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In the past lot of research has been carried on location determinants for setting new plant but still there are number of problems which exist and which need to be address in this competitive world. Where everything is measured in terms of profitability. My paper will introduce and will explain the influencing factors, which need to be taken into consideration while deciding for a location. These factors are input cost varied by location like- tangible factors. This includes inbound and outbound logistic cost, infrastructure and labour cost. My paper will also draw attention on non economic factors (intangible factors) like law and order, labour and industrial relations, climatic condition, social environment and most importantly proximity to markets. These factors are not commonly employed, they are only employed when results need to me tempered. Non economic factors are the one which provided long term advantage. Economic factors may alter with the changes in tax structure and labour rates so these factors can not be the sole factors, while deciding for a location.
Motivation for the topic
During my graduation of engineering, I took training at Escorts Construction Equipment Ltd, Faridabad, India. One of the largest manufacturer of construction equipment machines in India was thinking of setting a new plant but considering only those location where tax incentives was possible or in the same town where they located. Not considering various other factors.
With a growth in construction equipment business due to large investment committed by Indian Government on infrastructure projects many national and international players are coming to invest in India, for which they are looking for a location. For example Volvo is planning to invade construction equipment business market in India with a heavy investment. During my training I experienced that lot of emphasis is given on a location research prior carrying out manufacturing plan. However more detail research to factors like tangible and intangible need to be address as they will lead in calculating precisely "how the business opportunity can be maximized and minimize the cost of manufacturing", before setting up of a plant. In addition to this classical theory of location determinant is not feasible in today's competitive world and importance should be given to the non economic factors, while working on a location research. As these factors never changes with the government regulation and tax structure.
This motivated me to work on this topic and present it as a research paper in MBA.
Research on location strategy for setting up a new manufacturing plant is an area of research, where different approaches have been implemented and criticized in the past. But in the current economic time, there is a quest to figure out the influencing factors like overall profitability, serving the regional, national and international markets, shortest time to reach customer,non economic factors, land, inbound and outbound logistic and labour cost. Which are considered important tool, while deciding on a location.
Location determinant factors are not only limited to setting up new manufacturing plant; they are also employed in the case of localization, where same type of an industry is setting up a new plant in a specific chosen area and they are also employed in the case of delocalization. In which same business is going to be open in different region of a country for example banks. Location determinant factor may be different for localization and delocalization, but they are very important factor in determining the long term profitability of an organization (Friedman, Joseph, Daniel A. Gerlowski, and Jonathan Silberman, 1992).
Today is the time of industrialization and globalization, where every organization is competing with every other organization to maximize its profit and to be market leader in terms of market share. For this firms are always looking out for a location, which should be beneficial and provide them a distinct advantage over its peer competitors. Moreover firms are surpassing the barrier and are moving from one continent to the other continent to access the maximum opportunity and to minimize the risk. For this organizations need to choose an appropriate location. Choosing a location and investing money on it, is not a reversible process. It has a long term effect on firm's performance and sustainability (Herzog and Schlottmann, 1991; Bartik, 1991; Wasylenko, 1997). On similar principle Volvo is planning to start doing construction equipment business in India for the first time, for which they are carrying out detailed research to opt for a specific location from where they can start manufacturing excavators (The Hindu, 2004). In the past, location was chosen on a basis of an availability of work force and availability of raw materials (R. W. Schmenner, 1982). Bajaj Auto Ltd on these two factors decided to set up its scooter plant in Akurdi district in Pune, India in the year 1960. In the initial years plant generated profit but now it has lead to increase in operation cost as Bajaj Auto Ltd neglected the factors like tax benefits and incentives (The Financial express, 2007). This has made Bajaj shift its plant from Akurdi district to Waluj district and recently a plant in Uttaranchal, in north of India. To decrease its operational cost and to receive incentives offered by Governments.
Many researchers like Carlton, Due and Schmenner believes that there is no need to include factors like tax benefits and incentives, while deciding on a location of a plant. As these factors play a minor role in calculating overall profitability of a plant (Carlton, 1979; Due, 1961 and Schmenner, 1982). Correspondingly researchers like Bartik and Newman believe that there is a need to include tax benefits and incentives. As monetary savings from these tax benefits can be diversify in many other things, for example technological development and human resource development (Bartik, 1983 and Newman1983). For example, Gujrat Amuja Ltd in India got the tax benefits from the Himachal Pradesh Government for eighteen years from the date of setting up a plant; this has helped them in lowering the manufacturing cost and this resulting in overall profitability (Business Line, 2004). Till date there is an ongoing argument that there should be a different credit system, while choosing a location of a new manufacturing plant for a local, regional or a national manufacturer and different credit system for a foreign investor. But there has been no specific evidence or research for differentiating local and international manufacturers in terms of location selection (Ferdows K, 1997).
Till now there is an argument on considering the one standard scale in which location can be considered as a single entity, for example considering a country as one entity instead of nationals, sub nationals or regional locations. But researchers like Mc Millan and Stafford oppose this, they believe that search for a location for a new manufacturing plant starts from a national region to regional, regional region to sub regional and then at last comparing the specific attributes off all the locations and finally deciding on the location. which suits a particular demand, irrespective of the economic and non economic factors (Mc Millan, 1965 and Stafford 1974). Wheeler contradicts the idea of Mc Millan and Stafford, he proposes that firms situated in regional areas will be giving preference to the regional areas and firms situated in metropolitan cities will be giving more preference to the metropolitan area for setting new plant as they have bounded themselves by a specific geo graphical area. Ignoring the availability of cheap labour in regional area and availability of cheap freights in metropolitan region (Wheeler, 1981). In addition to this Schmenner furthers comments that the location of a plant should be decided on the type of product, which is to be produced and services which is to be delivered to the end customers. He clarifies this by giving an example of car manufacturer. Who will prefer the location, where firm can easily be in contact with its suppliers and vendors and at the same time maintain the balance with the rest of the value chain irrespective of the non economic factors like social and climatic condition (Schmenner, 1979).
Ferdows contradicts the philosophy given by Schmenner, Mc Millan, Stafford and Due. He believes that all the variables like regional preference, national preference, considering country as one entity and incentives benefits are the secondary and tertiary variables while deciding an appropriate location for a manufacturing plant. He believes that amount of money, which is to be invested in a plant plays a primary role on deciding a location (Ferdows K, 1997).
On a same note researchers like Kotter, Porter and Kanter believes that optimum location for a new plant must be chosen on a basis of competitiveness and industrial portfolio. They believe that variable like unionization should never be consider while deciding a location as these are an independent variable, which changes with the changing environment and current working policies. They clarifies there statement by stating that competitiveness should be consider a positive outcome , as it will be helpful for an industry to break down the powers of suppliers and help a firm to govern value chain themselves (Kotter et al,1997; Porter,1990 and Kanter 1995). This statement is well supported by David Jobber, he believes that competition in a market can lower the values associated with various parameters like transportation and wages. As there will be presence of many major players offering similar or different services, these players will not be having much choice. Instead they need to provide services cheaper and at better rate (David Jobber, 2007). This can make a location favorable for setting a plant as services like transportation, telecommunication services and maintainence services will be available at a cheaper rate compared with areas. Where there is no competition.
It is a matter of fact that companies like Volkswagen's, Nissan and Toyota do spend lot of resources just on searching the appropriate location for their plants. They do keep their environment consciousness in mind while searching for a location. For example Volkswagen gave preference to the Chattanooga in United States of America just for the sake of greenness and cleanness. As they were moving out from the Germany, which is known for its greenness and cleanness throughout the world and at last they gave preference to the infrastructure (Rick Wagner, 2010).
It is been noted that location selection for a new manufacturing plant has always played an important role in the past, present and will also play an important role in the coming future. Through there has been number of changes in classical theories and number of things have been criticized about it. But still research needs to be carry out to explain other determinants which may be no other researchers have taken into consideration.
Location Determinant variables
(Quantitative decision) (Qualitative decision)
2. Selecting and limiting the research to 3 cities
5. Drawing comparison between three cities
3. Collection of data from interviews, article, government agencies, journals and e resources
4. Analyzing the data and categorizing it into groups
7. Raking of cities as per the benefits offer by them on the basis of the weight age assigned to them
8. Selecting the city for setting up new manufacturing plant
6. Processing the variables and assigning weight age to the variables associated with particular city
Aim and objective of my research
The fundamental base of my research will be to determine the location determinants for setting up new manufacturing plant; for construction equipment business in India. I will be going through the previous research work done on this field. Will also explore those factors and at the same time will determine factors like tangible, intangible and non economic factors which need to be researched and apply in this current economic time.
My study will be focused on these questions;
What weight age should be assigned to tangible and intangible factors (non economic factors), while deciding location for a construction equipment business in India?
Will there be any difference on the basis of land, power and labour cost in different cities?
Importance of tax benefits, while deciding location for construction equipment business?
Role of inbound and outbound logistic cost on deciding location for a plant, based on market size of construction equipment sold- region wise?
The approach, which I will be following for my research will be deductive approach. The reason for opting deductive approach is that many researchers have worked in this field. The areas which are not so far explored will be explored by the data and theories given by these researchers. Moreover the data available from these researchers work will be precise as it has been tested and implement in the past, this will help me in carrying out research with more precision.
I will be adopting both quantitative as well as qualitative approach. Quantitative approach will be employed in determining the factors like land, labor, tax, inbound and outbound logistic as all these factors comprises of the numeric and they involve empirical relation. In my research qualitative approach will be employed in determining the factors like infrastructure, law and order, climatic condition and quality of life. Qualitative approach is use on these factors as they involve comprehensive explanation, researcher opinion and detailed research. Though it is time consuming and subjective but the data will be rich in content as compare to the quantitative data.
Data collection method
In my research I will be employing both primary and secondary data. For the primary data I will be conducting interviews with the managers and the work force of a firm to know about their views and preference to opt for a particular region in terms of labour and industrial relation and their proximity to work and reach that place. Through there are number of different ways for conducting interview but I will be depending on personal interview as it will bring an edge to my work. The reason for choosing personal interview is that the response rate is very high and the person who is to be interviewed, shows seriousness. So the data collected will be rich in content and will be precise.
Secondary data for my research will be collected from the Government agencies, internal source, journals, article, books, various catalogues of Government agencies regarding tax structure and most importantly from the e- resources.
Processing and Assigning weight age to data
I will be assigning weight age to the tangible factors on the basis of the percentage contribution to the total cost variable with the location. I will be rating determinants on the scale of the 1-10. In which "1" being the location with minimum benefits and "10" being the location offering maximum benefits. For intangible determinants I will assign weight age on the basis of the Pestel and BOCR (benefit, opportunity, cost and risk) analysis.
Chapter 2-Conceptual framework.
Chapter 3- Literature review.
Chapter 4- Results, methodology, model, interpretation of data and conclusion.
The research paper will be entirely done by me under the guidance and supervision of the supervisor, who will be allotted to me. If the collection of data is done with help of some person, his name will be mentioned in the research paper.
Time period for my dissertation research will be from 1st June 2010 to 30th September 2010.
Collection of data: After submitting this dissertation proposal. I will start collecting primary and secondary data. I will collect data till end of June 2010.
Analysis of data: I will be analyzing and categorizing primary and secondary data in the months of July 2010.
Submission of dissertation: once the data is analyzed precisely, I will start writing down my research paper. I will start drafting my final work in September and will try to complete it by 20th September 2010, so that research work can be revised and mistakes can be rectified. I will submit my dissertation by 30th September 2010.
Research cost: Any kind of a monetary cost associated with my research will be bear by me and my family.