AO2 : the reasons for a specific location of production
to access cheaper and better quality resources
to be closer to customers domestically or in overseas markets to gain competitive advantages
to avoid trade protectionism policies
to benefit from the local infrastructure
government incentives
industrial inertia
to benefit from clustering
to reduce transport fee for bulk-reducing industries ( locate near supplier )
bulk-gaining industries ( locate near their customer ) since the finished product is heavier than the raw materials
qualitative factors ( nature of the business )
footloose organisation - do not gain an advantage locating anywhere
AO3: way of re-organizing production, both nationally and internationally
outsourcing :the practice of subcontracting non-core activities of an organisation to a third party provider ( external organisation ) in order to improve operation efficiency and reduce cost
outsourced business activities : non-essential tasks that can be passed on to an external provider to cut cost and gain expertise
subcontractors : people or organisation that carry out outsourced work more cost-effectively than the business itself, without compromising the quality
advantages :
the firm benefits from the specialised services of the outsourced partner which improved customer service from subcontractors can attract new potential customers and strengthen brand loyalty
using an outsourced provider means the business can concentrate on its core activities and competitive strategy which helps the firm to streamline its business operations, thereby cutting costs and improving its profitability
disadvantages :
potential conflict with subcontractors can arise which there will be costs of monitoring and maintaining relationship with the subcontractor to provide quality issues
the firm may have to deal with staff redundancies due to the use of outsources providers
offshoring : is the practice of relocating part of or all of a firm's business functions and processes oversea. these functions can remain within the business ( operating in overseas markets ) or outsourced to an overseas organisation
- can but does not necessary involve third-party providers
- eg: research and development, accounting services, call centres
advantages :
lower cost: lower operation cost can lead to higher profit margins, lower employee costs resulting in lower prices for consumers and boost sales, labour law can be more relax, which makes it easier to hire and fire staffs
relationship with local customers can be improved as the workforce is accustomed to cultural issues and differences int he offshored country
disadvantages :
it is often associated with unethical practices
lose control : firm could lose control over workers as they are based oversea, which may lead to greater difficulties in conducting quality control
Insourcing : the use of a a firm own resources to fulfil a certain role, function or task which would otherwise have been outsourced
- suitable for small business with little experience in outsourcing
- can be cheaper and more productive
- often delegate to stakeholders who have the expertise
advantages :
job creation in the local, domestic economy
cheaper and more control than outsourcing
disadvantages :
internal staff might not have the necessary skills or experience, company like multinationals that want to establish or maintain their international presence cannot rely on insourcing
implementation cost are likely to be high, affecting profits at least in the short term
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