the location of factories as a decision-making process
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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 - PowerPoint PPT PresentationTRANSCRIPT
The Location of Factories as a Decision-Making
Process
The Location of Factories as a Decision-Making
Process
By Nirveen Basra & Connie Guo
By Nirveen Basra & Connie Guo
Behaviour Approach to Decision Making
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
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
ComparisonComparison
Satisficer Real World Decision Maker Limited Time Bound Rationality Limited Evaluations Uses Decision Making
Process:Goal setting, ID, Time Frames, Decision Making Structure
Satisficer Real World Decision Maker Limited Time Bound Rationality Limited Evaluations Uses Decision Making
Process:Goal setting, ID, Time Frames, Decision Making Structure
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.
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.
Firm-Environment Relations in Behavioural
Landscape
Firm-Environment Relations in Behavioural
Landscape
Behaviour TheoryBehaviour 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
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
Behaviour MatrixBehaviour 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
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
UncertaintyUncertainty
Impact on Behaviour Better or Worse
Scenarios Imperfect Competition Future is not predicted
Impact on Behaviour Better or Worse
Scenarios Imperfect Competition Future is not predicted
Program Decisions Non-ProgrammedHigh Frequency, uniform, SRLess Investment/Uncertainty
Non-frequent, unique, LRLR Investment, Future Gains
Knowledge GapsKnowledge Gaps
Knowledge Gap (Beg) What is Needed to Know
Learned Knowledge from Experience
True UncertaintyAssumptions about the futureChanges: government, tech, regional stabilityFailure/Success: technology (R&D) and Marketing
(Research, consumer behaviour analysis)
Knowledge Gap (Beg) What is Needed to Know
Learned Knowledge from Experience
True UncertaintyAssumptions about the futureChanges: government, tech, regional stabilityFailure/Success: technology (R&D) and Marketing
(Research, consumer behaviour analysis)
LearningLearning
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?
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
Stages in Locational Decision Making Based on
the Decision Process
Decision Making ProcessDecision 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
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/TriggerDecision 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
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 AlternativeLocation 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!
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 ProcessLocation 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
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 EvaluationLocation 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
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 EvaluationMethods 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 featuresAssign them weights of importanceSites are give scores
Ex// pulp mills in BC use this process
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 featuresAssign them weights of importanceSites are give scores
Ex// pulp mills in BC use this process
Investment Decisions and Post-Locational Assessments
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
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 FirmsLocation 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
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
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
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
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
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
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
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
Industrial Location-Behavioural Landscape
Industrial Location incentives can change locational preferences in two ways:
1. Incentives serve as signals to firms to encourage them to at leas consider designated regions
2. Given that decision making process is timely and costly-industrial 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
Industrial Location incentives can change locational preferences in two ways:
1. Incentives serve as signals to firms to encourage them to at leas consider designated regions
2. Given that decision making process is timely and costly-industrial 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
ConclusionConclusion
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
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