Page 265 - DMGT545_INTERNATIONAL_BUSINESS

International Business

notes plants have attracted a number of supporting industries, such as the manufacturer of
semiconductor equipment and silicon, which have been established facilities in Taiwan to
be near their customers.
l z Formal and informal trade barriers influence location decision.

l z Rules and regulations regarding direct foreign investment.
l z Expected future movements in its exchange rate. Adverse changes in exchange rates can
quickly alter a country’s attractiveness as a manufacturing base. Example, many Japanese
corporations had to grapple with this problem during the 1990s.

l z Product’s value to weight ration because of its influence on transportation costs.
technological factors

Here we are concerned with manufacturing technology, the technology that performs specific
manufacturing activities. Three characteristics of manufacturing technology are of interest here–
the level of fixed costs, the minimum efficient scale and the flexibility of technology:

Level of Fixed Costs

In some cases the fixed costs of setting up a manufacturing plant is so high that firm must serve
the world market from a single location or from a very few locations. For example, it costs more
than $ 1 billion to set up a state-of-the-art plant to manufacture semiconductor chips. Hence
serving the world market from one single location makes sense.

Minimum Efficient Scale

The concept of economies of scale tells us that as plant output expands, unit costs decrease. The
reasons include the greater utilization of capital equipment and productivity gains that come
with specialization of employees within the plant. However, beyond a certain level of output,
few additional scale economies are available. Thus the unit cost curve declines with output until
a certain output level is reached, at which point further increases in output realize little reduction
in input costs.

Flexible Manufacturing and Mass Customization

Central to the concept of economies of scale is the idea that the best way to achieve high efficiency,
and hence low unit costs, is through the mass production of a standard output. The trade-off
implicit in this idea is between unit costs and product variety. Producing greater product variety
from a factory implies shorter production runs, which in turn implies an inability to realize
economies of scale.
This view of production efficiency has been challenged by the rise of flexible manufacturing
technologies. The term flexible manufacturing technology-or lean production-covers a range
of manufacturing technologies designed to (1) reduce setup times for complex equipment
(2) increase the utilization of individual machines through better scheduling and (3) improve
quality control at all stages of the manufacturing process. Flexible manufacturing technologies
may actually allow the company to produce a wide variety of end products at a unit cost that at
one time could only be achieved through the mass production of a standardized product, while
at the same time enabling the company to customize its product offering to a much greater extent
than was once thought possible. The term mass customization has been coined to describe the
ability of companies to use flexible manufacturing.

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