For this chapter, you should be able to...

1. explain the reasons for a specific location of production
2. discuss the following ways of reorganizing production, both nationally and internationally: 
  • outsourcing or subcontracting
  • offshoring
  • in-housing or re-shoring

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1. factors locating a business

  • Costs = may arise from land, labor, transport
  • Competition 
  • Type of land 
  • Markets
  • Familiarity with the area
  • Labor pool
  • Infrastructure = refers not only to the existing transport networks for people and products, but also to electronic networks
  • Suppliers
  • Governments
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2. THE IMPACT OF GLOBALIZATION ON LOCATION

 Pull factors = factors that pull companies to set up abroad
  • Improved communications
  • Dismantling of trade barriers
  • Deregulation of the world's financial markets
  • Increasing size of multinational companies

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Push factors = factors that push companies to operate overseas
  • Reduce costs
  • Increase market share
  • Use extension strategies
  • Use defensive strategies

3. outsourcing

Outsourcing (or subcontracting) = the practice of employing another business to perform some peripheral activities (this enables the organization to focus on its core activity)
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Advantages:
  • Reduce costs by losing employees and other assets
  • Quality of core products or activities improve
  • Lead to improved capacity utilization
  • Delivery time can be reduced
  • Can lead to transfer of expertise
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Disadvantages:
  • The business becomes more dependent on the supplier
  • The business has less control of the final product
  • Dilution of the brand could be a problem

4. offshoring

Offshoring = the practice of subcontracting overseas (outsourcing outside the home country)
  • All the advantages and disadvantages of outsourcing apply, but the international aspect usually intensifies them as follows:
    1. Cultural differences between the companies may exist
    2. Communication could sometimes be difficult
    3. Issues of quality and ethics may exist

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5. In-housing and reshoring

In-housing (or insourcing) = the practice of performing peripheral activities internally, within the company
  • Opposite to outsourcing.
  • the business decision to stop outsourcing may be motivated by the desire to regain full control, or to reduce costs of taxes, labor and transportation
Re-shoring = the practice of bringing back business functions to the home country
  • Opposite to offshoring
  • Purpose is to refocus on the quality end of the market