Reference no: EM132384270
Topic : SELECTING A SITE FOR A MANUFACTURING PLANT
Subject : Global Supply Chain Management
Assignment- SELECTING A SITE FOR A MANUFACTURING PLANT
Reference Chap 11 Manufacturing is an important stage in many firms' value chains. It involves a range of activities, including development of product and process technologies, managing inflows of input materials, organizing inbound and outbound logistics, maintaining quality and reliability standards of manufactured outputs, and actual manufacturing operations. Firms use foreign locations to manufacture the products that they sell around the world. For firms that manufacture abroad, the most important first step is finding the right location to build the manufacturing plant. Finding the best location to establish a foreign factory requires a great deal of research and planning. Initially, companies establish factories at specific locations abroad to minimize production costs.
For instance, mobile phone manufacturers built numerous factories in China to benefit from cheap labor. Other objectives of foreign manufacturing include the ability to improve the value added to products, to be close to key foreign customers, and to access factors of production not available in the home country. Foreign manufacturing frees up company resources that can be applied to other value-chain activities that improve future company prospects.
In a world of intense global competition, manufacturing in countries that offer low-cost, high-quality labor makes the firm more competitive and helps it survive and thrive in the long run. Management wants to access low-cost labor that has sufficient knowledge and skills to carry out manufacturing in ways that meet quality standards and performance objectives. Often the most important criteria for establishing foreign production are the level of workforce productivity. Productivity implies that the firm can generate maximal output of production for minimal cost. Productivity hinges on various factors, including the skill level of workers. Foreign manufacturing provides the firm with numerous competitive advantages.
The firm can: Reduce the cost of manufacturing products while maintaining a particular level of quality and reliability. Access production factors and technological resources not available in the home country. Such access facilitates improving the quality and other aspects of the manufactured good. Build relationships with key customers located abroad and improve quality of services. Establishing manufacturing in a target market allows the firm to function as a local player there. Customers usually prefer to have their major suppliers at nearby locations.
Avoid tariffs and other trade barriers in the target market. This occurs because such barriers usually apply to only exporting, not to FDI. In the research phase, management accounts for numerous factors, including those related to each country's economy, political system, level of government intervention, legal protections, quality and cost of labor, presence of labor unions, and the level of infrastructure in the target country. In general, the firm wants to locate its manufacturing in countries where factors are optimal. Managerial Challenge Decisions regarding where to locate factories are complex.
For large production projects, numerous decision-makers at MNEs perform complex analyses to find the best manufacturing location abroad. Building or acquiring a foreign factory involves FDI, usually the most expensive foreign entry strategy. Given limited resources, managers set up factories in locations that maximize the firm's competitive advantage.
The best approach to selecting a location is to narrow the possible countries to one ideal location, using a systematic research process. Background In searching for ideal foreign manufacturing sites, managers account for numerous factors, including those related to each country's economy, political system, level of government intervention, legal protection, quality and cost of labor, presence of labor unions, and level of infrastructure.
Managerial Skills You Will Gain As a prospective manager, you will: Learn the factors to consider when evaluating countries for locating a foreign factory. Understand how these factors relate to maximizing the firm's competitive advantage. Analyze business conditions in Eastern Europe. Apply resources and research approaches for foreign manufacturing location decisions.
Your Task
Assume you work for a company that makes bathroom fixtures (e.g., sinks, bathtubs, shower systems), such as American Standard or Toto. The products made by such firms enjoy big demand - every household needs them. Your firm wants to enter the huge European market with these products. With over 450 million relatively affluent consumers in a concentrated area, the European Union is highly attractive for consumer goods.
To better serve this region, your firm's management has decided to establish a manufacturing plant in Europe via direct investment but, production costs are high in Western Europe. Thus management wants to establish its factory in Eastern Europe because of the low cost and high quality of labor there. Your task is to identify the most suitable Eastern European country to establish a manufacturing plant.
You are to conduct research to identify the most promising country location by researching the variables listed below. Ordinarily, management would research numerous variables from both secondary and primary sources. In real-world situations, the process is very time-consuming and costly.
Much of the data can be obtained only by buying it from a professional market research firm or by visiting the countries under consideration. Your task is to research only the following subset of variables that firms normally consider: Extent of government intervention Political risk Intellectual property protections Quality and education level of workers Cost of labor Presence and nature of labor unions Level of labor productivity Quality of infrastructure Research these variables for each of three Eastern European countries of your choosing. Among the Eastern European countries that you might consider are: Bulgaria, Estonia, Latvia, Lithuania, Romania, Slovakia, and Hungary .
Collect all your data in the template below and then, write a report in which you identify the best country for establishing a factory, by researching and analyzing the variables given above for each of the three countries.
Template Using the data that you have collected, fill in the cells in the table. After analyzing the entries, decide which country is the best location for the firm's factory. Your report should include your conclusions and the completed table. Your report can be in the form of a memo.
Be sure to explain your rationale, as supported by the table, for your choice of the top country.
For example, in addition to collecting the above data, management would visit the most promising countries to personally examine critical decision factors, such as quality of labor, existing plants available for acquisition, and local infrastructure. Suggested Resources for this Exercise globalEDGETM (globaledge.msu.edu) provides a range of information.