Exam 15: Managing International Operations

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Selecting the location for production facilities is called facilities location planning.Companies often have many potential locations around the world from which to choose a site for production,research and development,or some other activity.Aspects of the business environment that are important to facilities location planning include the cost and availability of labor and management,raw materials,component parts,and energy.Other key factors include political stability,the extent of regulation and bureaucracy,economic development,and the local culture,including beliefs about work and important traditions.
Reducing production costs by taking advantage of lower wages in another country is often essential to keeping a company's products competitively priced.This is especially important when the cost of labor contributes greatly to total production costs.But the lower wages of a nation's workforce must be balanced against its potentially lower productivity.Worker productivity tends to be lower in most developing nations and some emerging markets as compared with developed nations.
Although most service companies must locate near their customers,they must still consider a wide variety of customers' needs when locating facilities.
Supply issues are also important in location planning.For any one mode of transportation,the greater the distance between production facilities and target markets,the longer it takes for customers to receive shipments.In turn,companies must compensate for delays by maintaining larger inventories in target markets-adding to storage and insurance costs.Shipping costs are also greater when production occurs away from target markets.Transportation costs are one of the driving forces behind the globalization of the steel industry.By building steel mills in countries where their customers are located,steel producers significantly reduce their transportation costs.