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.
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.
International Economics & Global Business Today
A fundamental shift is occurring in the world economy. We are moving away from a world in which national economies were relatively self-contained entities, isolated from each other by barriers to cross-border trade and investment; by distance, time zones, and language; and by national differences in government regulation, culture, and business systems. And we are moving toward a world in which barriers to cross-border trade and investment are tumbling; perceived distance is shrinking due to advances in transportation and telecommunications technology; material culture is starting to look similar the world over; and national economies are merging into an interdependent global economic system. The process by which this is occurring is commonly referred to as globalization.
In this interdependent global economy, for example, an American might drive to work in a car designed in Germany that was assembled in Mexico by DaimlerChrysler (Daimler AG) from components made in the United States and Japan that were fabricated from Korean steel and Malaysian rubber. He/She may have filled the car with gasoline at a service station owned by a British multinational company that changed its name from British Petroleum to BP to hide its national origins. The gasoline could have been made from oil pumped out of a well off the coast of Africa by a French oil company that transported it to the United States in a ship owned by a Greek shipping line etc.
This is the world we live in. It is a world where the volume of goods, services, and investment crossing national borders expanded faster than world output every year during the first decade of the 21st century. It is a world where more than $1.2 billion in foreign exchange transactions are made every day. It is a world in which international institutions such as the World Trade Organization and gatherings of leaders from the world’s most powerful economies have called for even lower barriers to cross-border trade and investment. It is a world where the symbols of material and popular culture are increasingly global. It is a world in which products are made from inputs that come from all over the world. It is a world in which an economic crisis in Asia can cause a recession in the United States. It is also a world in which a vigorous and vocal minority is protesting against globalization, which they blame for a list of ills, from unemployment in developed nations to environmental degradation and the Americanization of popular culture.
For businesses, this is in many ways the best of times. Globalization has increased the opportunities for a firm to expand its revenues by selling around the world and reduce its costs by producing in nations where key inputs are cheap. Since the collapse of communism at the end of the 1980s, the pendulum of public policy in nation after nation has swung toward the free market end of the economic spectrum. Regulatory and administrative barriers to doing business in foreign nations have come down, while those nations have often transformed their economies, privatizing state-owned enterprises, deregulating markets, increasing competition, and welcoming investment by foreign businesses. This has allowed businesses both large and small, from both advanced nations and developing nations, to expand internationally.
· Understand what is meant by the term globalization.
· Be familiar with the main causes of globalization.
· Understand why many economists believe that unrestricted (free) trade between nations will raise the economic welfare of all countries that participate in a free trade system.
· Understand how the economic systems of countries differ.
· Understand why nations trade with each other.
· Be aware of the different theories that explain trade flows between nations.
· Appreciate all the possible different levels of economic integration.
· Understand the economic and political arguments for and against international economic integration.
· Pros and cons of Ukraine’s world economic integration.
Module 4: Units 15-19
Unit 15 What Globalization Is?>
“Globalization is not something we can hold off
or turn off . . . it is the economic equivalent
of a force of nature – like wind or water”
15.1. While analysing the Unit and reading the Text please pay attention to the following words and word-combinations (only to their meanings in the field of Economics) and write down their Ukrainian equivalents:
Globalization refers to the shift toward a more integrated and interdependent world economy. Globalization has several different facets, including the globalization of markets and the globalization of production.
THE GLOBALIZATION OF MARKETS
The globalization of markets refers to the merging of historically distinct and separate national markets into one huge global marketplace. Falling barriers to cross-border trade have made it easier to sell internationally. It has been argued for some time that the tastes and preferences of consumers in different nations are beginning to converge on some global norm, thereby helping to create a global market. Consumer products such as Citigroup credit cards, Coca-Cola soft drinks, Sony PlayStation, and McDonald’s hamburgers are frequently held up as prototypical examples of this trend. Firms such as Citigroup, Coca-Cola, McDonald’s, and Sony are more than just benefactors of this trend; they are also facilitators of it. By offering a standardized product worldwide, they help to create a global market.
A company does not have to be the size of these multinational giants to facilitate, and benefit from the globalization of markets. In the United States, more than 200,000 small businesses with fewer than 100 employees registered foreign sales in 2010. Typical of these is Hytech, a New York-based manufacturer of solar panels that generates 40 percent of its $3 million in annual sales from exports to five countries, or B&S Aircraft Alloys, another New York company whose exports account for 40 percent of its $8 million annual revenues.
Despite the global prevalence of Citigroup credit cards and McDonald’s hamburgers, it is important not to push too far the view that national markets are giving way to the global market. Very significant differences still exist between national markets along many relevant dimensions, including consumer tastes and preferences, distribution channels, culturally embedded value systems, business systems, and legal regulations. These differences frequently require that marketing strategies, product features, and operating practices be customized to best match conditions in a country. For example, automobile companies will promote different car models depending on a range of factors such as local fuel costs, income levels, traffic congestion, and cultural values. Similarly, global retailers may still need to vary their product mix from country to country depending on local tastes and preferences.
Most global markets currently are not markets for consumer products – where national differences in tastes and preferences are still often important enough to act as a brake on globalization – but markets for industrial goods and materials that serve a universal need the world over. These include the markets for commodities such as aluminum, oil, and wheat; the markets for industrial products such as microprocessors, DRAMs (computer memory chips), and commercial jet aircraft; the markets for computer software; and the markets for financial assets from U.S. Treasury bills to eurobonds and futures on the Nikkei index or the Mexican peso.
In many global markets, the same firms frequently confront each other as competitors in nation after nation. Coca-Cola’s rivalry with Pepsi is a global one, as are the rivalries between Ford and Toyota, Boeing and Airbus, Caterpillar and Komatsu, and Nintendo and Sega. If one firm moves into a nation that is not currently served by its rivals, those rivals are sure to follow to prevent their competitor from gaining an advantage. Retailers such as Wal-Mart, Carrefour, and Tesco are starting to engage in a global rivalry. As firms follow each other around the world, they bring with them many of the assets that served them well in other national markets – including their products, operating strategies, marketing strategies, and brand names – creating some homogeneity across markets. Thus, greater uniformity replaces diversity. Due to such developments, in an increasing number of industries it is no longer meaningful to talk about “the German market”, “the American market”, “the Brazilian market”, or “the Japanese market”; for many firms there is only the global market.