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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 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 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 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
