Question

International Business

Question 2.

Define location economies and the value each delivers to a firm. An example is sourcing in low cost country and delivering thru a logistics network as compared to sourcing local and delivering using Omni Channel approaches. Think hub and spoke versus Amazon.

Answer 1

Location economies are economies that arise from performing a value creation activity in the optimal location for that activity, wherever in the world that might be.Companies go around the globe to find and operate under the most optimum settings for their goods. Production of the goods under the most optimum settings can give added advantage in cost of productions over their competitors. This is known as Location Economies.

Some features of Location Economies are:

• It Often arise due to differences in factor costs
• it can lower costs of value to enable low cost strategy and/or
• It help in differentiation of products from competitors
• Global web: different stages of value chain are dispersed to those locations where perceived value is maximized or costs of value creation are minimized

Example : McDonald's is finding that its foreign franchisees are a source of valuable new ideas. In France, its local franchisees have begun to experiment not only with the menu, but also with the layout and theme of restaurant.

Mostly online orders either from Amazon or Best Buy are delivered through Hub and Spoke Model.With ecommerce orders are collected from retailer's warehouse and bought back to a hub where they are stored before being distributed onto multiple vehicles running delivery routes the next day.This method is cost effective but not flexible.Delivery times are determined by other deliveries within the network and on a delivery route. Instead of this point to point method is more effective.Amazon does not locate its warehouses in densely populated areas due to cost considerations so, therefore point to point method is more effective.