In practice, companies are driven by a whole variety of motives when they make their location decisions.

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Question:

In practice, companies are driven by a whole variety of motives when they make their location decisions. Here are four examples which illustrate a diversity of operations objectives.

Example 1

In 1994 the Ford Motor Company embarked on one of its most radical reorganizations on a worldwide scale. Part of its plan was to establish five vehicle program centers (VPCs). Each VPC was to take responsibility for the design of a particular type of vehicle worldwide. The idea of forming these five VPCs was to avoid costly duplication of design and development effort. For example, the Ford Escort launched in the early 1990s had been developed separately for the US and European markets. Although both cars were of almost the same dimensions and aimed at very similar parts of their respective markets, entirely unrelated versions were built in the US and Europe. Ford figured that locating all design and development of each class of vehicle in one place would prevent this kind of waste. The location of its five VPCs was based on which part of its organization had the greater experience and expertise. For example, the European VPC would take worldwide responsibility for the design, development and engineering of all of Ford’s small and medium front-wheel-drive cars. North America by contrast had the greater experience in larger cars, trucks, higher displacement engines and automatic transmission.

Example 2

The Polish government has been engaged in its strategy of returning formerly state owned industries into private hands. One industry in particular has attracted considerable interest and investment from Western companies. The country’s car- and truck-making capacity was the focus of attention from such car giants as Fiat, PSA (Peugeot and Citroen), Ford, Volvo, General Motors, Mercedes-Benz and Volkswagen. The cause of all this interest was only partially due to Poland’s lower manufacturing costs (anyway, exports from Poland were sometimes restricted: for example, the European Union allowed only a certain number of models to be imported free of its 30 per cent customs duty). The car companies were playing a longer game. They had in mind the potential growth in the East European market in the medium to long term. When Fiat bought 90 per cent of the former state-held FSM car maker based in Bielsko-Biola in southern Poland, it was not only investing in the experience and under-utilized resources of the company, it was seeing its investment as a longer-term gateway to other East European markets.

Example 3

When Hyundai moved its personal computer operations to America, its market share had shifted from 5 per cent in the late 80s down to 1.5 per cent in the 90s. It seems, therefore, an unusual decision to move to a country with higher labor and accommodation costs. In fact, Hyundai reckoned that the increased costs were more than offset by savings in time and inventories. When it manufactured in Korea its goods used to take two months to reach the US, after which its sales operations used to hold the stocks for around three months of sales. After the move, the amount of stock was reduced to less than a third and responsiveness to market trends was enhanced by being far closer to the market itself. Also, product development time, which had been between 12 and 18 months, was reduced to five months after the move.

Example 4

In 1994 the domestic appliance manufacturer Hoover (owned by the American Maytag Corporation) closed its French vacuum cleaner manufacturing operation and relocated production to its Scottish plant. The decision was primarily influenced by cost of manufacture. The company had figured that, to remain competitive in its global business, all vacuum cleaner production for Europe should be concentrated on a single plant in order to gain economies of scale. Hoover’s workers in Scotland were also paid lower wages than their French counterparts. Furthermore, non-wage costs such as health insurance were a much lower percentage of overall costs in Britain than they were in France. Reportedly, the company also believed that the workforce in its Scottish plant had demonstrated more flexibility in adapting to new working methods, which would help it to keep manufacturing costs down in the future.

In the decision by the Ford Motor Company to establish vehicle program centers, do you think the factors influencing the location of design centers are different from those that influence the location of manufacturing operations?