Answer to Question #193860 in Marketing for Peth

Question #193860

How are country differences, production technology and production factors all affect the choice of where to locate production activities?

Expert's answer

When fixed costs are substantial, the minimum efficient scale of production is high,

and/or flexible manufacturing technologies are available, the arguments for concentrating

production at a few choice locations are strong.

Country factors that can affect location decisions include:

  • the availability of skilled labor and supporting industries
  • formal and informal trade barriers
  • expectations about future exchange rate changes
  • transportation costs
  • regulations affecting FDI

A firm should locate its various manufacturing activities where the economic, political, and cultural conditions, including relative factor costs, are conducive to the performance of those activities.

Also; The type of technology a firm uses in its manufacturing can affect location decisions.

Three characteristics of manufacturing technology that are of interest may include:

  • the level of fixed costs
  • the minimum efficient scale
  • the flexibility of the technology

Also; Two product factors impact location decisions:

  • the product's value-to-weight ratio:
  • whether the product serves universal needs

Lastly, there are two basic strategies for locating manufacturing facilities:

  • concentrating them in the optimal location and serving the world market from there
  • decentralizing them in various regional or national locations that are close to major markets

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