Transcript The Location of Factories as a Decision

The Location of Factories as a
Decision-Making Process
By Nirveen Basra & Connie Guo
Behaviour Approach to Decision Making
 Realistic vs. Neoclassic: looking at the “real world”
 Satisficers: collect, code and evaluate info
 Pred, Townroe &Stafford: behavioural understanding of
location as strategy, long term investment, without
capabilities of Homo Economicus
 Different firms with and without restrictions
 Optimization, maximization and minimization as theories
 Key is that reality is Uncertain
 Reality: personal judgment, perception, with various
decision makers
Comparison
Homo Economicus
 Economic Theory of Man
 Self Interested, Obtains
Goals Efficiently
 Uses available Info:
Opportunities
&Constraints
 Experience
* Is rational, avoids
unproductive labour and
makes judgments.
Satisficer
 Real World Decision
 Maker
 Limited Time
 Bound Rationality
 Limited Evaluations
 Uses Decision Making
Process:Goal setting, ID,
Time Frames, Decision
Making Structure
Firm-Environment Relations in
Behavioural Landscape
Behaviour Theory
 Firms consider choices, search & evaluate
alternatives, choose solution that is “Satisfactory”
 Problem: reflect more individual perception vs.
objection reasoning
 Culture, background, social status, experience, aspiration
 Spatial Preference: connection with core regions
 Toronto Example
 Location decision needs to be based on info and strategy
 Small and Big Firms: Personalized vs. Extensive
The Behavioural Matrix
Behaviour Matrix
 Availability of Info vs. Ability to Use info
 Based on environment and how to deal with situations
 Optimum vs. Firm with Poor Abilities
 Ability to locate closer to core, spatial margins
 Bad luck outcome: Unexpected Changes
Uncertainty
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Impact on Behaviour
Better or Worse Scenarios
Imperfect Competition
Future is not predicted
Program Decisions
Non-Programmed
High Frequency, uniform, SR
Less Investment/Uncertainty
Non-frequent, unique, LR
LR Investment, Future Gains
Knowledge Gaps
Knowledge Gap (Beg)
Learned
What is Needed to Know
Knowledge from Experience
True Uncertainty
Assumptions about the future
Changes: government, tech, regional stability
Failure/Success: technology (R&D) and Marketing
(Research, consumer behaviour analysis)
Learning
 Smart Decisions from Past Experience: location
conditions
 Decision Makers: range of group/personal choice
 Failures: Many due to Managerial Inexperience
Ex. Apple Strudel Store: apple supply, labour forces,
proximity to market, transportation costs,
marketing, research local tastes, predict future
sales in region, who makes decisions?
Stages in Locational Decision
Making Based on the Decision
Process
Decision Making Process
 Location (Investment) involves choices:
 Plant size, # of employees, finance, managers, marketing,
engineering, construction
 Behaviour: Soft (Intangible) is more EMPHASIZED than Hard
(Tangible)
 Nishioka & Krumme: disaggregation of process
 ID of stimuli, evaluate, make decision, post location
assessment and learning
 Relation to geography, selection of communities, regions,
countries
Decision Stimulus/Trigger
 Satisficer firms are open learning systems and their
market relation with other firms is governed by
information exchange
 Decision situations-problems to by solved
 Caused by: “Stresses”
any influence which comes from the internal/external
environment that interferes with satisfaction of
basic needs
Location Decision as an Alternative
 Expand
 Pros
 Keep Management togethor
 Achieve Economies of Scale with expansion
 Capacity can be more quickly added
 Overhead costs are more effectively spread
 Cons
 Increase problems to do with material handling, congestion and
complexity of production control
 Lack of Space and labour problems at plants support the idea of
new plant locations
 Expansion and New Site location are not mutuallly exlusive!
Location Search Process
 Spatial Biases/Mental Maps influence location decisions
especially for small firms who are restricted geographically
choose places within close proximity
 Search Process of New-Sites
 Conducted/closely monitored by owner-managers, senior
executives, or managers
 Involves time and cost
 Rees and Townroe suggest a time usually between 6 months to half a
year
 Consider more than one region
 Ex// Krumme- Volkswagen plants
 Identify more Sites than regions
 Ex// Townroe sample branch plants
Location Evaluation
 Locational Choice-several decisions made at different geographical scales
(countries, regions, towns, communities and sites)
 Scales vary along with the importance of location factors
 Principle Factors governing Selection:
 Region
 Government regional policy
 Labour relations-Cost, supply and training
 Markets and strategic communications
 Access to services, local amenities
 Site
 Physical Characteristics of land
 Tenure Conditions
 Is it a city?
 Availability of services
 Land Prices
 Stafford study: found labour to imply different concerns at different
scales
 Labour productivity imp at all scale
 Labour availability and wages more influential at regional/local scales
Methods of Locational Evaluation
 Large firms-engage in formal, systematic analysis
over small firms
 More likely to be conducted at community/site
scales over regional or international scales
 MNC’s take a more international approach
 Locational requirements
 Weight ranking schemes-measure “soft factors”
 Kepner and Tregoe:
 Identify “musts”/ “min requirements”
 Identify “wants”-desirable location features
 Assign them weights of importance
 Sites are give scores
 Ex// pulp mills in BC use this process
Investment Decisions and Post-Locational
Assessments
 North America/ Britain have a history or making
decisions in economic upswings-NOT RATIONAL!
 Pulp Mills
 Start-Ups and how the mill performs soon after measures
adequacy of decision
 Problems experienced serve as a learning process
 Smoothness of start-up evaluates effectiveness of planning
process
Location Preference of Foreign Firms
 MNC’s responsibility of information monitoring and assesment
 MNC’s typically have prior experience, resources, and financial
ability
 Mobility of Capital
 “The World is our Oyster Hypothesis”-largest MNC’s are already
global and familiar with all cultures and territories
 Communication is virtually spatially costless
 Promote homogenization/standardization of tastes and production
and cultural differences will decline
 Assumes no restrictions of national Boundaries
 “Power of Geography” Thesis-nations are influential forms of
organizing territory
 Local culture will resist universalizing tendencies
Foreign Branch Plant Locations-6
Theories
1. Foreign firms favour established core regions of
‘host’ countries
 Centres of communication and tranportation
 Personal contacts with host countries decision makers
 Highest market potential
 Well-known reduces uncertainty
 Easier to get investment proposals
2. Foreign firms invest in peripheral areas over core
areas
 Signals are offered to attract companies such as incentives
and information packages
Foreign Branch Plant Locations-6
Theories
3. Firms prefer to concentrate in particular regions of the country
 Pioneering firms, latecomers can reduce costs and percieved risks
of locating in unfamiliar places
 Ex// Japanese auto assemblars located in a central corridor in the
80’s/90’s where existing auto production plants were already in place
 Ex// Japanese assemblars now will avoid these areas for smaller
regions to develop unique relations and avoid unionized workers
4. National Culture is important in understanding the location
preferences of foreign firms
 Corporate motivations are also differend
Foreign Branch Plant Locations-6
Theories
5. Firms may exercise the equivalent of personal
preference in choosing locations
 Distinct corporate cultures shape strategies
 Ex// MacMilan Bloedell insisted on pulp mill locations being on
tidewater
 Ex// Michelan known for being secretive-plants would
therefore be in small, isolated communities
6. Firms change locational preferences after initial
entry into a country
 Growing awareness of location possibilities as branch plants
seek out local suppliers and markets
Industrial Location-Behavioural
Landscape
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Industrial Location incentives can change locational
preferences in two ways:
1.
2.
Incentives serve as signals to firms to encourage them to at leas
consider designated regions
Given that decision making process is timely and costlyindustrial location policies offer compensation for any
additional learning costs or uncertainties firms incur by looking
at unfamiliar regions
Ex// subsidies and tax breaks
-agencies are proactive in getting information to
investors and follow-up services
-this increases economically rational behaviour
-increase chances of attracting short-term opportunists
Conclusion
Imperfect information and bounded
rationality modify the decision-making
capabilities of Homo-Economicus
Neoclassical cost and revenue surfaces are
similarly modified with information and
mental maps
Interests of the economy are reflected in the
goals of individual firms