Question

An electronics firm is considering how best to supply the world market for microprocessors used in consumer and industrial electronic products. A manufacturing plant costs approximately $500 million to construct and requires a highly skilled work force. The total value of the world market for this product over the next 10 years is estimated to be between $10 and $15 billion. The tariffs prevailing in this industry are currently low. Should the firm adopt a concentrated or decentralized manufacturing strategy? Why? What kind of location(s) should the firm favor for its plant(s)? Explain both answers with specific examples.

Answer 1

The firm should opt for the concentrated manufacturing strategy as the tariffs in the industry are low, the cost of manufacturing the plant is $500 million which is very high and the total value of the world market for this product over the next 10 years is estimated to be between $10 -$15 billion which is very high and all these factors together favours the concentrated manufacturing strategy.

The company requires a highly skilled work force and it can only get them in a developed economy as the labor force in a developing economy will not be highly skilled and the firm would be better utlized to find the workforce at one location.The high cost of manufacturing the plant will put budget constraint on the firm and it will only be able to manufacture one plant for the time being.The high value of the world market for the product enables the firm to manufacture the product at one location as this will lead to lower cost,better supply line and lowers the firms transportation and communication costs and leads to better inventory management.