5.4.

Location

 Factors in choosing location of production

 Quantitative factors
 Availability, suitability, and cost of land
 Availability, quality and cost of labour
 Proximity and access to raw materials
 Distance between raw materials and factory, factory to retail stores
 Government incentives and limitations
 Feasibility of e-commerce
 Qualitative factors
 Management preferences
 Local knowledge
 Infrastructure
 Transportation networks
 Communication networks
 Support networks
 Political stability and economic factors
 Government restrictions and regulations
 Ethical issues
 e.g. pollution, job losses
 Comparative shopping/clustering
 Based on other businesses in the area
 Similar vs. complementary goods
 Relocation
 Moving production to a different location
 Maybe necessary due to higher rents or more attractive locations available
 Limitations
 Relocation costs
 Lower morale of workforce
 Loss of geographically immobile workers
 Potential need to find new customers and suppliers
 Loss of connection with local community
 Possible damage to corporate image
 Redundancy payments to employees
 Location and business activity
 Affects all functional areas of a business
 HR – employees, local labor, wages by rivals, employees relocating
 Marketing – different customers, availability of product, etc.
 Production – resources, suppliers, competitors, quality
 Finance – costs of land, licenses, regulations, etc.
 Reorganizing production
 Outsourcing/subcontracting
 Transferring internal business activities to an external business/firm
  Same as outsourcing in HR except in production perspective
 Reasons for outsourcing
 Activities are not of great importance
 Business lacks specific skills
 To cut costs
 Advantages
 High quality standards (from specialization)
 Competitive prices (due to subcontractors)
 Reduce labour costs
 Business can focus on core activities
 Improves workforce flexibility
 Disadvantages
 Redundancies
 Affects morale
 Requires careful monitoring of subcontractors
 Presence of unethical practices
 Can lead to stained brand image/reputation
 Difficulty in quality management
 ‘Cutting corners’
 Offshoring
 Extension of outsourcing
 Relocation of business activities/processes abroad
 Reduce costs but may affect quality of output
 Same as offshoring in HR except in production perspective
 Insourcing
 Performing an otherwise contracted work internally
 May involve bringing specialists in or training employees
 Advantages
 Greater control over business functions
 May be cheaper overall (assuming business has the capacity)
 Employees may be empowered
 Boosts local economy
 Disadvantages
 Requires investment in either training or equipment
 Employees may be overworked
 Less focus on core business activities