National Institute of Technology 2009-1st Sem M.B.A International Business IV Sem - - Question Paper

Infrastructure comprising construction materials and equipment, electricity, water, transportation, telephone, medical care, education, housing, entertainment, and other services will also determine the attractiveness of a country as a site for a location.

Culture of the land, particularly residing circumstances for foreign workers and their dependents, religious, religious holidays and traditions, will have an impact on facility location. Finally, country-of-origin that is brand preferences of local customers should also be considered. Often, an International business needs to counter negative sentiments such as “not made in this country” or “Swadeshi”.

Technological Factors: The kind of technology a firm uses in its production process can be decisive in location decisions. Technological constraints may render it feasible to perform certain manufacturing activities in only 1 location and serve the world market from there. Fixed costs of setting up a manufacturing plant are so high that a firm must serve the world market form a single location or from very few locations. For example, it can cost more than $1 billion to setup a plant to manufacture semiconductor chips. In such cases, a single plant makes sense.

Technology may also render or feasible to perform an activity from multiple locations. This is particularly actual when fixed costs to setup the facility are low. Multiple locations are advantageous as they permit accommodating demands for local responsiveness. Manufacturing in multiple locations may also help the firm avoid becoming too dependant on 1 needs.

Product Factors: Product related factors may also influence the location decision. Among the more important of these are the product’s values to weight ratio and if it is serving universal needs.

Value to weight ratio refers to the share of transportation costs in the total costs. Electronic components and pharmaceuticals have high value to weight ratios; they are expensive but do not weigh much. Even if they are shipped halfway around the world their transportation costs account for a very small percentage of total costs. Obviously, there is compulsion to manufacture these items at an optimum location and serve the world market from there. Iron ore, cement, coal, bulk, chemicals, and agricultural commodities have low value to weight ratio and they tend to be produced in multiple locations to minimize transportation costs.

The 2nd product feature that can influence location decision is whether the product serves Universal needs, needs that are identical all over the world. Such products include calculators and personal computers. Since there are few national differences in consumer tastes and preferences for such products, the need for local responsiveness is decreased. This increases the attractiveness of concentrating manufacturing at an optimal location.

Earning:   Approval pending.