Case Study Finding A Location For Electronics Component Manufacturing In Asia.docx

I.

TITLE

Finding a Location for Electronics Component Manufacturing in Asia

II.

INTRODUCTION

Globalization and technology have been the biggest drivers of change in the location decision process over the last thirty years. Location activity has been very high in recent decades because of technology improvements, economic growth, international expansion and globalization, and corporate restructuring, mergers and acquisition. Being in the right location is a key ingredient in a business's success. If a company selects the wrong location, it may have adequate access to customers, workers, transportation, materials, and so on. Consequently, location often plays a significant role in a company's profit and overall success. A location strategy is 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. Generally, this means the firm will attempt to maximize opportunity while minimizing costs and risks. A company's location strategy should conform with, and be part of, its overall corporate strategy. Hence, if a company strives to become a global leader in telecommunications equipment, for example, it must consider establishing plants and warehouses in regions that are consistent with its strategy and that are optimally located to serve its global customers. A company's executives and managers often develop location strategies, but they may select consultants or economic development groups to undertake the task of developing a location strategy, or at least to assist in the process, especially if they have little experience in selecting locations.

1|Page

Getting a good location is very critical to the success of a business. Perfect and best position geographically requires lot of research and decisions entrepreneurs make during the planning phase of launching ventures. Finding

the

new

location

is

what

(ACCOCIATION

FOR

COMPUTING

MANUFACTURING) ACM is thinking to become more competitive in market. ACM an electronics component manufacturer that has been in Singapore since 1991, suppling original equipment manufacturers (OEMs) with quality components. They construct a team of senior management to search a decision regarding the possible location. Which they identified two candidates for additional location: Hong Kong (People’s Republic of China (PRC) and Kuching, Malaysia. The committee has contracted the government of Singapore to elicit possible incentives t o not relocate to another country. Singapore is offering a fiveyear exemption on taxes for ACM i f the plant remains in Singapore. The government will also assist by partially subsidizing labor, water, and energy costs for Five-years. Committee members realize that the Singapore plant, which has been operating for years, has already been amortized and opening a new plant would require additional capital c osts. That said, opening a new factory would also provide an opportunity to upgrade production e quipment to more productive and energy-efficient alternatives.

III.

STATEMENT OF THE PROBLEM

2|Page

This study aimed to answer the questions stated hereunder: 1. What is the profile of the business in terms of: 1.1 Nature of business 1.2 Years in the operation 2. What are the reasons why the ACM company plan to move their operations elsewhere in Asia? 3. What are the key points that the Senior Management team take into considerations to select the best location to moved? 3.1 Hong Kong (People’s Republic of China (PRC) 3.2 Kuching, Malaysia 4. What are the advantages and disadvantages if the management chose to remain their operations in Singapore and if they proceed to launch another location in Asia. 5. What other relevant factors that are not mentioned in the ACM case that might play a role in the decision making? 6. After weighting all the possible benefits and drawback, what will be effective step that ACM company to take to maintain its global and high competitive in the Electronics industry. 7. What are the alternative solutions in a way that ACM company will keep on the tract?

IV.

RESULTS AND DISCUSSION

3|Page

Subject company the ACM is one of the leading electronics component manufacturer located in Singapore. Suppling all the original equipment manufacturers with high standards. Engaged in exporting of electronics components on all builders and contractors all over the world. Operating since 1991 and giving the best quality products for almost 27 years and counting. In the past several years ACM has experienced increasing pressures from the other manufacturers located in other countries. In their present location, the Singapore labor remains inexpensive and with steady costs which will give positive contribution in their sales. To add, the utility costs which led the firm to contemplate moving operations elsewhere in Asia, is one of the strategy to make ACM more competitive. The company remains profitable and has good path in the industry. But the margins (difference between the seller's cost for acquiring products and the selling price) have shrunk. That’s why the management is interested to ensure that the firm will remain competing in the medium to long term against other component manufacturers. To support and to make all things possible the senior management has formed a committee to identify all deliberations regarding the decision of possible relocation. Which they come up to choose Hong Kong (People’s Republic of China (PRC) and Kuching which is in Malaysia. Hong Kong’s main attractions stem from the fact that since 1997, when its sovereignty was transferred back to the PRC, labor costs have decreased as access to labor has increased. Hong Kong enjoys a large seaport and very good transportation infrastructure, and this is important in moving in raw materials and moving out finished components to customers. Senior management believes that an increasing number of OEMs will move to the PRC in the next several years, as has been the case in the past decade. And will only increases the attractiveness of locating the manufacturing facility in Hong Kong. Kuching is in the Malaysian province of Sarawak, on the island of Borneo. 4|Page

It is the fourth largest city in Malaysia and home to a population of around 650,000. Several points make Kuching attractive to the relocation committee. First locating here would give access to natural resources and other production inputs. Second,the transportation infrastructure is good, and the city hosts a deepsea port for moving raw materials in and finished good out. That said, the port is not as large or accessible as those of Hong Kong or Singapore, and several committee members have expressed concern about the frequency of ship visits toKuching. If the port does not receive regular service from container ships, transportation costs to ship components to oems will doubtlessly stable and inexpensive in Malaysia. Having a thorough discussion of its advantages and disadvantages the team compiled facts. Singapore: relatively cheap labor, good transportation infrastructure, Government incentives if stay: 5-year of tax exemption, subsidizing labor, water and energy cost for 5 years, no need to build new plant. Disadvantages would be: Increasing of labor and utility costs, old plant/factory which is less productive and energy-efficient. Malaysia: Easy access to raw materials and vast natural resources, Inexpensive labor, transportation infrastructure is good and has a deep-sea port for moving in and out the goods. Disadvantages: concern with frequency of ship visits as Kuching port is not as ‘well -known’ as Singapore and Hong Kong port. Hong Kong: Consistently cheap labor, good transportation infrastructure (busiest port). Difficulties might be: need to build the plant/factory on an expensive land as Hong Kong is an island with most densely populated area in the world.

5|Page

But on top of these, there are still some areas that they need to ponder, which are Education of the workforce (both current workforce and future generations). This includes labor talent and attitudes towards the work. Political stability of each country. Exchange rates and currency risk. In reference on the above statement, and to stay ACM on its market position, we recommend pushing and adding branches in Hongkong. Since this will take time and money ACM must take on step at a time, when the time comes that their second company drives up and gain huge amount of sales and revenue and if that will be evident they can now start to pursue to give Malaysia the services that they are offering in Singapore and Hongkong to add on their list their Malaysia branch. Keeping their original company in Singapore, continuing its mission and striving for their vision. ACM will gradually dominate the market. Our team discussed about other alternative solution that ACM may acquire. First, they should empower and promote their products in Singapore to encourage other big manufactures to try and choose ACM as the only electronic manufacturer. Second, Business market, and bench marketing this will help them to provide niche competition if they know their competitor’s weakness. Third, continue to give incentives and promotional products and high-quality service and, materials to their customers to maintain their loyalty. V.

CONCLUSION

The case study revealed a non-articulated decision process in which an initial indicative/strategic decision about the future direction was made on top management level, based on specific factors for this manufacturing location. The following consequence evaluation and definite decision focused on the capacity and lead-time fulfilment for both organizational and competence aspects of the location decision. In addition, it was also clear that the impact on the 6|Page

production system performance, i.e., the utilization of manufacturing resources and the level of quality in relation to the production volume, was considered during the location decision process. Despite the potential for improvements, the findings suggest that the case study company has a high degree of tacit knowledge regarding the production location decision and its implementation. A post-follow-up revealed that since the company has a high awareness of the risks and challenges related to relocation projects, checklists have now been established, risks are assessed and managed, and projects are more cross-functionally organized. Accordingly, to Randhawa and West (1995), the facility location problem can be approached by considering the location search space as continuous or discrete. Continuous space allows facilities to be located anywhere in the two-dimensional space; it normally assumes that costs are proportional to some distance measure between the facilities. Though easy to solve, the continuous approach may yield impractical results. The discrete space approach limits the number of possible locations to a finite set of predetermined sites, and the transportation costs are not necessarily function of distances. For this case study, four common types of technique can be considered. By using factor rating method, we can suggest arriving on a decision to which country should ACM should put up their new branch. Factor rating method attempts to take a range of considerations into account when choosing a location. This technique starts by identifying the relevant factors, then assign a weight to each factor that indicate the importance compared with other factors, given that all the weight sums up to one. Scores then have to be given by decision makers to each factor for all location alternatives. The total weighted scores for each location alternative are then calculated by multiplying the factor weight by the score for each factor and sum the results for each location alternative. The alternative with highest score is chosen unless it fails to meet the minimum threshold, if there is one (Stevenson, 2007). Factors like quality of

7|Page

living and labor attitude are intangible factors and hard to quantify. Greasley (2009) suggested an approach to compare the tangible and intangible factors by conducting an ‘intangible factors only assessment’ by the method, and then determine if the difference between the intangible scores is worth the cost of the difference in tangible costs between the location alternatives.

REFERENCES https://www.referenceforbusiness.com/management/Int-Loc/Location-Strategy.html 8|Page

https://www.profitableventure.com/choosing-a-business-location/ https://yourbusiness.azcentral.com/business-location-important-3566.html Bartmess, A. , Cerny, K. (1993). ‘Building competitive advantage through a global network of capabilities’. California Management Review. 35, 2, 78-103 Google Scholar Bellgran, M. , Bruch, J. , Rösiö, C. , Wiktorsson, M. (2013). ‘Decision support for production localization: process activities and localization factors’. Proceedings of the 20th EurOMA conference Operations Management: At the Heart of Recovery. Dublin, Ireland Google Scholar Epping, G.M. (1982) ‘Important factors in plant location in 1980’, Growth and Change, Vol. 13 No. 2, pp.47–51. Feldmann, A. (2011) A Strategic Perspective on Plants in Manufacturing Networks, PhD thesis, Linköping University, Linköping, Sweden. Feldmann, A., Olhager, J., Fleet, D. and Shi, Y. (2013) ‘Linking networks and plant roles: the impact of changing a plant role’, International Journal of Production Research, Vol. 51, No. 19, pp.5696–5710. Ferdows, K. (1997) ‘Making the most of foreign factories’, Harvard Business Review, Vol. 75, No. 2, pp.73–88. Gummesson, E. (2000) Qualitative Methods in Management Research, 2nd ed., Sage Publications, Thousand Oaks, CA. Hoffman, J.J. and Schniederjans, M.J. (1994) ‘A two-stage model for structuring global facility site selection decisions: the case of the brewing industry’, International Journal of Operations & Production Management, Vol. 14, No. 4, pp.79–96. 9|Page

Porter, M.E. (1986) ‘Changing patterns of international competition’, in Aliber, R.Z. and Click, R.W. (Eds.): Readings in International Business: A Decision Approach, pp.49–84, The MIT Press, Cambridge, MA. Schmenner, R.W. (1982) Making Business Location Decisions, Prentice-Hall, Englewood Cliffs, NJ. Shi, Y. (2003) ‘Internationalisation and evolution of manufacturing systems: classic process models, new industrial issues, and academic challenges’, Integrated Manufacturing Systems, Vol. 14, No. 4, pp.357-368.

10 | P a g e