Issues and potential problems with international location
1. Language and other communications barriers
Distance is a problem because there is less face to face contact, also when some operations are abroad
language can be another problem.
2. Cultural differences
This is the consumer´s tastes and the religious factors that determine what goods should be stocked.
3. Level of service concerns
This applies to the off shoring of call centres, technical support centres and functions such as
accounting. Some consumer groups argue that off shoring of these services has led to inferior customer
service due to time difference problems, time delays in phone message, language barriers and different
practices and conventions.
4. Supply chain concerns
There may be loss of control over quality and reliability of delivery.
5. Ethical considerations
There may be loss of jobs when a company locates all or some of its operations abroad.
Scale of operations
Scale of operations - the maximum output that can be achieved using the available inputs – this scale
can only be increased in the long term by employing more of all inputs.
Factors that influence the scale of operations
Size of the market the firm operates in
Number of competitors
Scope for scale of economies
Economies of Scale
This is the reductions in a firm’s unit (average) costs of production that result from an increase in the
scale of operations.
The cost benefits arise for five main reasons Purchasing Economies
These economies are often known as bulk-buying economies. Suppliers will often offer
substantial discounts for large orders. This is because it is cheaper for them to process and
deliver one large order rather than several smaller. In addition, they will obviously be keener to
keep a very large customer happy due to the profits made on the large quantities sold.
Technical economies, basically is the use of technology to have a greater output than the labour
work-force. This will make the unit cost of the products much lower, and so they will make more
at a less cost.
This economy of scale refers the ease of getting liquidity in the firm. Larger firms will be better
off getting money, by two main ways: Firstly by the use of banks and other lending institutions
which are giving preferences to the large business to get this loan with a proven track record
and that the business shows that if one product fails they will not be bankrupt, meaning that
they have diversified products. Banks receive money with the interest rates, which are lower to
larger firms, compared to small firms, and especially newly formed businesses. The second way
is by the issue of shares, if the firm is a PLC. This will allow them selling many millions of dollars’
worth of shares.
Marketing costs obviously rise with the size of the businesses. So the larger firms which do have
finance available, they tend to employ marketing managers, of advertising agencies, to study the
market and direct specifically adverts to them. These costs can be spread over a higher level of
sales for a big firm and this offer