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

Government policies will exercise considerable impact on location decisions. Government related factors include policies on foreign ownership of production facilities, extent of indigestion, import restrictions, currency restrictions, environment regulations, local product standards, stability issues, labour legislations and the like.

Related to government policies is the emergence of trading blocks. Trade agreements among the countries influence location decisions, both within and outside trading bloc countries. Firms typically locate, or relocate, within a block to take advantage of new market opportunities or lower total costs afforded by the trading agreement. Others firms (those outside the trading block) decide on locations within the bloc so as not to be disqualified from competing in the new market. Examples include the location of different Japanese auto manufacturing plants in Europe before 1992 as well as latest moves by many communications and financial services companies into Mexico in a post-NAFTA environment.

Organizational Issues: A firm’s business strategy, organization structure, and Inventory management are also determines of facility location.

A firm’s business strategy affects its location decisions in several ways. A firm that adopts a price leadership strategy must seek low cost location, while the 1 that focuses on product quality should locate facilities in areas that have adequate skilled labour and managerial talent. A firm may select to concentrate production geographically to better meet Organizational goals. Fisher and Paykel do this with its New Zealand production facilities to achieve better control of product design and quality. So is the case with Boeing, which has concentrated its final aircraft assembly operations in the Seattle area to take advantage of the skilled aviation machinist and engineering talent in the area. Several other firms seek to disperse their facilities to various foreign locations in order to meet their strategic goals. Intel has, manufacturing plants in the US, Ireland, Puerto Rico, Israel, Malaysia, and the Philippines to take advantage of the relatively low cost resources available in every of those markets. Delphi Corporation’s Indian subsidiary has plants to export half-shafts to North America, though the world’s biggest and most diversified automotive components and systems vendor has operations in North America it self. The Indian plant of Delphi has adopted the identical level of technology and yet has far lower staff costs than an American plant. Even if the logistics cost and higher transaction costs are factored in, India will be still cheaper as a production centre in International market by as two-digit percentage factor.

Earning:   Approval pending.