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Key issue 3

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  • 1. Key Issue 3Ms. Patten2007
  • 2. A company usually facestwo geogrphical costs: 1) site 2) situation
  • 3. Site Factors Result from the unique characteristics of a location The cost of conducting business varies among locations, depending on the costs of three factors – Land – Labor – capital
  • 4. Land – modern factories tend to be more suburban or rural – need for large tracts of land; single story buildings – cheaper in rural or suburban locations – accessible to energy sources: water, wood, coal, hydropower – other amenities including climate, recreation, culture, topography, cost of living
  • 5. Labor labor intensive = labor cost is a high percentage of expenses highly skilled vs less skilled clothing: LDC’s (Asia); in US from NE to SE (less union) Levi’s: no plants in US after Dec 2003; jobs have been outsourced to China wool remains in NE electronics requires skilled workers in NY, Mass, CA near major University centers
  • 6. Capital refers to the availability of investment funding California’s Silicon Valley financial incentives are a means of luring a business to locate in your community; incentives include grants, low cost loans, tax breaks
  • 7. Situation Factor Involve transporting materials to and from a factory – Transportation of raw materials to factory – Transportation of finished goods to market
  • 8. Location Near Inputs Include resources or parts or materials made by other companies (outsourced) Copper Industry-Arizona – BR: final product weighs less than inputs – Also energy hungry Steel Industry – Map on page 382
  • 9. Location Near Markets Bulk Gaining – Gains volume or weight during production – Soft drinks/fabricated metals Single Market Manufacturers – High fashion apparel/motor vehicle parts Perishable Products – Dairy/newspapers
  • 10. Ship, Rail, Truck or Air The farther something is transported the lower the cost per mile – Decreases at different rates for each mode because loading/unloading costs vary with mode Trucks used most often for short distance Trains used most often for long distance Ship is attractive for longest distances Air most expensive alternative but valued for speedy delivery of small bulk, high value packages

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