Key Issue 3Key Issue 3

Ms. PattenMs. Patten

20072007

A company usually A company usually faces two geogrphical faces two geogrphical costs:costs:

1) site1) site2) situation2) situation

Site FactorsSite Factors

Result from the unique Result from the unique characteristics of a locationcharacteristics of a location

The cost of conducting business The cost of conducting business varies among locations, varies among locations, depending on the costs of three depending on the costs of three factorsfactors– LandLand– LaborLabor– capitalcapital

LandLand

– modern factories tend to be more modern factories tend to be more suburban or ruralsuburban or rural

– need for large tracts of land; single story need for large tracts of land; single story buildingsbuildings

– cheaper in rural or suburban locationscheaper in rural or suburban locations– accessible to energy sources: water, accessible to energy sources: water,

wood, coal, hydropowerwood, coal, hydropower– other amenities including climate, other amenities including climate,

recreation, culture, topography, cost of recreation, culture, topography, cost of livingliving

LaborLabor

labor intensive = labor cost is a high labor intensive = labor cost is a high percentage of expensespercentage of expenses

highly skilled vs less skilledhighly skilled vs less skilled clothing: LDC’s (Asia); in US from NE to clothing: LDC’s (Asia); in US from NE to

SE (less union)SE (less union) Levi’s: no plants in US after Dec 2003; Levi’s: no plants in US after Dec 2003;

jobs have been outsourced to Chinajobs have been outsourced to China wool remains in NEwool remains in NE electronics requires skilled workers in electronics requires skilled workers in

NY, Mass, CA near major University NY, Mass, CA near major University centerscenters

CapitalCapital

refers to the availability of refers to the availability of investment fundinginvestment funding

California’s Silicon ValleyCalifornia’s Silicon Valley financial incentives are a means financial incentives are a means

of luring a business to locate in of luring a business to locate in your community; incentives your community; incentives include grants, low cost loans, tax include grants, low cost loans, tax breaksbreaks

Situation FactorSituation Factor

Involve transporting materials to Involve transporting materials to and from a factoryand from a factory– Transportation of raw materials to Transportation of raw materials to

factoryfactory– Transportation of finished goods to Transportation of finished goods to

marketmarket

Location Near InputsLocation Near Inputs

Include resources or parts or Include resources or parts or materials made by other materials made by other companies (outsourced)companies (outsourced)

Copper Industry-ArizonaCopper Industry-Arizona– BR: final product weighs less than BR: final product weighs less than

inputsinputs– Also energy hungryAlso energy hungry

Steel IndustrySteel Industry– Map on page 382Map on page 382

Location Near MarketsLocation Near Markets

Bulk GainingBulk Gaining– Gains Gains volumevolume or weight during or weight during

productionproduction– Soft drinks/fabricated metalsSoft drinks/fabricated metals

Single Market ManufacturersSingle Market Manufacturers– High fashion apparel/motor vehicle partsHigh fashion apparel/motor vehicle parts

Perishable ProductsPerishable Products– Dairy/newspapersDairy/newspapers

Ship, Rail, Truck or AirShip, Rail, Truck or Air

The farther something is transported the The farther something is transported the lower the cost per milelower the cost per mile– Decreases at different rates for each mode Decreases at different rates for each mode

because loading/unloading costs vary with because loading/unloading costs vary with modemode

Trucks used most often for short distanceTrucks used most often for short distance Trains used most often for long distanceTrains used most often for long distance Ship is attractive for longest distancesShip is attractive for longest distances Air most expensive alternative but Air most expensive alternative but

valued for speedy delivery of small bulk, valued for speedy delivery of small bulk, high value packageshigh value packages