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Choosing an International Facility Location: Pros and Cons

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  • 0:01 New Business Frontiers
  • 0:43 Economic Viability
  • 1:54 Proximity to Supply Chain
  • 3:01 Local Environment
  • 3:42 Political Climate
  • 4:25 Lesson Summary
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Lesson Transcript
Instructor: Kevin Newton

Kevin has edited encyclopedias, taught middle and high school history, and has a master's degree in Islamic law.

Making the jump from a one-country business to a multi-national corporation can be an exciting move for a company of any size. In this lesson, we take a look at some of the problems and opportunities faced in doing so.

A New Frontier

Congratulations, your business has decided to expand to include a site in a different country. This is a big step, as it means the transition of your organization into a multi-national company. There are many reasons to consider opening a site in a different country, from lower costs to increased access to new markets, but regardless of motivation, there are still some basic amounts of due diligence that must be performed in order to make sure that it is worthwhile to do so. In this lesson, we'll take a look at the pros and cons of opening a foreign location, focusing especially on economic, business, and political factors.

Economic Variability

While it sounds simple, it bears repeating that the primary purpose of a business is to make money. Frankly, that shouldn't come as a surprise. As a result, one of the most important factors to consider when opening a new location is how much money can be expected to be made from its operation. In short, we have to look at the economic viability of a location. That comes with a lot of questions.

First off, how much is land in your potential locations? If you need a great deal of real estate, that could rule out places like Singapore or Tokyo because the price of land will be too high. Second, what are the costs associated with working there? Some countries go out of their way to encourage businesses to set up shop - for example, Ireland has a low corporate income tax, while France does not.

Additionally, you have to look at the prices of labor - workers in Germany expect to be paid higher than workers in Turkey. Finally, what about the actual goods being produced? Is there a market for them there? It's not necessary to possess a market, but it is necessary to make sure that whatever you're making is indeed profitable.

Proximity to Supply Chain

That profitability often means that any new location has to be close to your supply chain, or the route you use to get your goods to market. Here's an example of what I mean by that. Let's say your business was in the seafood processing business. You buy scallops off the coast of New England and freeze them for sale throughout the world. Since so much of your work has to be done in the cold, it may appear to make sense to build a facility some place cold, like Antarctica. However, because Antarctica is so far away from your supply chain, it would cost more than just building a facility in Maine.

Perhaps the Antarctica example is a bit extreme, but being conscious of your supply chain is important and can make the difference between big profits and big losses. Still, that doesn't mean that the supply chain can't be long and still be profitable. For example, let's say that your company was into technology. Hiring people to service electronics can be expensive in the United States, so it may be more cost efficient to ship the items to a different country, have them serviced, then ship them back to the United States rather than just pay for them to be serviced here.

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