LOCATION STRATEGY

Being in the right location is a key ingredient in a business's success. If a company selects the wrong location, it may have adequate access to customers, workers, transportation, materials, and so on. Consequently, location often plays a significant role in a company's profit and overall success. A location strategy is a plan for obtaining the optimal location for a company by identifying company needs and objectives, and searching for locations with offerings that are compatible with these needs and objectives. Generally, this means the firm will attempt to maximize opportunity while minimizing costs and risks.

A company's location strategy should conform with, and be part of, its overall corporate strategy. Hence, if a company strives to become a global leader in telecommunications equipment, for example, it must consider establishing plants and warehouses in regions that are consistent with its strategy and that are optimally located to serve its global customers. A company's executives and managers often develop location strategies, but they may select consultants (or economic development groups) to undertake the task of developing a location strategy, or at least to assist in the process, especially if they have little experience in selecting locations.

Formulating a location strategy typically involves the following factors:

· Facilities. Facilities planning involves determining what kind of space a company will need given its short-term and long-term goals.

· Feasibility. Feasibility analysis is an assessment of the different operating costs and other factors associated with different locations.

· Logistics. Logistics evaluation is the appraisal of the transportation options and costs for the prospective manufacturing and warehousing facilities.

· Labor. Labor analysis determines whether prospective locations can meet a company's labor needs given its short-term and long-term goals.

· Community and site. Community and site evaluation involves examining whether a company and a prospective community and site will be compatible in the long-term.

· Trade zones. Companies may want to consider the benefits offered by free-trade zones, which are closed facilities monitored by customs services where goods can be brought without the usual customs requirements. The United States has about 170 free-trade zones and other countries have them as well.

· Political risk. Companies considering expanding into other countries must take political risk into consideration when developing a location strategy. Since some countries have unstable political environments, companies must be prepared for upheaval and turmoil if they plan long-term operations in such countries.

· Governmental regulation. Companies also may face government barriers and heavy restrictions and regulation if they intend to expand into other countries. Therefore, companies must examine governmental—as well as cultural—obstacles in other countries when developing location strategies.

· Environmental regulation. Companies should consider the various environmental regulations that might affect their operations in different locations. Environmental regulation also may have an impact on the relationship between a company and the community around a prospective location.

· Incentives. Incentive negotiation is the process by which a company and a community negotiate property and any benefits the company will receive, such as tax breaks. Incentives may place a significant role in a company's selection of a site.

Depending on the type of business, companies also may have to examine other aspects of prospective locations and communities. Based on these considerations, companies are able to choose a site that will best serve their needs and help them achieve their goals.

COMPANY REQUIREMENTS

The initial part of developing a location strategy is determining what a company will require of its locations. These needs then serve as some of the primary criteria a company uses to evaluate different options. Some of the basic requirements a company must consider are:

· Size. A company must determine what size property or facility it needs.

· Traffic. If it is in the service business, a company must obtain statistics on the amount of traffic or the number of pedestrians that pass by a prospective location each day.

· Population. Whether a service or manufacturing operation, a company must examine the population of prospective locations to ensure that there is a sufficient number of potential customers (if a service business) or a sufficient number of skilled or trainable workers. In addition, manufacturers also benefit from being close to their customers, because proximity to customers reduces shipment time and increases company responsiveness to customers.

· Total costs. Companies must determine the maximum total costs they are willing to pay for a new location. Total costs include distribution, land, labor, taxes, utilities, and construction costs. More obscure costs also should be considered, such as transportation costs to ship materials and supplies, and the loss of customer responsiveness if moving further away from the customer base.

· Infrastructure. Companies must consider what their infrastructure requirements will be, including what modes of transportation they will need and what kinds of telecommunications services and equipment they will need.

· Labor. Companies must establish their labor criteria and determine what kind of labor pool they will need, including the desired education and skilled levels.

· Suppliers. Companies must consider the kinds of suppliers they will need near their locations. In addition, having suppliers nearby can help companies reduce their production costs.

Besides these basic requirements, companies must take into consideration their unique requirements of prospective locations. These requirements may correspond to their overall corporate strategy and corporate goals and to their particular industries.

Date: 2014-12-21; view: 1324