Section A: GSK & Astra Zeneca - To what extent is cost the most important factor influencing UK location decisions by manufacturing businesses?

  • Created by: Megan
  • Created on: 14-06-15 21:36

Section A: GSK & Astra Zeneca - To what extent is cost the most important factor influencing UK location decisions by manufacturing businesses?

Advantages

  • YES, cost is the most important factor influencing UK location decisions by manufacturing businesses because... Off-shoring of many UK firms has been cost driven.
  • Mainly in the textiles industry or the tobacco industry, which has seen the Imperial tobacco factory in Nottingham shut down and has off-shored in an attempt to rationalise capacity.
  • Tobacco firms are off-shoring production to Eastern-Europe which offers lower costs of production.
  • Increases the profit margins for these manufacturers as a result of cost cutting.
  • More UK manufacturers are leaving the UK as their location decisions where effected by costs.
  • EV: Location decision might not be cost-driven, but demand-driven as the UK has declining sales in tobacco due to health risks and campaigns by health organisations. Demand is the most important factor influencing location - near-shoring.
  • YES, cost is the most important factor influencing UK location decisions by manufacturing businesses because... GSK have had to invest heavily into automation in the UK to remain cost competitive.
  • Implementing a rationalisation strategy to cut costs in terms of labour, as it led to 'tens of thousands of job losses'
  • If GSK did not decide to invest heavily into automation in the UK, it might have been likely that they would have off-shored some of their production to cost competitive countries to remain competitive.
  • AstraZeneca invested $200m in a new factory in China.
  • Location decision is still cost-driven despite staying within the UK because they have had to take up other strategies to cut costs in order to be able to remain in the UK.
  • Still making the UK a competitive location due to lower costs as a result of heavy investment in automation.
  • EV: One of the reasons why they were prevented from off-shoring to China like AstraZeneca was that it had a troubled expansion into China, which may be the reason why they kept manufacturing within the UK.

Disadvantages

  • NO, cost is not the most important factor influencing UK location decisions by manufacturing businesses because... Other factors effect the complex location decision making.
  • Organic growth of firms can lead to UK manufacturers off-shoring as a result of growing larger.
  • JLR are opening a factory in China as a result of organic growth overseas.
  • Much of the production of components will still be manufactured within the UK factory and shipped to Brazil.
  • So it is not cost-driven, but growth driven as the business expands into Brazil, one of the sixth largest economies.
  • Growth is the main influencing in UK location decisions.
  • EV: Cost may have been one of the reasons for the location decisions in JLR case because productivity has been much higher in Brazil for them, so they might want to be reducing costs when they expand.
  • NO, cost is not the most important factor influencing location decisions by manufacturing businesses because... It depends on the nature of the industry.
  • Pharmaceutical industry is a high R&D intensity and more of the sales it gains is spend on R&D than other industries.
  • The cost of research could be deemed more important because it will determine the end products produced.
  • The products are the source of competitiveness for pharmaceutical companies and high levels of R&D is needed.
  • Cost of research is more important than the cost of production.
  • EV: Cost is still a factor, as the cost of research needs to be taken into account.

Evaluation

I believe that cost is an important factor influencing UK location decisions because in surveys taken, rising energy costs is one of the biggest concerns for UK manufacturers and this could increase their costs and lead to off-shoring to other locations as a result. Costs can make a location more competitive and the UK having lower wages than before has made them more competitive for manufacturing and seen a trend in re-shoring as a result. This suggests it is an important factor. However, I don't believe it is the most important factor when it comes to location decisions because location decisions are complex and comprise of many different factors, such as the skill of labour, which could be more important than cost to manufacturer the products. Whether it is the most important factor also depends on the nature of the business, as some industries are cost-driven, which could be argued for the Tobacco industry. Whereas, businesses like GSK may be less cost-driven, but research driven which means they need to be located where there is the specialist skills. Therefore, I don't believe that cost is the most important factor influencing UK location decisions by manufacturers.

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Section A: GSK & Astra Zeneca - To what extent is cost the most important factor influencing UK location decisions by manufacturing businesses?

  • Created by: Megan
  • Created on: 14-06-15 21:36

Section A: GSK & Astra Zeneca - To what extent is cost the most important factor influencing UK location decisions by manufacturing businesses?

Advantages

  • YES, cost is the most important factor influencing UK location decisions by manufacturing businesses because... Off-shoring of many UK firms has been cost driven.
  • Mainly in the textiles industry or the tobacco industry, which has seen the Imperial tobacco factory in Nottingham shut down and has off-shored in an attempt to rationalise capacity.
  • Tobacco firms are off-shoring production to Eastern-Europe which offers lower costs of production.
  • Increases the profit margins for these manufacturers as a result of cost cutting.
  • More UK manufacturers are leaving the UK as their location decisions where effected by costs.
  • EV: Location decision might not be cost-driven, but demand-driven as the UK has declining sales in tobacco due to health risks and campaigns by health organisations. Demand is the most important factor influencing location - near-shoring.
  • YES, cost is the most important factor influencing UK location decisions by manufacturing businesses because... GSK have had to invest heavily into automation in the UK to remain cost competitive.
  • Implementing a rationalisation strategy to cut costs in terms of labour, as it led to 'tens of thousands of job losses'
  • If GSK did not decide to invest heavily into automation in the UK, it might have been likely that they would have off-shored some of their production to cost competitive countries to remain competitive.
  • AstraZeneca invested $200m in a new factory in China.
  • Location decision is still cost-driven despite staying within the UK because they have had to take up other strategies to cut costs in order to be able to remain in the UK.
  • Still making the UK a competitive location due to lower costs as a result of heavy investment in automation.
  • EV: One of the reasons why they were prevented from off-shoring to China like AstraZeneca was that it had a troubled expansion into China, which may be the reason why they kept manufacturing within the UK.

Disadvantages

  • NO, cost is not the most important factor influencing UK location decisions by manufacturing businesses because... Other factors effect the complex location decision making.
  • Organic growth of firms can lead to UK manufacturers off-shoring as a result of growing larger.
  • JLR are opening a factory in China as a result of organic growth overseas.
  • Much of the production of components will still be manufactured within the UK factory and shipped to Brazil.
  • So it is not cost-driven, but growth driven as the business expands into Brazil, one of the sixth largest economies.
  • Growth is the main influencing in UK location decisions.
  • EV: Cost may have been one of the reasons for the location decisions in JLR case because productivity has been much higher in Brazil for them, so they might want to be reducing costs when they expand.
  • NO, cost is not the most important factor influencing location decisions by manufacturing businesses because... It depends on the nature of the industry.
  • Pharmaceutical industry is a high R&D intensity and more of the sales it gains is spend on R&D than other industries.
  • The cost of research could be deemed more important because it will determine the end products produced.
  • The products are the source of competitiveness for pharmaceutical companies and high levels of R&D is needed.
  • Cost of research is more important than the cost of production.
  • EV: Cost is still a factor, as the cost of research needs to be taken into account.

Evaluation

I believe that cost is an important factor influencing UK location decisions because in surveys taken, rising energy costs is one of the biggest concerns for UK manufacturers and this could increase their costs and lead to off-shoring to other locations as a result. Costs can make a location more competitive and the UK having lower wages than before has made them more competitive for manufacturing and seen a trend in re-shoring as a result. This suggests it is an important factor. However, I don't believe it is the most important factor when it comes to location decisions because location decisions are complex and comprise of many different factors, such as the skill of labour, which could be more important than cost to manufacturer the products. Whether it is the most important factor also depends on the nature of the business, as some industries are cost-driven, which could be argued for the Tobacco industry. Whereas, businesses like GSK may be less cost-driven, but research driven which means they need to be located where there is the specialist skills. Therefore, I don't believe that cost is the most important factor influencing UK location decisions by manufacturers.

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