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Unit 12: Facility Location

12.4 Selection of Site for the Plant Notes

When we see on the television news or read in the newspaper that a company has selected a site
for a new plant, the decision can appear to be almost trivial. Usually it is reported that a
particular site was selected from among two or three alternatives and a few reasons are provided
such as good community or available land. However, such media reports conceal the long,
detailed process for selecting a site for a major manufacturing facility.

Example: When General Motors selected Spring Hill, Tennessee, as the location for their
new Saturn Plant in 1985, it culminated a selection process that required several years and the
evaluation of hundreds of potential sites.
When the site selection process is initiated, the pool of potential locations for a manufacturing
facility is, literally, global. Since proximity to customers is not normally an important location
factor for a manufacturing plant, countries around the world become potential sites. As such, the
site selection process is one of gradually and methodically narrowing down the pool of
alternatives until the final location is determined. In the following discussion we identify some
of the more important factors that companies consider when determining the district, region,
state and site at which to locate a facility.

12.4.1 Country

Until recent years companies almost exclusively tended to locate within their national borders.
This has changed somewhat in recent years as US companies began to locate outside the continental
United States to take advantage of lower labour costs. This was largely an initial reaction to the
competitive edge gained by overseas firms, especially Far Eastern countries, in the 1970 and
1980. US companies too quickly perceived that foreign competitors were gaining a competitive
edge primarily because of lower labour costs. They failed to recognise that the real reason was
often a new managerial philosophy based on quality and the reduction of all production related
costs. High transportation costs for overseas shipping, the lack of skilled labour, unfavourable
foreign exchange rates and changes in an unstable government have often combined to negate
any potential savings in labour costs gained by locating overseas. Ironically, some German
companies, such as Mercedes-Benz, are now locating plants in the United States because of lower
labour costs. An overseas location is also attractive to some companies who need to be closer to
their customers, especially many suppliers.
The next stage in the site selection process is to determine the part of the country or the state in
which to locate the facility.
In India the Western and Central regions are generally most preferable and the Eastern region
is least preferable for manufacturing facilities. This reflects a general migration of industry
from the Eastern to the Western and Central regions during the last two decades primarily due
to labour relations. The factors that influence in what part of the country to locate are more
focused and area-specific than the general location factors for determining a country.

12.4.2 State/District

The site selection process further narrows the pool of potential locations for the facility down
to several communities or localities. Many of the same location factors that are considered in
selecting the country or region in which to locate are also considered at this level of the
process.

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