Advanced Corporate Strategy

ST104x

Location economies

Location economies refer to the advantages a firm enjoys by locating its specific value
creation activities in different locations where specific economic, labour, cultural and
regulatory conditions are favourable, irrespective of where in the globe they be.

For example, Apple leverages its home location at Cupertino, California for its design, while
offshoring manufacturing to China and other lower cost manufacturing locations. While on
the other hand, the Indian automotive firm Tata Motors manufactures specific products and
brands in specific geographies – like the Jaguar and Land Rover brands in the UK, and the
Indigo sedan in India.

Think of how the global food industry organizes its activities across the globe – sourcing and
primary processing closer to where the natural products are grown, secondary processing and
packaging in high economic scale facilities centralized in specific low-cost locations, and
marketing across the globe. Of course, these decisions are also governed by the transaction
costs created by global trade barriers and other political considerations; plus the bureaucratic
costs of coordination across activities and geographies.

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