination; strength of currency against US dollar; business climate; countrys debt; interest rates/exchange controls and GDP/GNP growth, income per capita Record of government stability; government structure; consistency of government policy; and attitude of government to inward investment Different norms and customs; culture; language and customer characteristics

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Labour characteristics

797

Infrastructure

Proximity to suppliers

Proximity to markets/customers Proximity to parent companys facilities Proximity to competition Quality of life

Legal and regulatory framework

Economic factors

Government and political factors Social and cultural factors

Characteristics of a specic Availability of space for future expansion; attitude of local location community to a location; physical conditions (e.g. weather, close to other businesses, parking, appearance, accessibility by customers etc.); proximity to raw materials/resources; quality of raw materials/resources and location of suppliers

Table I. Summary of major criteria and sub-factors affecting international location decisions

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identify the key barriers in the management of international operations. Green and Price (2000) have speculated on the future direction of facilities management using a Delphi panel in the UK. An application using Delphi concerning location planning is reported by Azani and Khorramshahgol (1990). The Delphi method uses a panel of experts who have experience and/or knowledge of the subject being studied. Hence the panel is not generally selected randomly. Benson et al. (1982) and Tavana et al. (1996) note that the Delphi method comprises three particular features: (1) anonymity among the panel of experts; (2) obtaining a statistical group response from a well-designed questionnaire; and (3) controlled feedback. The panel of experts must be selected carefully. It should comprise a group of people who are both familiar with, and knowledgeable on the problem domain being considered and they should be mutually anonymous. The panel is then asked to respond to a questionnaire. All questionnaire responses and comments are combined and analysed in order to statistically collate and summarise the results for another round of the process. An interim report is sent back to panellists summarising the group response. This iterative process may be continued further until consensus and/or clarity is produced. Finally the results from the process are reported. A key part of the process is designing the questionnaire. The methodology used for this study The pilot study A questionnaire was developed based around the factors and sub-factors presented in Table I. It was rst pre-tested with a number of colleagues to check for clarity and consistency and appropriate changes were made. Then a proper pilot study of the questionnaire was conducted with eight people who had knowledge of international location problems in order to provide comments and feedback. An international conference provides a good opportunity to elicit views from delegates with a range of expertise from a number of countries. Six academics and two industrialists attending the International Conference for Production Research (ICPR2000 in Thailand, 2-4 August, 2000) were selected and participated in the pilot. The sample size of the pilot study may appear small but the process needed a signicant period of time to discuss the questionnaire with each respondent. In the event the pilot study respondents made valuable contributions to the development and improvement of the questionnaire. The pilot enabled ambiguities to be highlighted and some sub-factors to be grouped, rearranged or removed. Thirteen major factors and 70 sub-factors were identied for consideration in the rst round of the Delphi study.

Questionnaire The questionnaire consisted of two parts. The specic issues addressed in Part A of the questionnaire were: . the motivations of rms that seek to manufacture internationally; . the key steps in the international location decision process; . the most difcult problem in making an international location decision and the ways to overcome the problem. The questions in Part A were open-ended and allowed participants to provide and express their opinions or add information freely and independently. Part B of the questionnaire focused on the relative importance for international location decisions generally of the major factors and their sub-factors. In Part B the importance of major factors affecting international location decisions was measured using a seven-point Likert scale. The Delphi panel and the Delphi process The focus in this study was to elicit knowledge and opinion from individuals with a broad cross-sectoral perspective on manufacturing location decisions. The panel was therefore designed to have representatives from academia, government and consultancies worldwide. Industrialists were not involved in this study but did take part in a further, related survey and in case studies (Atthirawong, 2002). The criteria used in identifying likely panel members were knowledge of, and interest in, international operations/international business and the ability to take a broad cross-sectoral view of the issues involved in international location decisions. A total of 38 persons across the world were invited to participate in the rst round of the Delphi study. The study was conducted in strict condence throughout and anonymity was guaranteed to respondents. When compared to some Delphi studies (such as Benson et al., 1982 and Klassen and Whybark, 1994), the sample size in this study may be considered small. However, the focus in this study is on eliciting qualitative information from an expert panel. Delphi studies must not be confused with conventional statistical sampling and inferences techniques. The panellists were chosen based on their experience and knowledge regarding the topic being investigated rather than being randomly surveyed. In this context, it was felt that the panel was sufciently knowledgeable and representative to provide a solid base for further study. The rst round of the questionnaire was mailed to the panellists in late October 2000. A reminder letter was sent via e-mail to all experts who had not replied, between November and December 2000. A total of 20 panellists agreed to participate in the rst round of the survey, giving a response rate of 51.3 per cent. The rst round responses were collated and analysed and an interim report was sent back to the rst round participants in July

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2001 in order to get feedback and comments. The interim ndings were presented mainly in graphical and tabular form. Each respondent was invited to make comments on any aspect of the interim ndings, to record their agreement or disagreement, to suggest revisions, clarications or to add further information. A reminder letter was sent to all panellists who had not replied, between September to November 2001. A total of 17 panellists replied to the second round, yielding a response rate of 85 per cent for the second round. The largest group of panellists (70.6 per cent) were academics that were active in research in international business and international operations, followed by consultants (17.6 per cent) and government ofcers (11.8 per cent), with expertise in the area. The panellists were based in Western Europe i.e. the UK, The Netherlands, Denmark and Italy (47.1 per cent), the USA (29.4 per cent), Asia i.e. Hong Kong, Japan and Thailand (17.6 per cent) and Middle-East i.e. United Arab Emirates (5.9 per cent). The responses from the second round demonstrated strong agreement on the broad ndings but added signicantly to the detailed ndings and interpretation. Most feedback was concerned with the priorities of the factors or the order of issues in particular contexts from the rst round. A number of specic items and comments, as well as additional factors relevant to particular contexts were added by the panel members. Overall, it was felt that a third round of the study would not add to the understanding provided by the rst two rounds and thus the study was concluded. The results of the study based on the two rounds are presented below.

The results Part A of the questionnaire In Part A of the questionnaire the panellists were asked in open question format about the motivations of rms that seek to manufacture across national borders and the process of making international location decisions. The results for each of the four issues addressed in Part A of the questionnaire are presented below for both rounds of the study. Motivations of rms in seeking to manufacture internationally. Figure 1 shows the results from the rst round of the Delphi study. It reveals that the largest number of the panellists identied the major motivation for manufacturing outside national borders was the ability to gain access to low labour costs and to access labour skills in order to reduce the cost of production. Other important reasons highlighted were the ability to gain access to markets, tax incentives and other privileges from host governments, the ability to gain access to raw materials and technologies and to counterattack competitors. This rst category contains the combined responses for these two issues and hence its frequency can exceed 20.

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Figure 1. Motivations for manufacturing internationally

In the second round the panellists tended to agree with the above ndings. Nevertheless, some panellists noted that the ability to gain access to host raw materials may be equal to, or more important than, the ability to gain access to low costs when rms seek to manufacture internationally. It was also suggested that tax incentives and benets should rank more highly. Specic comments indicated that the motivations of rms might depend on type of business and the nature of the business environment. Steps in the international location decision process. There was strong consensus on the steps identied in the international location decision process over the two rounds of the study. The following steps are a summary of the preferred or expected procedure in making international location decisions: (1) Make clear the purpose for the overall business at the beginning of the process. (2) Investigate countries, regional factors, geographical considerations, location alternatives and conduct market analysis/economic analysis and feasibility studies. Help may be obtained from relevant agencies for many of the activities. (3) Identify both international and local factors involved for each alternative location. (4) Evaluate the alternatives against established criteria. The decision-makers should ensure that all criteria are clearly identied in the process of evaluation and all musts are fullled. Several methods were suggested by the panellists to evaluate the location alternatives, for instance, cost-benet analysis, risk analysis and go-no-go methods. (5) Make a selection and implement. Some specic and relevant comments emerged in the second round. One comment was that these steps are suitable only for large international rms, as small- and medium-sized rms may not have sufcient resources or budgets to

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follow the steps when considering international location choices. It was also noted that it is very important to investigate and take into consideration political factors in the second step, especially when considering some locations in the world such as the Middle East region. The most difcult problem in making international location decisions. This question generated a variety of opinions in the rst round. The panellists identied many problems that may arise in the international location decision process as shown in Figure 2. In the second round, the panellists did not argue with these ndings but some valuable comments were provided. For instance, it was noted that the meaning of many factors involved in the decision process was not clear enough and should be broken down into two types of factor: information and people. Specic comments also noted included the issue of how to get the right information and the right people in making international location decisions. Two panellists noted that the quality of information, experience of the analyst and available time are very important and could lead to major problems. Also, it was argued that combinations of qualitative and quantitative factors affect the decision process signicantly and make the process of decision-making complex. Recommendation on the ways to overcome the problem. A wide range of responses were given to this question without strong consensus in the rst round of the Delphi study. The panellists recommended a variety of ways to overcome the different types of problems mentioned above. The key recommendations identied that may help in addressing different problems in international location decision-making suggested from the rst round may be summarised as follows:

Figure 2. Most difcult problem in dealing with international location decision

Prudent analysis: eld research, better forecasting, accurate data, adopting a careful approach, identify risks, use clear logic and analyse all impacts, as well as checking with existing manufacturing networks. Professional advice/expertise: employ qualied consultants, professional advisors or hire local agents/local governments to investigate and pull stakeholders together at the beginning of the process. Tools: develop appropriate tools/models for decision making, as well as for trade-offs and risk assessment. Incentives: develop appropriate incentives, and relevant organisational structures.

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In the second round, some further comments were added on some of these issues. It was argued that an important part of prudent analysis is the process of reviewing the performance and success of multinational companies. Information on host governments rules and regulations can be found from relevant organisations. A specic comment was that these issues reected a large rm perspective. Another believed that a strong internal project team working in the organisation could help to overcome problems. It was also highlighted that post-implementation is another important stage that decision-makers should be concerned about. Two panellists were not in agreement on these issues, indicating that the approach would depend on the motivations of the rm. Part B of the questionnaire In Part B of the questionnaire, panel members were asked to rate the importance of the major factors and their sub-factors generally in international location decisions, using a seven-point Likert scale. The results for the major factors over the two rounds of the Delphi study are presented rst. The results for the most important sub-factors are then presented. The importance of major factors affecting international location decisions. In the rst round, the panellists were asked to rate the importance of 13 major factors for international location decisions generally. The mean ratings of these factors are presented in Figure 3 (1 not important to 7 very important). Cost is ranked highest among all major factors. Infrastructure, labour characteristics, government and political factors and economic factors are also signicant factors highlighted, in decreasing order. It is also apparent that the ratings for the top four factors i.e. cost, infrastructure, labour characteristics and government and political factors are very close to one another and all are rated relatively highly. The two factors rated of least importance were proximity to parent companys facilities and proximity to competition. In the second round, very few comments were made on the relative rankings of the 13 factors. It was noted by one panellist that proximity to markets/customers should rank more highly and that proximity to parent

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Figure 3. Key factors affecting international location decisions

companys facilities should be rated as of no importance. Two panellists suggested that each location decision is unique and different from others. Hence the importance of each factor might vary from one situation to another and would depend on sectors or market types. It was also noted that these factors are sometimes contradictory and sometimes complementary. It was recommended that a company should check the factors that are relevant to its goals. The importance of sub-factors. The relative importance of sub-factors was also explored in Part B of the questionnaire for each of the major factors above. Following the rst round of the study the results from the sub-factors of those major factors that had an average rating above 3.50 were fed back to panellists in the second round for comment. It was felt that an average rating above 3.5 for a major factor indicated that it was acknowledged as important generally in international location decisions and that its sub-factors should be explored. Eleven major factors had an average rating exceeding 3.5. The results for each sub-factor are summarised below. In each case (Figures 4 14) the sub-factors are ranked in decreasing order of mean scores. In the second round panellists were asked to comment on the rankings of each of these sets of sub-factors. In general, there was wide agreement across the panel on the order of the rankings of sub-factors in the second round but a number of comments, interpretations and reections were added. Costs. Figure 4 shows the relative importance of the sub-factors of costs obtained from the rst round.

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Figure 4. Relative importance of sub-factors of costs

The results from round 2 revealed that the majority of panellists agreed with the order of importance cost sub-factors but valuable additional comments were made. It was argued that the rankings might apply only for low-value types of operations. Some panellists also argued that the ranking of these sub-factors might vary by industry or sector. It was argued that for highly automated industries, wage rates might not be the most important factor. Land costs for instance are likely to be a more important factor in some types of industries. One panellist noted that other factors, specically system costs and integration costs are increasingly important but they are ignored by many managers. It was noted that utility and energy costs in the Gulf area attract some international companies in some sectors to move manufacturing plants to that region. Infrastructure. Figure 5 shows the relative importance of infrastructure sub-factors obtained from the rst round. Infrastructure is regarded as one of the most important factors in dealing with international location decisions.

Figure 5. Relative importance of sub-factors of infrastructure

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In the second round, a small number of panellists argued against the ranking of these sub-factors, with reasons such as telecommunication systems being increasingly important in some businesses. Labour characteristics. Figure 6 displays the relative importance of the sub-factors of labour characteristics obtained after round 1. There was a high degree of consensus on these ndings in the second round of the study. It was argued that the importance of attitudes towards work and labour turnover should rank more highly. Importantly it was noted that in addition to the availability of labour force, availability of management resource and specic skills are also critical. Government and political factors. Figure 7 presents the relative importance of the sub-factors of government and political factors obtained after round 1.

Figure 6. Relative importance of sub-factors of labour characteristics

Figure 7. Relative importance of sub-factors of government and political factors

There was also general agreement among panel members on these sub-components and their rankings after the second round. It was suggested that consistency of government policy is more likely to be important than record of government stability in some particular countries such as those in the Far East. It was noted that rms should also consider the historic relationships between host and home countries when considering international location decisions. Economic factors. Figure 8 presents the relative importance of economic sub-factors obtained after the rst round of the study. In the second round of the study most panellists agreed with the rankings. However, it was noted that this ranking may reect the location of manufacturing plants in the developing countries. It was also noted that the strength of currency against the US dollar may be an important issue in international location decisions and should rank more highly, as it directly affects costs and prot. Legal and regulatory framework. Figure 9 presents the relative importance of the legal and regulatory framework sub-factors, obtained after round 1. There was strong consensus on these issues after the second round of the study. It was noted that well-established bankruptcy laws are an important aspect of the legal system sub-factor. An important comment was that protection of patents is increasingly important in international location decisions. Proximity to markets/customers. Figure 10 presents the relative importance of the sub-factors of proximity to markets/customers, obtained from the rst round.

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Figure 8. Relative importance of sub-factors of economic factors

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Figure 9. Relative importance of sub-factors of legal and regulatory framework

Figure 10. Relative importance of sub-factors of proximity to markets/customers

The panellists largely agreed on this issue after the second round of the study. However, it was commented by some of the panellists that the relative importance of these issues would depend on the objectives and strategic motivations of the rm. Proximity to suppliers. Figure 11 presents the relative importance of the sub-factors related to proximity to suppliers, obtained from the rst round. The results from the second round revealed that the panellists clearly agreed with these issues and their relative importance. However, it was commented that the rankings of these issues might be appropriate only for some countries. Quality of life. Figure 12 presents the relative importance of the sub-factors of quality of life, obtained from the rst round.

There was a high consensus on these rankings across the panel members after both rounds of the survey. However, it was commented by one panellist that these issues are not signicant for many countries when considering international location decision choices. A specic comment was made that the crime rate sub-factor should be replaced with police record in combating crime. Characteristics of a specic location. Figure 13 shows the relative importance of the sub-factors of characteristics of a specic location, obtained from the rst round. In the second round, most of the panellists agreed with the results. Two issues were identied. First, one panellist noted that these ndings might t with some particular geographical areas such as the developing countries rather than international location decisions in general. The second issue noted was on the ranking of some sub-factors. One panellist suggested that the attitude of local community to a location should rank more highly and this

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Figure 11. Relative importance of sub-factors of proximity to suppliers

Figure 12. Relative importance of sub-factors of quality of life

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sub-factor is increasingly signicant over time. It was also felt by a panellist that the physical conditions issue might rank more highly. Social and cultural factors. Figure 14 shows the relative importance of the social and cultural sub-factors, obtained from the rst round. Overall, the panellists agreed with the rankings of these sub-factors after the second round. It was argued by a panellist that language should be the most important issue among all components, while another argued that customer characteristics should rank in the top position. It was also commented that culture was a vague term and could mean anything. Summary of key ndings The key ndings from the Delphi study can be summarised as follows: (1) The major motivations for rms to manufacture across national borders are, in order of decreasing importance: . ability to gain access to low labour costs and labour skills; . ability to gain access to markets; . tax incentives and other privileges from the host government; . ability to gain access to host raw materials and technology; . counterattack against competitors.

Figure 13. Relative importance of sub-factors of characteristics of a specic location

Figure 14. Relative importance of sub-factors of social and cultural factors

(2) However, motivations may depend on the type of business or nature of the business environment. (3) Five steps are identied in making international location decisions: . make clear overall business strategies; . investigate regional and country-specic factors; . identify relevant factors for each location alternative; . evaluate the alternatives against established criteria; . select location and implement. (4) The top ve factors identied that may strongly inuence international location decisions generally are, in decreasing order of importance: . costs; . infrastructure; . labour characteristics; . government and political factors; . economic factors. (5) The importance of factors affecting international location decisions is inuenced by the sector and market type. (6) All sub-factors identied from the list of each of the major factors were ranked according to their average scores. The top ten sub-factors identied, that may strongly inuence international location decisions are listed below in decreasing order of importance: . quality of labour force; . existence of modes of transportation; . quality and reliability of modes of transportation; . availability of labour force; . quality and reliability of utilities; . wage rates; . motivation of workers; . telecommunication systems; . record of government stability; . industrial relations laws. (7) However, concerns were expressed by some panellists with regard on some of these sub-factors. They might not be signicant in particular geographical regions or may be relevant for some types of operations only. Additional sub-factors identied, which are increasingly important in international location decisions are:

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protection of patents; availability of management resources and specic skills; . system and integration costs; . historic relationships between host and home countries. (8) Location factors and their importance vary depending on the nature or type of business and may depend on the geographical region in which location is being considered. Each business sector has specic factors that rms take, or should take into consideration when considering a location choice and the importance of each factor is not equal for every case. Each geographical area has prominent factors that may inuence location decisions. (9) The quality of people used in the decision making process as well as having the right information are highlighted as being of particular concern when dealing with international location decisions.
. .

Discussion The study has explored the dominant motivations for, and factors affecting companies in deciding to make international location decisions for manufacturing plants generally. The signicance of the ndings is discussed below. Motivations for location internationally The ndings lend support to other studies which suggest that companies are driven by a variety of motives when they decide to locate internationally, for instance, the ability to gain access to low costs of production, the ability to gain access to markets, tax incentives and benets from the host governments (e.g. Christopher, 1994; Dunning, 1994; Ferdows, 1997). An important issue highlighted by the panellists is that the motivations depend on type of business and nature of business environment. Pongpanich (1999) supports this view, noting that the ability to access markets is a key reason for location in consumer and commodity product sectors. Steps for the decision process The study has highlighted ve key stages in the decision-making process for international location choices. The stages identied develop and extend those noted in other studies (Vos, 1997; Pongpanich, 1999). Decision-makers should start with gathering information relevant to regional and country-specic factors for each location alternative with regards to the requirements and objectives of the rm. Such factors may be both tangible and intangible. Several methods are suggested to evaluate the location alternatives such as cost-benet analysis. However, decision-makers should ensure that all factors are evaluated for each location alternatives. A number of optimization modelling techniques based on

mathematical programming have been reported in the literature (e.g. Canel and Khumawala, 1996; Geotschalckx et al., 1998) but driven usually by a single quantitative objective, e.g. minimising the costs of investment. Such approaches are limited and need to be enhanced to allow qualitative factors to be analysed and integrated with quantitative factors in order to select an appropriate international location. Practical tools and techniques need to be developed for evaluating international location decisions that can take into consideration a wide range of factors including both objective and subjective aspects. Major factors inuencing international location decisions Costs: overall, costs are the most important factors highlighted in this study. Firms attempt to minimise costs while simultaneously maximising customer service and this is reected in location decisions. Christopher (1994) notes that location decisions are a fundamental factor of protability in international logistics. The signicance of cost factors is noted in a number of studies (Hoffman and Schniederjans, 1994; Jungthirapanich and Benjamin, 1995; Badri, 1996, 1999, Atthirawong and MacCarthy, 2001). This study has highlighted the relative importance of cost sub-factors and noted that their importance varies between different countries and industries. Although wage rates were ranked in the top ten of key sub-factors in this study, it was suggested by some of the panellists and has been noted by others (Slack et al., 2001) this may be signicant only for low-value operations such as textiles and clothing. Other sub-factors such as the cost of acquiring land in some countries may dominate the decision process in some instances. Infrastructure: infrastructure is also of major concern in international location decisions. The intensive competition in todays global business environment results in pressure to reduce the time to bring products to markets as well as demands by customers for higher levels of quality and improved delivery reliability. Infrastructure issues have, therefore, become crucial in international operations (Flaig, 1993). The existence, quality and reliability of modes of transportation, the quality and reliability of utilities and telecommunication systems have been highlighted in the study. Adequate modes of transportation are necessary to bring raw materials from suppliers to plants and to deliver products to markets as quickly and reliably as possible, enabling rms to reduce total cycle time effectively. Therefore, many rms seek to locate in countries where facilities and utilities are in good condition and are reliable. However, the importance of sub-factors may vary. For instance, telecommunication systems were noted as being important in some sectors by some of panellists, especially for high technology products, enabling swift transfer of information among various activities and more exible links between parent companys head ofces with their subsidiaries and customers. Other studies such as Atthirawong and MacCarthy (2001) note that adequate utilities, especially water and electricity supplies, are key elements for many sectors.

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Labour characteristic: location analysis is also driven by labour characteristics. The quality of the labour force is an increasingly critical issue and is found to be signicant in many studies (e.g. Doner and Brimble, 1998; Atthirawong and MacCarthy, 2001), as it may affect productivity, quality, waste and rework. In deciding to shift production overseas, it is also necessary to investigate the availability of workers. In some cases, it may be possible to send skilled workers from a parent company but recruitment of local workers is usually necessary (Burnham, 1994). Not only must rms consider the worker availability, they must also consider the attitude and motivation of local workers as this will inuence productivity. This study has also noted that availability of management resources and specic skills are increasingly important when considering the location of manufacturing activities. In practice, rms need to investigate local labour characteristics thoroughly for each location alternative before making international decisions (Krajewski and Ritzman, 1999). Government and political factors: this factor was ranked fourth of 13 major factors overall. There are only a few studies in international location decisions that address this factor or that attempt to capture it in location models as it is difcult to measure and analyse (Phatak, 1995). However, in practice, it can prove very important to the success of organisations. Sudden changes in a business environment may affect prot and other aspects of business. Chase and Aquilano (1995) agree that political risks in both the country of location and the host country should have a direct impact on a location decision. They further suggest that the consistency of government policies towards industrial development could also affect the growth of a business. It was also noted in this study that the attitude of government to inward investment is a major contribution to the development of business. Economic factor: economic factors such as tax incentives and tax structure, nancial incentives, custom duties, ination and interest rates have been receiving more emphasis in location choices and the study has highlighted the general importance of economic factors. However, surprisingly their sub-factors were not ranked highly. It was commented that the rankings of economic sub-factors are relevant only for some geographical areas. It was argued that an additional economic sub-factor the strength of currency against the US dollar should be ranked highly as the uctuations in exchange rates of currencies could directly affect many international operations. Some companies such as Colgate have lost more than ten million dollars from foreign exchange transactions, whereas others such as Exxon have gained a large amount of money from such transactions (Phatak, 1995). Conclusions and managerial implications This study was conceived in order to investigate and identify critical factors in international location decisions. The study has provided a broad view on

international location decisions. A comprehensive set of location factors relevant in the decision making process have been identied. A ranking of factors and sub-factors based on average ratings have also been reported. The study deployed the Delphi approach to capture and consolidate expert knowledge and opinion. The approach provides a well-established methodology to obtain information from a group of individuals who have relevant knowledge and experience. It helps to clarify concepts and adds rich context-based knowledge. The ndings reect opinions and views on international location decisions generally. The factors identied, and their importance, has implications for management practice, for policy making by governments and other agencies and for academic research. The ndings may be of benet to rms by bringing more understanding and a broader view of what the important factors are in dealing with international location choices. The identied steps in making international location decisions may assist international rms in conducting, analysing and evaluating manufacturing location choices. The ndings may provide guidelines for international rms to ensure that appropriate and relevant factors are taken into consideration in the early stages of the decision making process. The ndings may also help policy makers in formulating manufacturing policies and may help relevant national and local government ofcers to improve their abilities and roles in assisting the location process and in attracting and meeting the requirements of foreign investors. As with other survey methods or any Delphi-type study, the ndings reported here must be interpreted and generalised with care. The study provides broad and subjective views on factors affecting the international location process. The panel for instance was not chosen randomly. They were chosen based on their experience and knowledge regarding the topic being surveyed and on their willingness to participate. Delphi is primarily a qualitative knowledge elicitation approach that focuses on using an expert panel to arrive at a consensus of opinion. It is not designed for advanced statistical analysis and does not, in itself, show relationships or interactions between factors. The power of the Delphi approach is that it provides more understanding of complex problems than other survey techniques. The ndings reported here should provide a useful basis for other studies seeking to improve understanding of factors affecting international location decisions. Further studies using other methodologies such as structured interviews and detailed case studies are advocated to take the subject forward.

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