In industry and commerce one of the most critical aspect of the future success of any business entity, is the strategic location where the business is supposed to be set up. With the advent of technology, increased competition, cost cutting measures and advancement in business infrastructure, the decision making process of identifying the most ideal locations to set up a business has become more complicated and dynamic. (MacCarthy B.L. & Atthirawong W. 2003).
The location decision process is an intricate process that involves the systematic feasibility study of a location with the view of establishing the advantages that would accrue to the organization’s locality. The assessment of a particular location is an assignment that the enterprise should thoroughly conduct because it will determine its survival
The site where such a business is located is of central importance because it determines not only the competitiveness of the enterprise but its production and overhead capacities as well. Therefore any organization willing to progress has got to evaluate and invest heavily in the location decision process. (MacCarthy, B.L., & Atthirawong W. 2003)
It is important before discussing the factors that influence location decision to understand that various industries differ in the way they assess these factors. Multinational organizations setting up bases in foreign countries will always have different methodology from an organization setting up base at local level. The service industry’s evaluation program will also differ from a manufacturing entity; whereas the service industry’s major criteria would be the proximity to the market and the consumers’ ability to buy, the manufacturing entity would be different. A manufacturing plants main focus besides the availability of the market would generally be cost cutting factors.
These paper is going to address factors that would be important for an international firm looking for a location in new international market.There are various factors that such an organization is supposed to pay particular attention to.
These factors influence the ability of the organization/industry to achieve its goal and mission. A location decision considers both economic and non-economic factors, which are sometimes referred to as financial and non-financial considerations. The first step towards making a correct and comprehensive decision is started off by defining the problem. The recognition that there is a need for a new location, which is necessitated by such factors as:
Change in customer needs
When the problem or the reason for looking for a new location has been assessed and defined then the next important stage is to critically examine the various factors that are supposed to be evaluated in identifying the location of the enterprise. This factors are categorized into two; Economic factors and non economic factors
Economic factors will determine the profitability of the enterprise. Under economic factors costs that need to be evaluated are production costs, which would include the cost of energy (electricity), cost of raw materials, cost of taxation and wage rate within the new location. Wage rates on the other hand will enable the company determine among other things level of production, the payroll budget and consequently the cost of the end product (Bognanno M. F. Et al 2005).
Procurement costs also play a vital role in selecting the site because they determine the total cost of the end product or service. Procurement costs include cost of sourcing of raw materials, cost of transportation and other logistic issues.
Distribution costs determine the penetration level of the goods or services that are being offered by the enterprise. The market accessibility is the key feature when assessing the market and would include the infrastructure development within the specified location, mode of transportation and the number of distribution channels. In most international companies the greatest factor remains the market size at the host country and the accessibility to other lucrative markets. (Spee R. & Wim D.2003)
Transport and infrastructure are key element to consider when evaluating the location. These two are important factors especially for the service industry that need to stay close to their market. Infrastructure may include such aspects as level of technological integration; the standard of the road network or rail network, the accessibility to such institutions like banks and other credit points.
The telecommunication systems also are part of the infrastructure framework and such factors like Internet, telephone, mobile phones and Information technology advancement determine how well the enterprise will be able to coordinate its various activities. (Spee R. & Wim D.2003)
These are factors that do not necessarily have any fixed monetary value yet they contribute significantly towards the enterprises productivity. Top of this list are government and political issues. Policies developed by respective governments determine how well the organization is able to fit in the particular environment. Number of trade licenses, patent protection laws, industrial safety regulation, the tax regime, legal settlement process, environmental laws and so on are some of the considerations that the company needs to consider. (Talley-Seijn, M.2004)
Labor characteristics are another non-economic factor that affects the location decision. The characteristics of the labor determine how fast the company will be able to fit within a particular environment. The availability of human management resources and specific skills will enable the company to conduct various production and management processes in the most efficient manner. Availability of technical know-how, experienced personnel and well-equipped labor force is the key driver to how the entity will conduct its business. (Brush, T. H.1999)
Government stability is very important for any organization. Stability can be looked in terms of how the government handles transition from one regime to another, its relationship with the neighboring countries and its governance abilities. In democratic countries this is a major factor to consider because the stability of the said government directly affects strategic plans that the enterprise may come up with. (Brush, T. H.1999)
Bognanno, Mario F., Michael P. Keane, and Donghoon Yang. (2005): “The Influence of Wages and Industrial Relations Environments on the Production Location Decisions of U.S. Multinational Corporations.” Industrial and Labor Relations Review 58, no. 2
Brush, Thomas H (1999) “plant location decision in multinational manufacturing firms: An empirical analysis of international business and manufacturing strategy perspectives, The”. Production and Operations Management.
MacCarthy, B.L., and W. Atthirawong. (2003): “Factors Affecting Location Decisions in International Operations—A Delphi Study.” International Journal of Operations and Production Management 23, no. 7: 794–828.
Spee, Roel, and Wim Douw. (September 2003): “Cost-Reduction Location Strategies.” Journal of Corporate Real Estate 6, no. 1
Talley-Seijn, Margaret. (July 2004): “30 Years of Location Strategies.” Plants, Sites and Parks 31, no. 3: 26–29.