Company Systems, Location Factors, and Value Chains
1. The Company as a System
Several factors influence a company’s actions and outcomes. These factors can be viewed as a system:
A company receives inputs, transforms them, and produces outputs.
Characteristics of a Company as a System:
- Open System: The company interacts with its environment, and external factors influence its decisions.
- Subsystem Synergy: The company comprises interconnected subsystems that work together for greater overall performance.
- Global System: Influences on one subsystem impact other subsystems and the entire company.
- Self-Regulating: The company adapts to cyclical changes, such as demand fluctuations or price increases.
4. Key Business Location Factors
Several factors influence the choice of business location:
- Market Demand: Analyze local market interest in the product and the competitive landscape.
- Raw Material Sourcing: Proximity to raw materials reduces costs and time for certain industries (e.g., dairy, canning).
- Labor Market: Availability of skilled workers for various job roles.
- Transportation and Communication: Access to transportation networks (roads, ports, railways, airports) and communication infrastructure.
- Industrial Zone and Ancillary Businesses: Consider the industrial zone’s development and the presence of supporting businesses (component manufacturers).
- Construction and Land Costs: Prices vary significantly between locations, especially land costs. This is crucial for companies requiring large areas (e.g., petrochemical plants, auto manufacturers).
- Legislation: Understand relevant regulations, including tax laws, commercial regulations, environmental legislation, and available incentives.
- Investment and Financing: Access to financing options and investment opportunities.
- Regional Economic Development: A region’s economic health can predict the company’s future success.
Minimizing manufacturing costs is often the primary factor for industrial locations. Easy customer access is typically the key factor for businesses like shops, banks, hotels, and service companies.
18. The Value Chain
Understanding value creation involves these concepts:
- Production: Transforming raw materials into finished goods using capital and labor.
- Marketing: Moving products from production to where they are needed, without changing the product’s form.
- Providing a Service: Meeting needs by offering knowledge or facilities.
Production, marketing, and service provision are complementary activities that increase the value of goods. Each company adds value within a chain of other companies, from raw material extraction to the final consumer.