OM CHAP 8

• Location criteria can depend on where a business is in the supply chain
• Web-based retail businesses are much less dependent on location decisions
• Expand an existing facility. This option can be attractive if there is adequate room for expansion, especially if the location has desirable features that are not readily available elsewhere. Expansion costs are often less than those of other alternatives.
• Add new locations while retaining existing ones. This is done in many retail operations. In such cases, it is essential to take into account what the impact will be on the total system.
• Shut down at one location and move to another. An organization must weigh the costs of a move and the resulting benefits against the costs and benefits of remaining in an existing location
• Do nothing. If a detailed analysis of potential locations fails to uncover benefits that make one of the previous three alternatives attractive, a firm may decide to maintain the status quo, at least for the time being.
• Four options in location planning: do nothing, expand an existing facility, add new locations while retaining existing ones, and shutdown one location and move to another.
• “home base” that was located in a single country
• Two factors that have made globalization attractive and feasible for business organizations. trade agreements and technological advances.
• Trade Agreements. Barriers to international trade such as tariffs and quotas have been reduced or eliminated with trade agreements such as the North American Free Trade Agreement (NAFTA), the General Agreement on Tariffs and Trade (GATT), and the U.S.–China Trade Relations Act.
• Technology. Technological advances in communication and information sharing have been very helpful. These include faxing capability, e-mail, cell phones, teleconferencing, and the Internet.
• Markets. Companies often seek opportunities for expanding markets for their goods and services, as well as better serving existing customers by being more attuned to local needs and having a quicker response time when problems occur.
• Cost savings. Among the areas for potential cost saving are transportation costs, labor costs, raw material costs, and taxes.
• Legal and regulatory. There may be more favorable liability and labor laws, and lessrestrictive environmental and other regulations.
• Financial. Companies can avoid the impact of currency changes that can occur when goods are produced in one country and sold in other countries.
• Other. Globalization may provide new sources of ideas for products and services, new perspectives on operations, and solutions to problems.
• Benefits in globalizing operations: market, cost savings, legal and regulatory, financial, and others.
• Transportation costs. High transportation costs can occur due to poor infrastructure or having to ship over great distances, and the resulting costs can offset savings in labor and materials costs.
• Security costs. Increased security risks and theft can increase costs. Also, security at international borders can slow shipments to other countries.
• Unskilled labor. Low labor skills may negatively impact quality and productivity, and the work ethic may differ from that in the home country. Additional employee training may be required
• Import restrictions. Some countries place restrictions on the importation of manufactured goods, so having local suppliers avoids those issues.
• Criticisms. Critics may argue that cost savings are being generated through unfair practices such as using sweatshops, in which employees are paid low wages and made to work in poor conditions; using child labor; and operating in countries that have less stringent environmental requirements
• Productivity. Low labor productivity may offset low labor costs or other advantages.
• disadvantages of globalizing operations: transportation costs, security costs, unskilled labor, import restrictions, criticisms, and productivity.
• Political. Political instability and political unrest can create risks for personnel safety and the safety of assets. Moreover, a government might decide to nationalize facilities, taking them over.
• Terrorism. Terrorism continues to be a threat in many parts of the world, putting personnel and assets at risk and decreasing the willingness of domestic personnel to travel to or work in certain areas.
• Economic. Economic instability might create inflation or deflation, either of which can negatively impact profitability.
• Legal. Laws and regulations may change, reducing or eliminating what may have been key benefits.
• Ethical. Corruption and bribery, common in some countries, may be illegal in a company’s home country (e.g., illegal in the United States). This poses a number of issues. One is how to maintain operations without resorting to bribery. Another is how to prevent employees from doing this, especially when they may be of local origin and used to transacting business in this way.
• Cultural. Cultural differences may be more real than apparent. Walmart discovered that fact when it opened stores in Japan. Although Walmart has thrived in many countries on its reputation for low-cost items, Japanese consumers associated low cost with low quality, so Walmart had to rethink its strategy for the Japanese market.
• Quality. Lax quality controls can lead to recalls and liability issues.
• risks of globalizing operations: political, terrorism, economic, legal, ethical, cultural, and quality.