Firm Relocation

Abstract

This essay discusses the process of relocating a business. The first section highlights discuss the advantages and disadvantages that come along with the relocation of a firm from one geographical place to another.  It highlights the benefits a firm will enjoy after relocating, as well as the negative effects the relocation process will have on the firm. The essay also discusses the motivational factors that will make firm stakeholders initiate a relocation process, for example, a predictable rise in demand of a commodity. The final part of the essay discusses some of the metrics that are useful in determining the profitability of the relocation process and also highlights the characteristics of the state that this firm (the chip manufacturing firm) should be relocated to.

Pros and Cons of Relocation

There are several advantages associated with relocating of a firm. According to (Harris, Wright, Cox & Hu, 2008), the first advantage of relocating a firm is the reduced cost of transport because of the proximity to the market. When a firm relocates closer to its major market, financial cost of transporting products to the market will reduce. Another advantage of firm relocation is the increased sales due to the presence of a readily available market. In addition to the previous markets, the client base will expand because of the newly found market (ibid). A third advantage of firm relocation is to avoid costly regulation or unionization, for example, heavy taxes.

There are several disadvantages of relocating a firm. Firstly, it is a highly cumbersome process to shift works of a company to some other place (Bill, 2013). Secondly, it is very expensive in terms of investments involved in the in setting up of the plant premises. The cost of buying of the land and construction of buildings are very large and especially in the case of big multinational companies, the investments can go into millions. Thirdly is that, the relocation process largely affects the cycle of production which in turn may affect the projected financial goals (ibid).

In a business environment, there are several reasons or motivating factors that will make a firm to initiate a relocation project (Harris, Wright, Cox & Hu, 2008). Among these factors are: The need for a firm to move closer to markets, proximity of the plant to the market motivates the mangers to initiate a relocation project.  Closeness to the sources of supply of raw materials is another motivating factor because proximity to sources of the raw materials will reduce the cost of inn carriage and out carriage. A company is motivated by the notion of cost reduction and availability of reliable means of transport facilities, for example, roads, railway and water and air. Therefore, manager will be motivated to relocate their firms closer to these facilities. A company is also drawn towards the source of an educated, reliable and cheap labor, therefore, they will move to a place where this is available.

The facility location decision of this chip manufacturing firm differs from that one of a service organization in because the relocation of a firm involves complete shift of the work force and developing of a new working site which in turn affects the production cycle (Bill, 2013).

According to Ravet (2012), the metrics used in selecting a production facility location include: Firstly, the sales price of a particular product in that particular region. When the prices are favorable and encourage reasonable profits, relocation is worth. Secondly, demand forecast by the market. If there is predictable rise in demand of a product in a particular region, the firm managers will find it necessary to relocate to that particular region. Thirdly, the availability of reasonable taxes and tariffs which will not have huge reduction in profits of the Company. Another metric used in selecting a relocation site is availability of the labor force; a readily available and cheap labor is preferred. Availability of a reliable means of transport is another important metric for selecting a site as it enhances distribution of commodities.

The firm should be allocated in a state with characteristics that ensure high business performance in terms of sales and profitability. The state should heave a large market base for the products of this firm. The means of transport should also be reliable and readily available in order to ensure efficient and cost effective means of transport. The cost in terms of government taxes and tariffs should also not be high in this particular state so that they do not negatively affect the net profits of this firm.