Page 139 - DMGT501_OPERATIONS_MANAGEMENT

Unit 5: Facility Location

5.4.1 Country Notes

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.

Caselet P&G Planning to set up 3rd Facility in India

— by Sindhu J Bhattacharya and Virendra Verma
ollowing the handsome volume gains in the shampoo segment over the last few
months due to price cuts, Procter & Gamble has begun thinking in terms of setting
Fup its third manufacturing facility in the country.
At present, the company manufactures Ariel and Tide detergents at Mandideep in Madhya
Pradesh and Whisper sanitary napkins and the Vicks range of products at Kundaim in
Goa. However, it imports all of its shampoo brands – Head & Shoulders, Pantene and
Rejoice – from overseas markets.
On whether the company was scouting for sites to set up manufacturing facility for
shampoos and other products, perhaps in Himachal Pradesh, a company spokesperson
said, "P&G is examining this interesting opportunity. At this stage a decision has not been
made, but the Himachal Pradesh plant is being evaluated at the moment.''
She confirmed that the company is importing its shampoo brands at present but did not
specify whether the new facility being envisaged would manufacture shampoos.

Analysts tracking the sector said the company, which imports shampoos from Thailand
and other Asean countries, has decided to invest in a new manufacturing base because of
the recent volume gains in shampoos and detergents despite sluggish value growth.
However, the investment earmarked for this new facility could not be ascertained.

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