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Location 5.4, Qualitative, Quantitative, Quantitative, Quantitative,…
Location 5.4
Factors
Labour costs
If production is labour intensive, it may make sense to move operations to a country that has a low minimum wage.
Most industrial work for clothing production is based in Bangladesh due to the resources (factories) hence the labour supply will be higher here.
Land costs
A shop on a busy high street will pay considerably more in rent than one not. The same is true on a national scale. The centre of Paris is a lot more expensive than the outskirts. Hence, a shop will need to consider lan expenses considering customer base for eg.
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International factors
Trade barriers: increase the cost of exporting and moving production to another country will avoid these restrictions e.g. tariffs or quotas.
Exchange rates: If a currency becomes stronger, foreign customers will have to pay more to buy the same quantity of goods = harder to export
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Reorganisation
Offshoring
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Companies can make significant gains in both cost and productivity but communication and transportation may be issues
- lower costs despite the higher costs of relocation
- In developing countries - due to job shortages - subcontracting business will find it easier to employ workers
Insourcing
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Due to the disappearance of the wage gap hence, not a benefit anymore
- Quality control issues may cost the company more
- Working conditions in China break many ethical codes leading to bad reputations if found out.
- Cost savings with China have halved since 2000 due to the disappearance of the wage gap
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Optimal location
The best site for expansion of the business/ relocation given its current information. The site should maximise the long-term profits of the business.
The location is:
- strategic in the long-term
- difficult to reverse if an error is made due to costs of relocation)
- Taken at the highest management levels and not delegated to subordinates
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Qualitative : Non-measurable factors that may influence business decisions
Quantitative: Measurable factors that may influence business decisions
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