Location plays a key role in the overall risk and profit of a company. When all costs are considered, location may affect the total operating expenses by as much as 50% (Heizer, & Render, p.339). Companies typically make the decision to relocate based on an increased demand and the need for larger facilities, or changes in labor productivity, exchange rates, costs, or local attitudes. The objective of location strategy is to maximize the benefit of location to the firm (Heizer, & Render, p.339).
1. Evaluate the inducements offered to Southern Vehicle Company by community leaders in Ridgecrest, Mississippi.
The inducements included:
1. Exemption from county and municipal taxes for 5 years
2. Free water and sewage services
3. Construction of a second loading dock---free of cost—at the industrial sight 4. An agreement to issue $500,000 in industrial bonds for future expansion 5. Public financed training of workers in a local industrial trade school
In this example, the factor-rating method would identify the inducements as extremely favorable and would directly address the challenges facing the business today. The exemption from county and municipal taxes for 5 years would not only ease the cost of relocating, but provide the company a chance to establish strong profits during the initial years in a new site. Taxes had steadily been climbing in their St. Louis plant, which contributed to their ballooning overhead expenses. This inducement puts them in a better position in the short term financially, but I would also look to negotiate a favorable rate or tax ceiling after the honeymoon period so that the same cost issue does not return.
The second inducement was free water and sewage services. After five consecutive years of declining profits as a result of spiraling production costs, due in part to a sharp increase in utility cost, the company is at a clear advantage with free water and sewage services....