Location Strategy

A location strategy is, as defined by Marilyn M. Helms's Encyclopedia of Management, “a plan for obtaining the optimal location for a company by identifying company needs and objectives, and searching for locations with offerings that are compatible with these needs and objectives.” A location strategy is based on formulating a number of factors deemed relevant to the business in question. A quantitative-qualitative technique may consist in applying weights to the overall evaluation—in other words, assessing what weight each of the factors should have when developing a list of relevant factors. The plan can then include the assignment of weight to each factor in order to reflect its relative importance in the company's overall objective. There should be a scale for each factor, and management, sometimes in conjunction with external consultants, must subsequently apply a score for the prospective location for each factor using the scale. After having multiplied the score according to the weights for each factor, the total score for the location appears. Finally, a recommendation is made based on the score.

The factors may range from the issue of overall feasibility to details of labor relations and the existence or absence of incentives. A feasibility analysis consists of assessing operating costs and other factors. One can try to calculate the long-term costs and revenues by first determining fixed and variable costs. To the extent possible, one should assess the costs of, for example, raw materials, taxes, wages, and energy. A feasibility study can thus constitute a starting point, where the location is portrayed as advantageous or disadvantageous according to a number of objective factors. Logistics evaluation is especially relevant to manufacturing operations and concerns the transportation options and costs for the prospective manufacturing and storage facilities. Facilities planning involves determining what kind of space a company will need, given its short-term and long-term goals.

Labor analysis should determine whether labor needs will be met in both a short-term and a long-term sense. Again, costs will be an important part of the assessment, ranging from information on labor productivity and wage rates to intangible aspects such as the quality of education and attitude of employees. Community and site evaluation concerns the relationship between the company and the prospective community, in other words, the question of whether the company's activities and the traits of the site will fit. This issue can, for example, be relevant in the case of particular forms of research and development, where a community may be found to be hostile toward the kinds of research and development the company intends to conduct.

Regulations and incentives in the form of trade zones or other types of regulation or deregulation may be relevant, since a company may be highly motivated toward or against localizing based on the existence of such incentives or constraints. In Europe, for example, there are to a certain extent different rules according to whether the country is a member of the European Community or not. In China, the United States, and several other countries, free-trade zones have been instituted in designated areas, facilitating the exchange of goods, services and labor into and out of the zones. There may, on the other hand, be barriers or restrictions that function as disincentives. Environmental regulation may also have an impact on the relationship between a company and the community around a prospective location. Incentive negotiation is a process by which a company and a location negotiate any benefits the company may receive, such as tax breaks. Finally, political risk may be a factor to be considered in a location strategy. If the political environment is deemed to be unstable, the company can risk discontinuation of its operation at some time in the future.

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