Steps in Location Selection and Location Decision Process
Developing a formal and generic location model is very difficult as a number of diverse factors affect the location decision. A complete study of all the sites available for evaluating and identifying an optimal one is very expensive and time consuming. Though location decisions are long-range decisions, there is a lot of scope for approximation and inference. So, instead of optimal decisions, satisfying decisions are developed by approximation.
The actual approach to the location decision process varies with the size and scope of operations of the firm. Though there is no standard procedure, the following steps serve as a guideline for making a location decision:
Define the Location Objectives and Associated Constraints
The location objectives and associated constraints are defined on the basis of the views and requirements of the promoters, owners, employees, suppliers and customers of the firm.
Identify the Relevant Decision Criteria
Firms should select a location by formulating relevant decision criteria. The criteria should include several economic factors such as labor and material costs, and non-economic factors such as impact of the plant on the surrounding environment.
Relate the Objectives to the Criteria Using Appropriate Models
Using the models like break-even analysis, linear programming, and qualitative factor analysis, the relevant decision criteria should be evaluated. Though it is preferred to model the location decision process in a systematic and quantitative manner, it is difficult to quantify the intangible criteria. Therefore, the judgment of responsible managers is taken into consideration to obtain a solution.
Do Field Research to Get Relevant Data and Use the Models to Evaluate Alternative Locations
Firms should collect the possible primary and secondary data to evaluate different alternative locations. Primary data is the data that is collected for a specific purpose for the first time. Firms mainly use survey methods like personal interviews, telephonic interviews, and mail interviews to collect the primary data. Secondary data is the data that is already available but might have been collected for some other purpose or by some other institutions. Publications of Center for Monitoring Indian Economy (CMIE), Journals of Federation of Indian Chambers of Commerce and Industry (FICCI), Central Statistical Organization (CSO) are some of the secondary data sources. Firms collect the possible primary and secondary data and evaluate different alternative locations on the basis of this data using the given decision criterion.
Select the Location that Best Satisfies the Criteria
A location, which can meet the defined objectives, is able to satisfy the criteria and provides benefits to the community should be selected.
Exhibit throws light on the factors that Intel considers while making decisions on selection of location across the globe.
Exhibit
Location Decision at Intel Corporation
Intel Corp., the world's leading chip maker, has a comprehensive set of guidelines for selecting a location. It has constituted a 20 member site-selection committee. The members of the committee have professional expertise in international law, human resources, manufacturing, tax accounting, government and community affairs. The committee keeps itself updated on the latest international events and maintains a list of the most preferred global locations for new sites.
Before selecting a location, the company goes through the following checklist:
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Economic and political stability: Intel's location decisions are based on long-term consideration. When looking for a location for its assembly and testing site in South America, Intel rejected Brazil as a potential site because of past instances of hyper-inflation and government intervention in business operations. Instead, Costa Rica was selected because of its economic and political stability.
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Operations and infrastructure: Intel evaluates a country on the basis of the country's construction industry's competence, the quality of available infrastructure, the availability of component suppliers who can satisfy the demand for Integrated Circuits (IC), etc.
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Human Resources: The human resource concerns of Intel include the availability of a qualified and non unionized workforce that is willing to work 12 hr shifts 3 or 4 days a week and work on Saturdays and Sundays.
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Cost Structures: Unlike other organizations, lower labor costs and government incentives are not Intel's major concerns. Once the above three conditions are met, Intel selects a location that offers the lowest total operating costs.
Intel also does a comprehensive survey of the citizens of the country. The survey includes comments on the general population, financial power brokers, business heads, politicians, etc. This survey helps reveal the attitudes and perceptions of the people of that country, which cannot be inferred on the basis of the information provided by the Chamber of Commerce of that country. Intel turned its attention to this aspect of location because of its experience in Mexico. The Mexican government had assured Intel that it could meet the company's significant water requirements. But later the company got engulfed in political controversy as the local community leaders were not comfortable with the extent of usage of the water resources.
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