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Locational factors 2


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Locational factors 2

  2. 2. NEED FOR LOCATION DECISIONS • Marketing Strategy • Cost of Doing Business • Growth • Depletion of Resources
  3. 3. NATURE OF LOCATION DECISIONS • Strategic Importance of location decisions • Long term commitment/costs • Impact on investments, revenues, and operations • Supply chains • Objectives of location decisions • Profit potential • No single location may be better than others • Identify several locations from which to choose • Location Options • Expand existing facilities • Add new facilities • Move
  4. 4. TYPES OF INDUSTRIES • Primary industry - Extractive • Secondary industry - Manufacturing • Tertiary industry -Services • Quaternary industry • In this section, we are only confined with the “manufacturing industry”.
  5. 5. Types of industries Quaternary industry - The portion of an economy that is based on knowledge applicable to some business activity that usually involves the provision of services. For example, the quaternary sector might include: information gathering, distribution and technology; research and development; vocational education; business consulting; and strategic financial services.
  6. 6. MAKING LOCATION DECISIONS • Decide on the criteria • Identify the important factors • Develop location alternatives • Evaluate the alternatives • Identify general region • Identify a small number of community alternatives • Identify site alternatives • Evaluate and make selection
  8. 8. LOCATIONAL FACTORS Physical Factors • Land • Raw materials • Power / Energy Human Factors: • Labour • Transport • Market • Technology • Capital • Behavioural factors • Government Policy
  9. 9. LOCATION DECISIONSLOCATION DECISIONS Country DecisionCountry Decision Critical Success FactorsCritical Success Factors 1.1. Political risks, governmentPolitical risks, government rules, attitudes, incentivesrules, attitudes, incentives 2.2. Cultural and economic issuesCultural and economic issues 3.3. Location of marketsLocation of markets 4.4. Labor talent, attitudes,Labor talent, attitudes, productivity, costsproductivity, costs 5.5. Availability of supplies,Availability of supplies, communications, energycommunications, energy 6.6. Exchange rates and currencyExchange rates and currency risksrisks
  10. 10. LOCATION DECISIONSLOCATION DECISIONS Region/Region/ CommunityCommunity DecisionDecision Critical Success FactorsCritical Success Factors 1.1. Corporate desiresCorporate desires 2.2. Attractiveness of regionAttractiveness of region 3.3. Labor availability, costs, attitudesLabor availability, costs, attitudes towards unionstowards unions 4.4. Costs and availability of utilitiesCosts and availability of utilities 5.5. Environmental regulationsEnvironmental regulations 6.6. Government incentives and fiscalGovernment incentives and fiscal policiespolicies 7.7. Proximity to raw materials andProximity to raw materials and customerscustomers 8.8. Land/construction costsLand/construction costs MN WI MI IL IN OH
  11. 11. LOCATION DECISIONSLOCATION DECISIONS Site DecisionSite Decision Critical Success FactorsCritical Success Factors 1.1. Site size and costSite size and cost 2.2. Air, rail, highway, andAir, rail, highway, and waterway systemswaterway systems 3.3. Zoning restrictionsZoning restrictions 4.4. Proximity of services/Proximity of services/ supplies neededsupplies needed 5.5. Environmental impact issuesEnvironmental impact issues Heavy industries: A large area of cheap low flat land. Light industries: Small apartments are also OK.
  12. 12. LEVELS OF DECISIONS. Market Region Subregion Community Sites Market Potential Market Share Operating Cost Transport Cost (RM) Taxes Raw material costs Labor Cost and Availability Access to market/materials Material Cost Labor Cost and Availability Taxes Availability of public services Availabilty of sites Community amenities Access to transport Network Site Characterics Taxes Availability of public services Land and acquisition costs Construction Costs
  13. 13. RAW MATERIALS Raw materials Ubiquitous Water, Air, Soil…… Localized Iron ore, coal, gold, tin, …… Decreasing importance of raw materials Improvement in Transport Improvement in industrial techniques Others: New raw materials / Substitution Recycling
  14. 14. RAW MATERIALS Characteristics of Raw Materials • Weight loss or Weight gain • Degree of perishability • Value per unit of weight • Availability of substitute materials • Number of materials involved in production • Source of supply Raw materials oriented / Market oriented
  15. 15. POWER / ENERGY Type of Power • Water • Fossil fuel • Coal • Oil • Natural Gases • Nuclear Electricity Aluminum Smelting as a Power Oriented Industry
  16. 16. LABOUR • Cost of Labour – Wage Level • Skills of Labour • Highly skilled, Semi-skilled, Unskilled • Labour Mobility • Highly skilled (highly mobile) • Semi-skilled (fairly mobile) • Unskilled (least mobile • Reputation
  17. 17. LABOUR • Declining in importance • Machines / Robots • Still very attractive for labour-intensive industries Labour-oriented Industries
  18. 18. TRANSPORT Mode of transport
  19. 19. TRANSPORT Mode Long distance Short distance Speed Goods Type Water Cheapes t Highest Slow Bulky, low value, non-perishability Rail Cheap High Fast Bulky Road Highest Cheapes t Fair Door to door, light Air High ------ Fastest High value, fragile Perishability
  20. 20. MARKET Markets are where the finished products will be finally go. Markets attract many industries to locate –Good infrastructure Transportation, Electricity supply, water supply, drainage system, communication……. –Large population size –Large labour force –Skilled labour –Obtain advanced technology –Industrial agglomeration
  21. 21. MARKET Some industries are more likely to be located near markets Perishable products: eg. Bread, cakes…. Fragile products: eg. Bottled drinks, porcelain….. Bulky and low value products: eg. Brick-making….. Labour intensive industries: eg. Toy-making, electrical goods…. Keep close contact with consumers: eg. Jewellery, printing… Involve large quanities of raw materials: eg. Electric Appliance.. Specialized products: eg. Automobile parts manufacturers located near auto making centre
  22. 22. TECHNOLOGY Technology is very importance It change the production process completely It is a localized factor Ways to obtain technology From advanced countries (developed world) Universities Research Centre Technology-intensive industry and Capital-intensive industry
  23. 23. GOVERNMENT POLICY • Promote overall economic growth • Promote the growth of a particular industry • Diversify the economy • Ensure regional economic balance • Ensure efficient ultilization of resources
  24. 24. Indirect role of governments
  25. 25. FACTORS THAT AFFECTFACTORS THAT AFFECT LOCATION DECISIONSLOCATION DECISIONS  Labor productivityLabor productivity  Wage rates are not the only costWage rates are not the only cost  Lower production may increase total costLower production may increase total cost Labor cost per dayLabor cost per day Production (units per day)Production (units per day) = Cost per unit= Cost per unit
  26. 26. FACTORS THAT AFFECTFACTORS THAT AFFECT LOCATION DECISIONSLOCATION DECISIONS  Exchange rates and currency risksExchange rates and currency risks  Can have a significant impact on cost structureCan have a significant impact on cost structure  Rates change over timeRates change over time  CostsCosts  Tangible - easily measured costs such as utilities,Tangible - easily measured costs such as utilities, labor, materials, taxeslabor, materials, taxes  Intangible - less easy to quantify and includeIntangible - less easy to quantify and include education, public transportation, community,education, public transportation, community, quality-of-lifequality-of-life
  27. 27. FACTORS THAT AFFECTFACTORS THAT AFFECT LOCATION DECISIONSLOCATION DECISIONS  Political risk, values, and culturePolitical risk, values, and culture  National, state, local governments attitudes towardNational, state, local governments attitudes toward private and intellectual property, pollution,private and intellectual property, pollution, employment stability may be in fluxemployment stability may be in flux  Worker attitudes towards turnover, unions,Worker attitudes towards turnover, unions, absenteeismabsenteeism  Globally cultures have different attitudes towardsGlobally cultures have different attitudes towards punctuality, legal, and ethical issuespunctuality, legal, and ethical issues
  28. 28. FACTORS THAT AFFECTFACTORS THAT AFFECT LOCATION DECISIONSLOCATION DECISIONS  Proximity to competitorsProximity to competitors  Called clusteringCalled clustering  Often driven by resources such as natural,Often driven by resources such as natural, information, capital, talentinformation, capital, talent  Found in both manufacturing and serviceFound in both manufacturing and service industriesindustries
  29. 29. CLUSTERING OF COMPANIESCLUSTERING OF COMPANIES IndustryIndustry LocationsLocations Reason for clusteringReason for clustering Wine makingWine making Napa Valley (US)Napa Valley (US) Bordeaux regionBordeaux region (France)(France) Natural resources ofNatural resources of land and climateland and climate Software firmsSoftware firms Silicon Valley,Silicon Valley, Boston, BangaloreBoston, Bangalore (India)(India) Talent resources ofTalent resources of bright graduates inbright graduates in scientific/technicalscientific/technical areas, ventureareas, venture capitalists nearbycapitalists nearby Race carRace car buildersbuilders Huntington/NorthHuntington/North Hampton regionHampton region (England)(England) Critical mass of talentCritical mass of talent and informationand information
  30. 30. CLUSTERING OF COMPANIESCLUSTERING OF COMPANIES IndustryIndustry LocationsLocations Reason for clusteringReason for clustering Theme parksTheme parks (Disney World,(Disney World, UniversalUniversal Studios)Studios) Orlando, FloridaOrlando, Florida A hot spot forA hot spot for entertainment, warmentertainment, warm weather, tourists, andweather, tourists, and inexpensive laborinexpensive labor ElectronicsElectronics firmsfirms Northern MexicoNorthern Mexico NAFTA, duty freeNAFTA, duty free export to USexport to US ComputerComputer hardwarehardware manufacturersmanufacturers Singapore, TaiwanSingapore, Taiwan High technologicalHigh technological penetration rate andpenetration rate and per capita GDP,per capita GDP, skilled/educatedskilled/educated workforce with largeworkforce with large pool of engineerspool of engineers
  31. 31. CLUSTERING OF COMPANIESCLUSTERING OF COMPANIES IndustryIndustry LocationsLocations Reason for clusteringReason for clustering Fast foodFast food chainschains (Wendy’s,(Wendy’s, McDonald’s,McDonald’s, Burger King,Burger King, and Pizza Hut)and Pizza Hut) Sites within 1 mileSites within 1 mile of each otherof each other Stimulate food sales,Stimulate food sales, high traffic flowshigh traffic flows GeneralGeneral aviation aircraftaviation aircraft (Cessna,(Cessna, Learjet, Boeing)Learjet, Boeing) Wichita, KansasWichita, Kansas Mass of aviation skillsMass of aviation skills OrthopedicOrthopedic devicesdevices Warsaw, IndianaWarsaw, Indiana Ready supply of skilledReady supply of skilled workers, strong U.S.workers, strong U.S. marketmarket
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  33. 33. INDUSTRIAL LANDSCAPE: Some Basic Problems of Industrial Location 1. Distribution Pattern Not evenly distributed around the earth, with some manufacturing industries typically concentrated in certain localities.
  34. 34. 2.   differences in the types of industry • e.g. light industry such as textiles make strong demands for labour. • Heavy industry such as oil refining and petroleum results little labour but much capital. 3.   differences in special needs: • need to be close to other industries • need to lower transportation costs by cheap sea transport • others
  35. 35. 4.   DIFFERENCES IN THE MOTIVES OF THE INDIVIDUAL ENTREPRENEUR IN CHOOSING A LOCATION: • some are likely to be motivated by a desire to maximise profits and will take risks in doing so. Other may want simply “satisfactory” profit and safe existence.
  36. 36. DESPITE THESE DIVERSIFYING FACTORS OF LOCATION, THERE ARE COMMON REQUIREMENTS TO ALL INDUSTRIALISTS: • 1.   the purchase of raw material or semi-processed materials • 2.   the processing or assembling of these raw materials or semi-processed materials whereby value is added to them. • 3.   the sale of the finished products.
  37. 37. • 4.   the payment of transportation costs involved in the assembly of the raw materials or semi-processed materials and the distribution of the finished products. • 5.   labour supply • 6.   energy resources • 7.   capital
  38. 38. LOCATIONS – MANUFACTURING AND SERVICE • Manufacturers – cost focused • Service and retail – revenue focused • Traffic volume and convenience most important • Demographics • Age • Income • Education • Location, location, location • Good transportation • Customer safety
  39. 39. COMPARISON OF SERVICE AND MANUFACTURING CONSIDERATIONS Manufacturing/Distribution Service/Retail Cost Focus Revenue focus Transportation modes/costs Demographics: age,income,etc Energy availability, costs Population/drawing area Labor cost/availability/skills Competition Building/leasing costs Traffic volume/patterns Customer access/parking
  40. 40. TRENDS IN LOCATIONS • Foreign producers locating in U.S. • “Made in USA” • Currency fluctuations • Just-in-time manufacturing techniques • Microfactories • Information Technology
  41. 41. TRENDS & FUTURE STRATEGIES • Most of the Facility Location factors vary with time: • The accelerated changes in the economic environment are impacting the frequency of Facility Location decisions. • Changes in the economic environment: • International level competition among companies. • Location in countries different than the origin of the company are a common situation for big companies. • Appearance of new markets and unification of others. • Increase of competition pressure. • Logistics factors are more important and complex. • Companies are reviewing their facility locations in order not to loose competitiveness.
  42. 42. TRENDS & FUTURE STRATEGIES • Changes in the economic environment: • Industry processes automation. • Labor costs become less important: countries with lower labor costs become less attractive. • Labor qualification, flexibility and mobility become more important factors. • However, labor costs are still a main factor in some industries and in certain manufacturing processes of others: Relocation to Mexico, Taiwan, Singapore, etc.
  43. 43. TRENDS & FUTURE STRATEGIES • Changes in the economic environment: • Transportation and IT development. • Helps in the internationalization of the operations: higher geographical diversity in location decisions. • Tendency to localize close to the markets: emphasis in customer service, direct customer contact, fast development of new products, fast delivery… • Due to flexible technologies, companies have the possibility of starting up more plants at a smaller size. • J.I.T. Systems. • Some industries are forcing their suppliers and customers to locate their facilities in a close area to reduce transportation costs and supply at a higher frequency.
  44. 44. GLOBAL LOCATIONS • Reasons for globalization • Benefits • Disadvantages • Risks • Global operations issues
  45. 45. GLOBALIZATION • Facilitating Factors • Trade agreements • Technology • Benefits • Markets • Cost savings • Legal and regulatory • Financial
  46. 46. GLOBALIZATION • Disadvantages • Transportation costs • Security • Unskilled labor • Import restrictions • Criticisms • Risks • Political • Terrorism • Legal • Cultural
  47. 47. Foreign Government a. Policies on foreign ownership of production facilities Local Content Import restrictions Currency restrictions Environmental regulations Local product standards Liability laws b. Stability issues Cultural Differences Living circumstances for foreign workers / dependents Religious holidays/traditions Customer Preferences Possible buy locally sentiment Labor Level of training and education of workers Work ethic Possible regulations limiting number of foreign employees Language differences Resources Availability and quality of raw materials, energy, transportation infrastructure
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  49. 49.
  50. 50. PHYSICAL REQUIREMENTS : • 1. flat land with deep and well-drained soils • 2. completely (frost-free) - mean monthly temperatures (should not fall below 18 ℃ for optimum growth. • 3. annual rainfall: 2000mm per annum but it is also necessary to have a slightly dry period (75mm)
  51. 51. PROCESSING CANE INTO RAW SUGAR : 1. crushing the cane to extract juice. (The remaining cane fibber is a dry material called 'bagasse'. This is used as fuel. 2. cleaning dirt out of juice in settling tanks. 3. boiling juice twice to form syrup-coated sugar crystals. 4. spinning off syrup from crystals.
  52. 52. 5. A thick syrup, called molasses is also spun off in this final centrifuging and this is then sent to distilleries to be made into industrial alcohol, rum 6. It is also sold to farmers for stock feed and fertilizer.
  53. 53. RAW MATERIAL 1. Perishability of harvested cane     2. Cane, is an extremely bulky, and cumbersome crop of low specific value, i.e. 'value per unit weight is low. • As a result, cane is difficult and costly to be transported. • Therefore, the transport system focusing on each mill has to be both fast and capable of handling very large quantities. • Also, it is more economical to keep the haul as short as possible. Thus, mills have to located in the midst of their assigned cane areas. •
  54. 54. 3. Weight lose material: • Each 7 tonnes of cane brought in from the fields yields only 1 tonne approximately of raw sugar in the milling process. • Thus, the overriding consideration in siting sugar mills is to locate them as close as possible to the fields with efficient bulk transport system
  55. 55. MANUFACTURING INDUSTRIES CAN BE ALSO DIVIDED INTO: • a. Processing industries : - A material may undergo a change in physical state, chemical composition, volume or mass, in creating a product more useful to man. - e.g. Steel making is one of the example. It change state during process.
  56. 56. TWO KINDS OF PROCESSING INDUSTRY : 1. Initial Processing industries : - A single raw material is converted into a more concentrated or useful form. For example: (1)sugar milling (2)dairy processing (3)fruit and vegetable canning (4)meat packing (5)grain milling (6)brewing and wine making etc.
  57. 57. • In some cases, the output of the processing factory becomes available for immediate consumption, e.g. butter, cheese, wine, beer and canned fruit. • In other cases, some treatment of mineral ores, the output must pass through other manufacturing for processing before a final product results.
  58. 58. 2. COMPLEX PROCESSING INDUSTRIES : • Some types of processing involves more than a single raw material inputs. • Raw materials are frequently obtained from several different sources, and often subjected to a series of lengthy and complex processes that involve a high degree of organisation and advanced technology. • In some cases, the complex processing industries may result in a product available for immediate consumption, or the required further processing or fabricating, • e.g. steel making, aluminium production, petroleum refining, sugar refining.
  59. 59.
  60. 60.
  61. 61. B. FABRICATING INDUSTRIES : • Fabricating involves a change in the physical form but not the state of the raw materials used. • Fabricating is basically the assembly of finished or semi-finished product from other primary or secondary manufacturing industries • e.g. steel making industry, to produce a finished products.
  62. 62. • Examples : The manufacture of automobiles, aeroplanes, ships, all other types of machinery, furniture, and clothing are examples of fabricating industries.