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Factors affecting location decisions in international operations – a


Delphi study

Article  in  International Journal of Operations & Production Management · July 2003


DOI: 10.1108/01443570310481568

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International Journal of Operations & Production Management
Vol. 23 No. 7, 2003 pp. 794-818

Factors affecting location


decisions in international
operations – a Delphi study
B.L. MacCarthy
Operations Management Group, University of Nottingham,
Nottingham, UK, and
W. Atthirawong
Department of Mathematics and Computer Science,
King Mungkut’s Institute of Technology Ladkrabang, Bangkok, Thailand
Keywords International business, Location, Delphi method
Abstract Only a limited amount of research has been reported on factors influencing
international location decisions for contemporary manufacturing operations. In this paper a
comprehensive set of factors that may influence international location decisions is identified from
an analysis of the existing literature. Results are presented from a Delphi study that used a
worldwide panel of experts to investigate factors affecting international location decisions.
Findings are reported on the motivations of firms in seeking to manufacture across national
borders and the key steps that should be followed in making international location decisions. The
top five major factors identified that may strongly influence international location decisions
generally were: costs, infrastructure, labour characteristics, government and political factors and
economic factors. Ten key sub-factors identified were: quality of labour force, existence of modes of
transportation, quality and reliability of modes of transportation, availability of labour force,
quality and reliability of utilities, wage rates, motivation of workers, telecommunication systems,
record of government stability and industrial relations laws. Additional sub-factors of increasing
importance include: protection of patents, availability of management resources and specific skills
and system and integration costs. The factors identified have implications for management
practice, for policy-making by governments and other agencies and for academic research in
international operations.

Introduction
Making location decisions for the production of products is a key aspect of
strategic and logistical decision-making for manufacturing firms. The
optimum locations may offer competitive advantage and may contribute to
the success of an enterprise. The number of firms considering location on a
worldwide basis continues to increase (Flaherty, 1996). A very wide range of
factors may potentially influence firms in deciding to locate production

The authors are most grateful to all the panellists who participated in the study and the six
academics and two industrialists for their valuable comments on an earlier pilot study.
Because of length restrictions, the questionnaires have not been included here but are available
from the authors – bart.macarthy@nottingham.ac.uk, kawalail@kmitl.ac.th. or awarawut@ksc.
th.com. In fact the questions and their form can be inferred from the questionnaire section of the
paper and the sub-headings in the results section.

794
facilities across national boundaries. A great deal of attention has been paid in
the research literature to critical factors in industrial location decisions for over
a century (Jungthirapanich and Benjamin, 1995). However, the literature
specifically on international location decisions is more limited. Only a limited
amount of research has been reported that discusses the factors recognised, and
considered in practice, in international location decisions (Badri et al., 1995;
Eenennaam and Brouthers, 1996; Atthirawong and MacCarthy, 2001). The
study reported here addresses this gap in knowledge on international location
decisions.
In this paper, we identify from the literature a comprehensive set of factors
and sub-factors that may influence international location decisions. We then
present the results of a Delphi study carried out to examine the motivations for
international location decisions and the relative importance of different factors
in influencing international location decisions. A worldwide panel of experts
that included academics, representatives from government bodies and
consultants participated in the study. The results and implications of the
study for international location decisions are discussed.
In the next section, factors and sub-factors affecting international location
decisions are identified and this is followed by a description of the Delphi
process. The results of the Delphi study are then presented and their
implications discussed.

Factors relevant to international location decisions


Factors influencing international location decisions are discussed by Badri et al.
(1995), Hoffman and Schniederjans (1994) and Canel and Khumawala (1996).
Jungthirapanich and Benjamin (1995) provide a chronological summary of
research studies undertaken between 1875 to 1990 on general industrial
location, revealing that, frequently in the past, a limited number of quantitative
factors such as transportation and labour costs were considered when firms
made a location decision, but that more recently an increasingly wide range of
both qualitative and quantitative factors have been evident. Costs are a major
consideration in many international location decisions and there may be
trade-offs between different types of costs. Qualitative issues such as social and
political factors are also influential in many international location decisions. A
survey conducted by Badri et al. (1995) indicates that global competition and
economic-related factors are more notable than conventional location factors
such as transportation costs and climate when firms decide to do business
abroad. A number of factors such as financial incentives and tax structure may
be influenced or controlled by host governments and such factors will vary
from country to country. The importance of the various factors may change
significantly over time (Epping, 1982).
Location factors can be considered and classified in a variety of ways (Lee
and Franz, 1979; Epping, 1982; Sule, 1994; Evans et al., 1990; Nahmias, 1993;

795
Hoffman and Schniederjans, 1994; Barkley and McNamara, 1994; Burnham,
1994; Badri et al., 1995; Chase and Aquilano, 1995; Dilworth, 1996; Badri, 1996;
Russell and Taylor, 1998; Dorneir et al., 1998; Badri, 1999). A detailed study of
the literature was made to identify a fully comprehensive set of factors and
sub-factors that are potentially relevant to international location decisions
(Atthirawong and MacCarthy, 2000; MacCarthy and Atthirawong, 2001). These
factors are summarised in Table I. There are 13 major factors identified. For
each major factor a set of specific sub-factors are identified. This Table of
factors and sub-factors covers both quantitative and qualitative aspects
relevant to location decisions and includes operational, strategic, economic,
political, social and cultural dimensions. This comprehensive set of factors and
sub-factors is used in the Delphi study described in the next section.
A number of techniques have been advocated in the literature to aid location
decision making (Brandeau and Chiu, 1989; Sule, 1994; Revelle and Laporte,
1996; Hayter, 1997). The work reported in this paper focuses on understanding
the factors that are motivating and influencing international location decisions
more generally and hence a research tool – the Delphi approach – capable of
eliciting expert information is used. This approach is described below.

The Delphi approach


A Delphi study is a systematic, iterative process to elicit a consensus view from
a panel of experts. The approach is often used as a qualitative forecasting
technique but is also used to investigate and understand the factors that
influence or may influence decision-making on a specific issue, topic or problem
area. A single opinion may be incorrect, misinformed or tend to a narrow view.
The Delphi approach uses a representative group of experts to generate a more
accurate and more informed response than is obtainable from one individual.
The method is different from brainstorming or other group approaches in that
it avoids group interactions of individuals, which may result in induced
responses. The approach helps to reduce the influence of dominant individuals
and to develop a consensus of expert opinion on subjective issues (Ray and
Sahu, 1990; Azani and Khorramshahgol, 1990; Klassen and Whybark, 1994;
Green and Price, 2000). An important feature of the Delphi approach is the
reporting of divergent opinions in the absence of full consensus.
The Delphi method was employed originally in the early of 1950s using
military experts to estimate the likelihood of the effects of an atomic bombing
(Linstone and Turoff, 1975; Benson et al., 1982). Since then its usefulness has
been demonstrated in a range of areas outside of defence applications including
forecasting (Lynch et al., 1994), strategic planning (Iverson and Jorgensen, 1986;
Ray and Sahu, 1990; McKnight et al., 1991) and supply chain strategy (Harland
et al., 1999). In operations and production management disciplines, Ray and
Sahu (1990) employ the Delphi technique in investigating productivity
management in India. Klassen and Whybark (1994) apply the Delphi method to

796
Major factors Sub-factors

Costs Fixed costs; transportation costs; wage rates and trends in wages;
energy costs; other manufacturing costs; land cost;
construction/leasing costs and other factors (e.g. R&D costs,
transaction and management costs etc.)
Labour characteristics Quality of labour force; availability of labour force; unemployment
rate; labour unions; attitudes towards work and labour turnover;
motivation of workers and work force management
Infrastructure Existence of modes of transportation (airports, railroads, roads
and sea ports); quality and reliability of modes of transportation;
quality and reliability of utilities (e.g. water supply, waste
treatment, power supply, etc.) and telecommunication systems
Proximity to suppliers Quality of suppliers; alternative suppliers; competition for
suppliers; nature of supply process (reliability of the system) and
speed and responsiveness of suppliers
Proximity to Proximity to demand; size of market that can be served/potential
markets/customers customer expenditure; responsiveness and delivery time to
markets; population trends and nature and variance of demand
Proximity to parent Close to parent company
company’s facilities
Proximity to competition Location of competitors
Quality of life Quality of environment; community attitudes towards business
and industry; climate, schools, churches, hospitals, recreational
opportunities (for staff and children); education system; crime rate
and standard of living
Legal and regulatory Compensation laws; insurance laws; environmental regulations;
framework industrial relations laws; legal system; bureaucratic red tape;
requirements for setting up local corporations; regulations
concerning joint ventures and mergers and regulations on transfer
of earnings out of country rate
Economic factors Tax structure and tax incentives; financial incentives; custom
duties; tariffs; inflation; strength of currency against US dollar;
business climate; country’s debt; interest rates/exchange controls
and GDP/GNP growth, income per capita
Government and political Record of government stability; government structure;
factors consistency of government policy; and attitude of government to
inward investment
Social and cultural factors Different norms and customs; culture; language and customer
characteristics
Table I.
Characteristics of a specific Availability of space for future expansion; attitude of local Summary of major
location community to a location; physical conditions (e.g. weather, close to criteria and
other businesses, parking, appearance, accessibility by customers sub-factors affecting
etc.); proximity to raw materials/resources; quality of raw international
materials/resources and location of suppliers location decisions

797
identify the key barriers in the management of international operations. Green
and Price (2000) have speculated on the future direction of facilities
management using a Delphi panel in the UK. An application using Delphi
concerning location planning is reported by Azani and Khorramshahgol (1990).
The Delphi method uses a panel of experts who have experience and/or
knowledge of the subject being studied. Hence the panel is not generally
selected randomly. Benson et al. (1982) and Tavana et al. (1996) note that the
Delphi method comprises three particular features:
(1) anonymity among the panel of experts;
(2) obtaining a statistical group response from a well-designed
questionnaire; and
(3) controlled feedback.
The panel of experts must be selected carefully. It should comprise a group of
people who are both familiar with, and knowledgeable on the problem domain
being considered and they should be mutually anonymous. The panel is then
asked to respond to a questionnaire. All questionnaire responses and comments
are combined and analysed in order to statistically collate and summarise the
results for another round of the process. An interim report is sent back to
panellists summarising the group response. This iterative process may be
continued further until consensus and/or clarity is produced. Finally the results
from the process are reported. A key part of the process is designing the
questionnaire.

The methodology used for this study


The pilot study
A questionnaire was developed based around the factors and sub-factors
presented in Table I.
It was first pre-tested with a number of colleagues to check for clarity and
consistency and appropriate changes were made. Then a proper pilot study of
the questionnaire was conducted with eight people who had knowledge of
international location problems in order to provide comments and feedback. An
international conference provides a good opportunity to elicit views from
delegates with a range of expertise from a number of countries. Six academics
and two industrialists attending the International Conference for Production
Research (ICPR2000 in Thailand, 2-4 August, 2000) were selected and
participated in the pilot. The sample size of the pilot study may appear small
but the process needed a significant period of time to discuss the questionnaire
with each respondent. In the event the pilot study respondents made valuable
contributions to the development and improvement of the questionnaire. The
pilot enabled ambiguities to be highlighted and some sub-factors to be grouped,
rearranged or removed. Thirteen major factors and 70 sub-factors were
identified for consideration in the first round of the Delphi study.

798
Questionnaire
The questionnaire consisted of two parts. The specific issues addressed in Part
A of the questionnaire were:
.
the motivations of firms that seek to manufacture internationally;
.
the key steps in the international location decision process;
. the most difficult problem in making an international location decision
and the ways to overcome the problem.
The questions in Part A were open-ended and allowed participants to provide
and express their opinions or add information freely and independently.
Part B of the questionnaire focused on the relative importance for
international location decisions generally of the major factors and their
sub-factors. In Part B the importance of major factors affecting international
location decisions was measured using a seven-point Likert scale.

The Delphi panel and the Delphi process


The focus in this study was to elicit knowledge and opinion from individuals
with a broad cross-sectoral perspective on manufacturing location decisions.
The panel was therefore designed to have representatives from academia,
government and consultancies worldwide. Industrialists were not involved in
this study but did take part in a further, related survey and in case studies
(Atthirawong, 2002). The criteria used in identifying likely panel members
were knowledge of, and interest in, international operations/international
business and the ability to take a broad cross-sectoral view of the issues
involved in international location decisions. A total of 38 persons across the
world were invited to participate in the first round of the Delphi study. The
study was conducted in strict confidence throughout and anonymity was
guaranteed to respondents.
When compared to some Delphi studies (such as Benson et al., 1982 and
Klassen and Whybark, 1994), the sample size in this study may be considered
small. However, the focus in this study is on eliciting qualitative information
from an expert panel. Delphi studies must not be confused with conventional
statistical sampling and inferences techniques. The panellists were chosen
based on their experience and knowledge regarding the topic being
investigated rather than being randomly surveyed. In this context, it was felt
that the panel was sufficiently knowledgeable and representative to provide a
solid base for further study.
The first round of the questionnaire was mailed to the panellists in late
October 2000. A reminder letter was sent via e-mail to all experts who had
not replied, between November and December 2000. A total of 20 panellists
agreed to participate in the first round of the survey, giving a response
rate of 51.3 per cent. The first round responses were collated and analysed
and an interim report was sent back to the first round participants in July

799
2001 in order to get feedback and comments. The interim findings were
presented mainly in graphical and tabular form. Each respondent was
invited to make comments on any aspect of the interim findings, to record
their agreement or disagreement, to suggest revisions, clarifications or to
add further information. A reminder letter was sent to all panellists who
had not replied, between September to November 2001. A total of 17
panellists replied to the second round, yielding a response rate of 85 per
cent for the second round.
The largest group of panellists (70.6 per cent) were academics that were
active in research in international business and international operations,
followed by consultants (17.6 per cent) and government officers (11.8 per cent),
with expertise in the area. The panellists were based in Western Europe i.e. the
UK, The Netherlands, Denmark and Italy (47.1 per cent), the USA (29.4 per
cent), Asia i.e. Hong Kong, Japan and Thailand (17.6 per cent) and Middle-East
i.e. United Arab Emirates (5.9 per cent).
The responses from the second round demonstrated strong agreement on the
broad findings but added significantly to the detailed findings and
interpretation. Most feedback was concerned with the priorities of the factors
or the order of issues in particular contexts from the first round. A number of
specific items and comments, as well as additional factors relevant to particular
contexts were added by the panel members. Overall, it was felt that a third
round of the study would not add to the understanding provided by the first
two rounds and thus the study was concluded. The results of the study based
on the two rounds are presented below.

The results
Part A of the questionnaire
In Part A of the questionnaire the panellists were asked in open question
format about the motivations of firms that seek to manufacture across national
borders and the process of making international location decisions. The results
for each of the four issues addressed in Part A of the questionnaire are
presented below for both rounds of the study.
Motivations of firms in seeking to manufacture internationally. Figure 1
shows the results from the first round of the Delphi study. It reveals that the
largest number of the panellists identified the major motivation for
manufacturing outside national borders was the ability to gain access to low
labour costs and to access labour skills in order to reduce the cost of
production. Other important reasons highlighted were the ability to gain access
to markets, tax incentives and other privileges from host governments, the
ability to gain access to raw materials and technologies and to counterattack
competitors. This first category contains the combined responses for these two
issues and hence its frequency can exceed 20.

800
Figure 1.
Motivations for
manufacturing
internationally

In the second round the panellists tended to agree with the above findings.
Nevertheless, some panellists noted that the ability to gain access to host raw
materials may be equal to, or more important than, the ability to gain access to
low costs when firms seek to manufacture internationally. It was also
suggested that tax incentives and benefits should rank more highly. Specific
comments indicated that the motivations of firms might depend on type of
business and the nature of the business environment.
Steps in the international location decision process. There was strong
consensus on the steps identified in the international location decision process
over the two rounds of the study. The following steps are a summary of the
preferred or expected procedure in making international location decisions:
(1) Make clear the purpose for the overall business at the beginning of the
process.
(2) Investigate countries, regional factors, geographical considerations,
location alternatives and conduct market analysis/economic analysis
and feasibility studies. Help may be obtained from relevant agencies for
many of the activities.
(3) Identify both international and local factors involved for each alternative
location.
(4) Evaluate the alternatives against established criteria. The
decision-makers should ensure that all criteria are clearly identified in
the process of evaluation and all “musts” are fulfilled. Several methods
were suggested by the panellists to evaluate the location alternatives, for
instance, cost-benefit analysis, risk analysis and go-no-go methods.
(5) Make a selection and implement.
Some specific and relevant comments emerged in the second round. One
comment was that these steps are suitable only for large international firms, as
small- and medium-sized firms may not have sufficient resources or budgets to

801
follow the steps when considering international location choices. It was also
noted that it is very important to investigate and take into consideration
political factors in the second step, especially when considering some locations
in the world such as the Middle East region.
The most difficult problem in making international location decisions. This
question generated a variety of opinions in the first round. The panellists
identified many problems that may arise in the international location decision
process as shown in Figure 2.
In the second round, the panellists did not argue with these findings but
some valuable comments were provided. For instance, it was noted that the
meaning of “many factors involved in the decision process” was not clear
enough and should be broken down into two types of factor: information and
people. Specific comments also noted included the issue of “how to get the right
information and the right people” in making international location decisions.
Two panellists noted that the “quality of information, experience of the analyst
and available time” are very important and could lead to major problems. Also,
it was argued that combinations of qualitative and quantitative factors affect
the decision process significantly and make the process of decision-making
complex.
Recommendation on the ways to overcome the problem. A wide range of
responses were given to this question without strong consensus in the first
round of the Delphi study. The panellists recommended a variety of ways to
overcome the different types of problems mentioned above. The key
recommendations identified that may help in addressing different problems
in international location decision-making suggested from the first round may
be summarised as follows:

Figure 2.
Most difficult problem in
dealing with
international location
decision

802
.
Prudent analysis: field research, better forecasting, accurate data,
adopting a careful approach, identify risks, use clear logic and analyse
all impacts, as well as checking with existing manufacturing networks.
.
Professional advice/expertise: employ qualified consultants, professional
advisors or hire local agents/local governments to investigate and pull
stakeholders together at the beginning of the process.
.
Tools: develop appropriate tools/models for decision making, as well as
for trade-offs and risk assessment.
.
Incentives: develop appropriate incentives, and relevant organisational
structures.
In the second round, some further comments were added on some of these
issues. It was argued that an important part of prudent analysis is “the process
of reviewing the performance and success of multinational companies”.
Information on “host governments’ rules and regulations” can be found from
relevant organisations. A specific comment was that these issues reflected a
large firm perspective. Another believed that “a strong internal project team
working in the organisation” could help to overcome problems. It was also
highlighted that “post-implementation” is another important stage that
decision-makers should be concerned about. Two panellists were not in
agreement on these issues, indicating that the approach would depend on the
motivations of the firm.

Part B of the questionnaire


In Part B of the questionnaire, panel members were asked to rate the
importance of the major factors and their sub-factors generally in international
location decisions, using a seven-point Likert scale. The results for the major
factors over the two rounds of the Delphi study are presented first. The results
for the most important sub-factors are then presented.
The importance of major factors affecting international location decisions. In
the first round, the panellists were asked to rate the importance of 13 major
factors for international location decisions generally. The mean ratings of these
factors are presented in Figure 3 (1 – not important to 7 – very important). Cost
is ranked highest among all major factors. Infrastructure, labour
characteristics, government and political factors and economic factors are
also significant factors highlighted, in decreasing order. It is also apparent that
the ratings for the top four factors i.e. cost, infrastructure, labour characteristics
and government and political factors are very close to one another and all are
rated relatively highly. The two factors rated of least importance were
proximity to parent company’s facilities and proximity to competition.
In the second round, very few comments were made on the relative rankings
of the 13 factors. It was noted by one panellist that “proximity to
markets/customers” should rank more highly and that “proximity to parent

803
Figure 3.
Key factors affecting
international location
decisions

company’s facilities” should be rated as of no importance. Two panellists


suggested that each location decision is unique and different from others. Hence
the importance of each factor might vary from one situation to another and
would depend on sectors or market types. It was also noted that these factors are
sometimes contradictory and sometimes complementary. It was recommended
that a company should check the factors that are relevant to its goals.
The importance of sub-factors. The relative importance of sub-factors was
also explored in Part B of the questionnaire for each of the major factors above.
Following the first round of the study the results from the sub-factors of those
major factors that had an average rating above 3.50 were fed back to panellists
in the second round for comment. It was felt that an average rating above 3.5
for a major factor indicated that it was acknowledged as important generally in
international location decisions and that its sub-factors should be explored.
Eleven major factors had an average rating exceeding 3.5.
The results for each sub-factor are summarised below. In each case
(Figures 4 – 14) the sub-factors are ranked in decreasing order of mean scores.
In the second round panellists were asked to comment on the rankings of each
of these sets of sub-factors. In general, there was wide agreement across the
panel on the order of the rankings of sub-factors in the second round but a
number of comments, interpretations and reflections were added.
Costs. Figure 4 shows the relative importance of the sub-factors of costs
obtained from the first round.

804
Figure 4.
Relative importance of
sub-factors of costs

The results from round 2 revealed that the majority of panellists agreed with
the order of importance cost sub-factors but valuable additional comments
were made. It was argued that the rankings might apply only for low-value
types of operations. Some panellists also argued that the ranking of these
sub-factors might vary by industry or sector. It was argued that for highly
automated industries, “wage rates” might not be the most important factor.
“Land costs” for instance are likely to be a more important factor in some types
of industries. One panellist noted that “other factors”, specifically “system costs
and integration costs” are increasingly important but they are ignored by many
managers. It was noted that “utility and energy costs” in the Gulf area attract
some international companies in some sectors to move manufacturing plants to
that region.
Infrastructure. Figure 5 shows the relative importance of infrastructure
sub-factors obtained from the first round. Infrastructure is regarded as one of
the most important factors in dealing with international location decisions.

Figure 5.
Relative importance of
sub-factors of
infrastructure

805
In the second round, a small number of panellists argued against the ranking of
these sub-factors, with reasons such as “telecommunication systems” being
increasingly important in some businesses.
Labour characteristics. Figure 6 displays the relative importance of the
sub-factors of labour characteristics obtained after round 1.
There was a high degree of consensus on these findings in the second round
of the study. It was argued that the importance of “attitudes towards work and
labour turnover” should rank more highly. Importantly it was noted that in
addition to the availability of labour force, “availability of management
resource and specific skills” are also critical.
Government and political factors. Figure 7 presents the relative importance
of the sub-factors of government and political factors obtained after round 1.

Figure 6.
Relative importance of
sub-factors of labour
characteristics

Figure 7.
Relative importance of
sub-factors of
government and political
factors

806
There was also general agreement among panel members on these
sub-components and their rankings after the second round. It was suggested
that “consistency of government policy” is more likely to be important than
“record of government stability” in some particular countries such as those in
the Far East. It was noted that firms should also consider the “historic
relationships between host and home countries” when considering
international location decisions.
Economic factors. Figure 8 presents the relative importance of economic
sub-factors obtained after the first round of the study.
In the second round of the study most panellists agreed with the rankings.
However, it was noted that this ranking may reflect the location of
manufacturing plants in “the developing countries”. It was also noted that “the
strength of currency against the US dollar” may be an important issue in
international location decisions and should rank more highly, as it directly
affects costs and profit.
Legal and regulatory framework. Figure 9 presents the relative importance of
the legal and regulatory framework sub-factors, obtained after round 1.
There was strong consensus on these issues after the second round of the
study. It was noted that “well-established bankruptcy laws” are an important
aspect of the “legal system” sub-factor. An important comment was that
“protection of patents” is increasingly important in international location
decisions.
Proximity to markets/customers. Figure 10 presents the relative importance
of the sub-factors of proximity to markets/customers, obtained from the first
round.

Figure 8.
Relative importance of
sub-factors of economic
factors

807
Figure 9.
Relative importance of
sub-factors of legal and
regulatory framework

Figure 10.
Relative importance of
sub-factors of proximity
to markets/customers

The panellists largely agreed on this issue after the second round of the study.
However, it was commented by some of the panellists that the relative
importance of these issues would depend on the objectives and strategic
motivations of the firm.
Proximity to suppliers. Figure 11 presents the relative importance of the
sub-factors related to proximity to suppliers, obtained from the first round.
The results from the second round revealed that the panellists clearly agreed
with these issues and their relative importance. However, it was commented
that the rankings of these issues might be appropriate only for some countries.
Quality of life. Figure 12 presents the relative importance of the sub-factors
of quality of life, obtained from the first round.

808
There was a high consensus on these rankings across the panel members
after both rounds of the survey. However, it was commented by one panellist
that these issues are not significant for many countries when considering
international location decision choices. A specific comment was made that the
“crime rate” sub-factor should be replaced with “police record in combating
crime”.
Characteristics of a specific location. Figure 13 shows the relative importance
of the sub-factors of characteristics of a specific location, obtained from the first
round.
In the second round, most of the panellists agreed with the results. Two
issues were identified. First, one panellist noted that these findings might fit
with some particular geographical areas such as the developing countries
rather than international location decisions in general. The second issue noted
was on the ranking of some sub-factors. One panellist suggested that the
“attitude of local community to a location” should rank more highly and this

Figure 11.
Relative importance of
sub-factors of proximity
to suppliers

Figure 12.
Relative importance of
sub-factors of
quality of life

809
sub-factor is increasingly significant over time. It was also felt by a panellist
that the “physical conditions” issue might rank more highly.
Social and cultural factors. Figure 14 shows the relative importance of the
social and cultural sub-factors, obtained from the first round.
Overall, the panellists agreed with the rankings of these sub-factors after the
second round. It was argued by a panellist that “language” should be the most
important issue among all components, while another argued that “customer
characteristics” should rank in the top position. It was also commented that
“culture” was a vague term and “could mean anything”.

Summary of key findings


The key findings from the Delphi study can be summarised as follows:
(1) The major motivations for firms to manufacture across national borders
are, in order of decreasing importance:
.
ability to gain access to low labour costs and labour skills;
.
ability to gain access to markets;
.
tax incentives and other privileges from the host government;
.
ability to gain access to host raw materials and technology;
.
counterattack against competitors.

Figure 13.
Relative importance of
sub-factors of
characteristics of a
specific location

Figure 14.
Relative importance of
sub-factors of social and
cultural factors

810
(2) However, motivations may depend on the type of business or nature of
the business environment.
(3) Five steps are identified in making international location decisions:
.
make clear overall business strategies;
.
investigate regional and country-specific factors;
.
identify relevant factors for each location alternative;
.
evaluate the alternatives against established criteria;
.
select location and implement.
(4) The top five factors identified that may strongly influence international
location decisions generally are, in decreasing order of importance:
.
costs;
.
infrastructure;
.
labour characteristics;
.
government and political factors;
.
economic factors.
(5) The importance of factors affecting international location decisions is
influenced by the sector and market type.
(6) All sub-factors identified from the list of each of the major factors
were ranked according to their average scores. The top ten
sub-factors identified, that may strongly influence international
location decisions are listed below in decreasing order of
importance:
.
quality of labour force;
.
existence of modes of transportation;
. quality and reliability of modes of transportation;
.
availability of labour force;
.
quality and reliability of utilities;
.
wage rates;
.
motivation of workers;
.
telecommunication systems;
.
record of government stability;
.
industrial relations laws.
(7) However, concerns were expressed by some panellists with regard on
some of these sub-factors. They might not be significant in particular
geographical regions or may be relevant for some types of operations
only. Additional sub-factors identified, which are increasingly important
in international location decisions are:

811
.
protection of patents;
.
availability of management resources and specific skills;
.
system and integration costs;
.
historic relationships between host and home countries.
(8) Location factors and their importance vary depending on the nature or
type of business and may depend on the geographical region in which
location is being considered. Each business sector has specific factors
that firms take, or should take into consideration when considering a
location choice and the importance of each factor is not equal for every
case. Each geographical area has prominent factors that may influence
location decisions.
(9) The quality of people used in the decision making process as well as
having the right information are highlighted as being of particular
concern when dealing with international location decisions.

Discussion
The study has explored the dominant motivations for, and factors affecting
companies in deciding to make international location decisions for
manufacturing plants generally. The significance of the findings is discussed
below.

Motivations for location internationally


The findings lend support to other studies which suggest that companies are
driven by a variety of motives when they decide to locate internationally, for
instance, the ability to gain access to low costs of production, the ability to gain
access to markets, tax incentives and benefits from the host governments (e.g.
Christopher, 1994; Dunning, 1994; Ferdows, 1997). An important issue
highlighted by the panellists is that the motivations depend on type of business
and nature of business environment. Pongpanich (1999) supports this view,
noting that the ability to access markets is a key reason for location in
consumer and commodity product sectors.

Steps for the decision process


The study has highlighted five key stages in the decision-making process for
international location choices. The stages identified develop and extend those
noted in other studies (Vos, 1997; Pongpanich, 1999). Decision-makers should
start with gathering information relevant to regional and country-specific factors
for each location alternative with regards to the requirements and objectives of
the firm. Such factors may be both tangible and intangible. Several methods are
suggested to evaluate the location alternatives such as cost-benefit analysis.
However, decision-makers should ensure that all factors are evaluated for each
location alternatives. A number of optimization modelling techniques based on

812
mathematical programming have been reported in the literature (e.g. Canel and
Khumawala, 1996; Geotschalckx et al., 1998) but driven usually by a single
quantitative objective, e.g. minimising the costs of investment. Such approaches
are limited and need to be enhanced to allow qualitative factors to be analysed
and integrated with quantitative factors in order to select an appropriate
international location. Practical tools and techniques need to be developed for
evaluating international location decisions that can take into consideration a
wide range of factors including both objective and subjective aspects.

Major factors influencing international location decisions


Costs: overall, costs are the most important factors highlighted in this study.
Firms attempt to minimise costs while simultaneously maximising customer
service and this is reflected in location decisions. Christopher (1994) notes that
location decisions are a fundamental factor of profitability in international
logistics. The significance of cost factors is noted in a number of studies
(Hoffman and Schniederjans, 1994; Jungthirapanich and Benjamin, 1995; Badri,
1996, 1999, Atthirawong and MacCarthy, 2001). This study has highlighted the
relative importance of cost sub-factors and noted that their importance varies
between different countries and industries. Although wage rates were ranked
in the top ten of key sub-factors in this study, it was suggested by some of the
panellists and has been noted by others (Slack et al., 2001) this may be
significant only for low-value operations such as textiles and clothing. Other
sub-factors such as the cost of acquiring land in some countries may dominate
the decision process in some instances.
Infrastructure: infrastructure is also of major concern in international location
decisions. The intensive competition in today’s global business environment
results in pressure to reduce the time to bring products to markets as well as
demands by customers for higher levels of quality and improved delivery
reliability. Infrastructure issues have, therefore, become crucial in international
operations (Flaig, 1993). The existence, quality and reliability of modes of
transportation, the quality and reliability of utilities and telecommunication
systems have been highlighted in the study. Adequate modes of transportation
are necessary to bring raw materials from suppliers to plants and to deliver
products to markets as quickly and reliably as possible, enabling firms to reduce
total cycle time effectively. Therefore, many firms seek to locate in countries
where facilities and utilities are in good condition and are reliable. However, the
importance of sub-factors may vary. For instance, telecommunication systems
were noted as being important in some sectors by some of panellists, especially
for high technology products, enabling swift transfer of information among
various activities and more flexible links between parent company’s head offices
with their subsidiaries and customers. Other studies such as Atthirawong and
MacCarthy (2001) note that adequate utilities, especially water and electricity
supplies, are key elements for many sectors.

813
Labour characteristic: location analysis is also driven by labour
characteristics. The quality of the labour force is an increasingly critical
issue and is found to be significant in many studies (e.g. Doner and Brimble,
1998; Atthirawong and MacCarthy, 2001), as it may affect productivity, quality,
waste and rework. In deciding to shift production overseas, it is also necessary
to investigate the availability of workers. In some cases, it may be possible to
send skilled workers from a parent company but recruitment of local workers is
usually necessary (Burnham, 1994). Not only must firms consider the worker
availability, they must also consider the attitude and motivation of local
workers as this will influence productivity. This study has also noted that
availability of management resources and specific skills are increasingly
important when considering the location of manufacturing activities. In
practice, firms need to investigate local labour characteristics thoroughly for
each location alternative before making international decisions (Krajewski and
Ritzman, 1999).
Government and political factors: this factor was ranked fourth of 13 major
factors overall. There are only a few studies in international location decisions
that address this factor or that attempt to capture it in location models as it is
difficult to measure and analyse (Phatak, 1995). However, in practice, it can
prove very important to the success of organisations. Sudden changes in a
business environment may affect profit and other aspects of business. Chase
and Aquilano (1995) agree that political risks in both the country of location
and the host country should have a direct impact on a location decision. They
further suggest that the consistency of government policies towards industrial
development could also affect the growth of a business. It was also noted in this
study that the attitude of government to inward investment is a major
contribution to the development of business.
Economic factor: economic factors such as tax incentives and tax structure,
financial incentives, custom duties, inflation and interest rates have been
receiving more emphasis in location choices and the study has highlighted the
general importance of economic factors. However, surprisingly their
sub-factors were not ranked highly. It was commented that the rankings of
economic sub-factors are relevant only for some geographical areas. It was
argued that an additional economic sub-factor – the strength of currency
against the US dollar – should be ranked highly as the fluctuations in
exchange rates of currencies could directly affect many international
operations. Some companies such as Colgate have lost more than ten million
dollars from foreign exchange transactions, whereas others such as Exxon
have gained a large amount of money from such transactions (Phatak, 1995).

Conclusions and managerial implications


This study was conceived in order to investigate and identify critical factors in
international location decisions. The study has provided a broad view on

814
international location decisions. A comprehensive set of location factors
relevant in the decision making process have been identified. A ranking of
factors and sub-factors based on average ratings have also been reported. The
study deployed the Delphi approach to capture and consolidate expert
knowledge and opinion. The approach provides a well-established
methodology to obtain information from a group of individuals who have
relevant knowledge and experience. It helps to clarify concepts and adds rich
context-based knowledge. The findings reflect opinions and views on
international location decisions generally. The factors identified, and their
importance, has implications for management practice, for policy making by
governments and other agencies and for academic research.
The findings may be of benefit to firms by bringing more understanding and
a broader view of what the important factors are in dealing with international
location choices. The identified steps in making international location decisions
may assist international firms in conducting, analysing and evaluating
manufacturing location choices. The findings may provide guidelines for
international firms to ensure that appropriate and relevant factors are taken
into consideration in the early stages of the decision making process. The
findings may also help policy makers in formulating manufacturing policies
and may help relevant national and local government officers to improve their
abilities and roles in assisting the location process and in attracting and
meeting the requirements of foreign investors.
As with other survey methods or any Delphi-type study, the findings
reported here must be interpreted and generalised with care. The study
provides broad and subjective views on factors affecting the international
location process. The panel for instance was not chosen randomly. They were
chosen based on their experience and knowledge regarding the topic being
surveyed and on their willingness to participate. Delphi is primarily a
qualitative knowledge elicitation approach that focuses on using an expert
panel to arrive at a consensus of opinion. It is not designed for advanced
statistical analysis and does not, in itself, show relationships or interactions
between factors.
The power of the Delphi approach is that it provides more understanding of
complex problems than other survey techniques. The findings reported here
should provide a useful basis for other studies seeking to improve
understanding of factors affecting international location decisions. Further
studies using other methodologies such as structured interviews and detailed
case studies are advocated to take the subject forward.

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