Business Location, Size, and Growth Strategies
Item 3: Company Development
1. Location and Size of the Enterprise: An Analysis of Factors
An important decision is locating the site to provide a competitive position in the market. The dimension is the capacity that the company has to produce. The company needs to increase size, sometimes growing through processes of cooperation with other companies.
Location and size are determined by the possibility of market demand. These are inseparable decisions and raise complex issues. Location and size influence the benefit derived, due to economies of scale that occur when fixed costs are distributed in an optimal number of units. Units of localization occur when you are together in the same sector.
A) Location of the Company
The selection of the optimal place to locate businesses is a complex decision. The objectives sought with it are:
- Lower costs.
- Optimize access to markets and suppliers, receiving customer access as accessible as possible.
- Increase management efficiency; resources are managed to maximize revenues.
Factors that influence the location are:
- Transport and communications.
- Supplies.
- Supplies of raw materials.
- The region’s economic development.
- Labor market.
- Land costs.
- Market demand.
- Legal, social, and fiscal factors.
- Investment, financing, and technical assistance.
B) Size of the Company
Dimension is the production capacity of the company and is determined by:
- Technology.
- The number of workers.
- Market.
The optimum size is when the unit cost of production is minimal. Two of the most important decisions are where to locate and the dimension of the production facilities; this is estimated by market research.
Plant Capacity: Capacity, time will be needed, and where it should be located.
By the highest level of production capacity in a period of time:
- Demand forecasting.
- Forecasting sales.
- Determining the capacity ratio between available and required capacity and alternatives.
- Evaluation and decision.
There are no exact or unique criteria for the classification of companies according to their size, volume, size of equity, sales, and number of workers.
The size of a company or capacity of the facilities must have a business: the measurement of capacity and demand.
2. SMEs
Small and medium enterprises are important in the functioning of the economy. They have advantages and disadvantages:
Advantages:
- Fast decision-making.
- Flexible organization.
- Encourages creativity.
- Lower labor disputes.
Disadvantages:
- Very little development in R&D.
- Poor lending.
- Lower level of infrastructure.
3. Growth Rates
Growth is an innate purpose of the company. The company grows when it produces at lower costs and benefits increase, but there are other reasons: to eliminate competitors, to ensure supplies, etc.
Internal or external growth of productive investment in the company increases production capacity.
External growth increases by acquisition or merger of the company to be placed in its optimal size; this occurs when the domestic market is not enough.
- Merger.
- Acquisition.
- Holding companies by shares.
- Trust companies.
- Vertical concentration of horizontal concentration cartel of companies.
Internationalization of company activities outside the domestic market and joint investment of the foreign company provides capital, expertise, and market access.
Internal growth diversification in developing new products. “Plunge” means selling the same products, but most frequently:
- Diversification.
- Growth plunge.
- Market development.
- Product development.