LESSON 5: LOCATION STRATEGY
THE STRATEGIC IMPORTANCE OF LOCATION
The$objective$of$location$strategy$is$to$maximise$the$bene6it$of$location$to$the$6irm.$
It$ is$ one$ os$ the$ most$ important$ decisions$ a$ form$ makes.$ Its$ increasingly$ global$ in$ nature,$ it$ has$ a$
signi6icant$impact$on$6ixed$and$ variable$ cost.$ The$ decision$ are$ made$ infrequently.$The$ objective$is$to$
maximize$ the$ bene6it$ of$ location$ to$ the$ 6irm.$ Location$ decisions$ based$ on$ low$ cost$ require$ careful$
consideration.$ Once$ in$ place,$ location-related$ cost$ are$ 6ixed$ in$ place$ and$ dif6icult$ to$ reduce.$
Determining$optimal$facility$location$is$a$good$investment.$They$are$long-term$decisions$that$are$made$
infrequently,$ this$ decision$ greatly$affects$ both$ 6ixed$ and$ variable$ cost.$ Once$ committed$ to$ a$ location,$
many$resource$and$cost$issues$are$dif6icult$to$change.$
Four $key$attr ibutes$when$st rategy $is$base d$on$inn ovation$
•High-quality$and$specialized$inputs$
•An$environment$that$encourages$investment$and$local$rivalry$
•A$sophisticated$local$market$
•Local$presence$of$related$and$supporting$industries$
Country( decisions( key( success( factors:$ $ Political$ risks,$ government$ rules,$ attitudes,$ incentives;$
Cultural$ and$ economic$ issues$ Location$ of$ markets;$ Labor$ talent,$ attitudes,$ productivity,$ costs;$
Availability$of$supplies,$communications,$energy;$Exchange$rates$and$currency$risks.$
Region/community( decisions( key( success( factors:$ Corporate$ desires;$ Attractiveness$ of$ region;$
Labor$availability$and$costs;$ Costs$and$availability$of$utilities;$Environmental$regulations;$Government$
incentives$and$6iscal$policies;$Proximity$to$raw$materials$and$customers;$Land/construction$costs.$
Site( decisions( key( success( factors:( Site$ size$ and$ cost;$ Air,$ rail,$ highway,$ and$ waterway$ systems;$
Zoning$restrictions;$Proximity$of$services/$supplies$needed;$Environmental$impact$issues.$
MAIN FACTORS THAT AFFECT LOCATION
DECISIONS
Labor productivity
Wage s$rated$ are$n ot$on ly$ cost$
Lower$productivity$may$increase$total$cost$
Exchange rates and currency risks
Can$have$a$signi6icant$impact$on$cost$
Rates$change$over$time$
Costs
Tangible$-$easily$measured$cost$such$as$utilities,$labor,$material,$taxes$
Intangible$-$less$ easy$ to$ quantify$ and$ include$education,$public$transportation,$community,$quality$ of$
life$
