FedEx’s key location concept is the central hub concept, with
Memphis selected for several reasons, including its being in the
middle of the country and having very few hours of bad weather
The major reason for U.S. ±rms to locate overseas is often
lower labor costs, but as this chapter and Chapter 2 suggest, there
are a number of considerations.
The major reason foreign ±rms build in the U.S. is to satisfy the
demand for foreign goods in the United States while reducing trans-
portation cost and foreign exchange risk; in addition, U.S. locations
allow foreign ±rms to circumvent quotas and/or tariffs.
is the tendency of ±rms to locate near competitors.
Different weights can be given to different factors. Personal
preferences are included.
The qualitative approach usually considers many more factors,
but its results are less exact.
Clustering examples in the service sector include fast-food
restaurants, shoe and jewelry stores in a shopping mall, and theme
when choosing a country
Government stability (political risk)
Communications systems within the country and to the
Attitude towards foreign investors/incentives
to consider in a
Attractiveness of region
Proximity to raw materials/customers
Franchise operations may add new units per year; Exxon,
McDonald’s and Wal-Mart add hundreds of units per year, almost
a daily location decision. For such organizations, the location de-
cision becomes more structured, more routine. Perhaps by repeat-
ing this process they discover what makes their strategic locations
Factors affecting location decisions: labor productivity, for-
eign exchange, changing attitudes toward the industry, unions,
employment, zoning, pollution, and taxes.
The center of gravity method assumes that cost is directly
proportional to both distance and volume shipped. For service fa-
cilities, revenue is assumed to be directly proportional to proxim-
ity to markets.
Locational break-even analysis
Step 1: Determine ±xed and variable cost for each location.
Step 2: Plot the costs for each location, with costs on the
vertical axis of the graph and annual volume on the hori-
Step 3: Select the location that has the lowest total cost for
the expected production volume.
The issue of weight or volume gain and weight or volume
loss during processing is important, and supports the manufactur-
ing side of the saying (weight loss during mining and re±ning,
for example, suggests shipping after processing). But JIT may be
more easily accomplished when suppliers are clustered near the
customer. And some services (such as Internet sales) can take