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1. Critically discuss the factors that influence location decisions.

Explain three steps to locational cost-


volume analysis (20 marks).
How important are location decisions?

Why decisions must be made for locations:

The main objective of location strategy is that to maximize the benefit of location to the firm (Render &
Heizer, 2011)
Cost-focus: Location involves careful consideration as once committed to a specific location,
costs are fixed and are difficult to reduce
Innovation Focus: Four attributes that affect overall competitiveness
1. Presence of high-and specialized inputs (e.g. scientific talent)
2. An environment that encourages investment and intense local rivalry
3. Pressure and insight gained from a sophisticated local market
4. Local presence of related and supporting industries
Approach to location selection:
1. Select country with Key Success Factors for operations
2. Region
3. Site
7 major factors that affect location decisions:
1. Labor productivity
2. Foreign exchange
3. Culture
4. Changing attitudes toward the industry
5. Proximity to markets
6. Suppliers
7. Competitors


Labor Productivity
Management is concerned with the combination of production and wage rate
Final cost is the critical factor and low productivity can contradict low cost

Exchange Rates and Currency Risk
Unfavorable exchange rates for facilities in foreign countries may negate any savings from low
wage costs
Firms can take advantage of favorable rates by relocating or exporting to foreign countries
Currencies however rise and fall, therefore a current favorable location could be disastrous in
10years time currency-wise
Costs

Political Risk, Values, and Culture
Attitudes towards private and intellectual property, zoning, pollution, and employment stability
are influenced by those in leadership at time of deciding location
Worker values and views are also important in deciding location
Cultural variations also affect decisions for location

Proximity to Markets
Location near customers(market)
o Service industries_ essential especially for drugstores, restaurants, post offices, etc..
o Manufacturing_ proximity to customers are essential when transporting expensive and
difficult goods



2. Critically discuss some of the techniques used by service organizations to select locations (20 marks).