Location Decision and Sustainability Essay

In this paper we are going to give an in-depth perspective on the subjects of location decision, clusters and corporate social responsibility. First, we will address the location decision subject. Second, we will discuss clusters and different cluster types. Last, we will review the corporate social responsibility subject. After giving an in-depth perspective on the three subjects, we will discuss the relationship between these different topics. Location Decision Location decision is an important strategic decision that must be considered by a firm. It is important because the location strategy could affect the ability of the firm to reach it consumer, to produce in economic scale, or even to get access to the resource they needs. Location decision could also be able to give the firm a competitive advantage, because of transfer of knowledge, innovation, specialisation, and complementariness. In choosing a country, there are two main dimensions that usually be considered. Those two main dimensions are country competitiveness and also risk of the country. The country competitiveness usually is divided into two main categories, which are the market competitiveness and also the industry competitiveness. A firm should able to assess those categories to find out in which location or in which country they should operate to maximize their opportunity and profits and minimize their risks and costs. Country Opportunity Assessing the market opportunity for a country means that we assessing the potential demand that available in a country. The variables that take into account for this assessment are the growth of the market, the size of the market, and also the quality of the demand that exist on the market in a certain country. This market assessment will define whether it is worth or not to start a business in that country, will the firm have a good demand or not, and will that demand able to generate profit for the firm or not. Looking some macroeconomics indicators can assess the market opportunity. Those indicators can be the GDP, GDP per capita, and income distribution, etc. ooking to those indicators can give us an insight about the market size of the country or country buying power compared to another country, etc. the quality of demand is describing the segmentation of the countries. Generally countries are grouped into 4 main clusters: †¢Developing countries, low income per capita, and low growth †¢Emerging countries, relatively low income per capita but high in growth †¢The newly industrialized economies, high growth and moderate to high wealth †¢The final cluster, low growth and high wealth, usually these countries have already reached their ‘maturity’. The other important opportunity that needs to be considered is the industry opportunities. The industry opportunity is including a broad part of aspects. Those aspects are the resource (including human resource and natural resource), the infrastructures, and also government policies (such as government incentive to enhance foreign investment, or tax reduction). A company needs to consider the human resource issue. It is usually addressing the quality of the labor in a country. It is also considering the minimum wages or average wages of labor in a country. That issue is an important issue because it will affect the production cost and production process. The natural resource issue usually also become some major strategic issue because it enables the firm to get closer to the input that they needs including strategic geographical location that can benefits their mobility. Country Risks Beside the opportunities, a firm should also consider the risks of the country. There are some major risks that need to be considered. Political risk, this risk have a high relation with the government policies and political condition in each country. A country with an unstable politic environment may have higher risk of rioting or policy changed. It can cause disadvantage for the firm such as vandalism to firm’s assets, or difficulties from the bureaucracy. Economic risk, this economic risk is including the inflation rate, economic growth, exchange rates of the currency, and also the variability. A firm needs to consider it carefully because it surely will affect the company stability and profitability. Competitive risk, this risk refers to the risk that company gets from the competition, the business group, cartels, or even the competitive advantage among product that being sold in the company. Operational risk, this risk is covering the risks from infrastructures, supplier policy, or even government regulation such as taxation, and nationalistic preference. Location Strategy After knowing the opportunity and the risks that exist in a country. A company should use that data to forming their strategy. The firm needs to compare a list of country to know which country that is the best for their investment, considering the risk and the opportunity of each of them. Clusters In this section of the paper we are going to discuss clusters. In order to explain what clusters are, we will use the definition given to clusters by Michael Porter (1990), which he used for his study of clusters. â€Å"clusters are geographic concentrations of interconnected companies, specialized suppliers, service providers, firms in related industries, and associated institutions in a particular field that compete but also cooperate†. There are many different types of clusters, which we will discuss below. However, we are going to start by explaining how and why corporations form clusters. Usually for clusters to arise there are already certain resources and capabilities available in a certain area, which are important for the industry and thus the cluster that is formed there. Next, there need to be several corporations that see the advantages of joining and creating a cluster. This is necessary so the different corporations can work together to improve their cluster and add value to it. This will attract new players for it, who can add even extra value to the created cluster. As this process continues, more players tent to join the cluster because it becomes more important every time for the general industry on which the cluster is based, but also because a lot of knowledge and resources are generated within the cluster on which a corporation not joining it, would miss out. Besides generating a lot of knowledge and industry advantages, clusters also improve the general competitiveness of a certain area. Moreover, they can significantly boost the economy of the area were the cluster is situated as many employment opportunities are created alongside the expansion of the cluster. According to the research of Lundequist and Power (2002) four types of clusters exist. These are the industry-led initiatives, the top-down cluster-branding exercises, the visionary projects and temporal clusters. We will discuss each type separately below. The industry-led initiatives are clusters that depend greatly on involving the public sector into the cluster. Moreover, they are the key importance of regional economic growth in their area and they can even bring national economic growth. The second cluster type is the top-down cluster-branding exercises. This type does not have the industry as its key building block but instead builds on the public sector. Also, this type does not find the creation of the clusters itself very important, but focuses on the creation of a brand name first. The third cluster type is the visionary cluster. As the name says, this cluster builds on one strong vision and it therefore needs good leadership in order to execute this vision. Thus, this type needs ‘cluster motors’ (Lundequist and Power, 2002) which are firms that can really start up the cluster and keep it going. In order to sustain this cluster there needs to be a good task division in terms of responsibilities and tasks. This all needs to be supported by a good and strong network and environment. The last cluster type is the temporal cluster and is usually build up around natural resources and physical conditions. Noteworthy is that this type can even be climate-driven and seasonal, meaning that the cluster does not always exist outside certain seasons for example. Lundequist and Power (2002) mention some similarities in all these types of clusters and they are worth mentioning quickly. First, all types work best when there are multiple players with a large interest in the cluster. Moreover, it is important that a clear vision is present for it. Above we mentioned the ‘cluster motors’ which is especially important with regard to the visionary cluster, but all types benefit greatly if such motors are present. Second, it is important if every corporation has a clear view of what they add to the cluster. Thus, good management should be present to support this. Third, it was mentioned explicitly for the second cluster type, but again all types benefit from brand building and thus attention should be paid to marketing this. Last, the progress made within the clusters is very important and appropriate policies and strategies should be present to support this. To conclude, not all cluster types fit exactly in the definition given at the beginning of this part but all have proven to be successful initiatives (Lundequist and Power, 2002). However next to Porter also Eden (2002) and Markusen (1996) identified a cluster typology. According to Eden a cluster could be horizontal (specialized) or vertical (complementary). However it must be said that Eden actually identifies the cluster characteristics than cluster types. Markusen on the other hand identifies the type of clusters by the geographic area, the type of clusters are formed within a metropolitan area. The four types she identifies are Marshallian Industrial Districts and Subdistricts, Hub and Spoke Industrial Districts, Satellite Platform Districts and State Anchored Industrial Districts. The typology in her case is derived from the geographic, public or private investment decisions, the availability of labor, and amount of trade within and outside the district. It is said that there are several similarities between Markusen and Porter’s work. (Fraizer and Zelbst, 2010) Corporate Social Responsibility Affected by the globalization and thus growing importance and awareness of ethics and human rights, as well as being environmentally, socially and economically responsible, internationally operating corporations have to deal with a lot more issues than several years ago. This area of growing importance is called â€Å"Corporate Social Responsibility† (CSR) and will be explained as follows: In the past decades most of the corporations did not care about issues like sustainable development, business ethics, human rights or global citizenship, instead only focused on making as much financial profit as they can, however they could achieve it. But over the last several years the number of natural disasters and the increasing warming of the planet have made the people more aware of issues such as sustainable development and allocation of resources. Furthermore the globalization and advanced technologies such as the World Wide Web make the markets and the operations of internationally operating corporations much more transparent to all parties concerned. This is why consumer have also started to base their buying-decision on issues such as human rights, business ethics and sustainable development and take into account if a company does well in the field of â€Å"Corporate Social Responsibility† or not. Moreover, laws and public initiatives put a lot more pressure on corporations to improve ethical and sustainable actions in the regions they are operating in. As a consequence, companies started to consider these aspects more seriously than before and tried to implement such topics in their strategic activities. To combine ethical, environmental and social aspects with economic aspects is a challenge and one of the most difficult strategic issues corporations have to deal with. Nowadays, corporations are ade feel responsible for the regions they are operating in, as well as for the people who are working for them. Because of that, â€Å"Corporate Social Responsibility† has become one of the core strategic issues of them to maintain a good image, which is finally responsible for their financial results. By investing in their employees, in infrastructure of the region they are operating in and in acting natural friendly or investing in sustainable energy, corporations not only generate a greater image of them and help the public, they also make finally profit out of it. Because of that, we can say that it is a â€Å"win-win situation† for both. Customers are being strongly influenced by such issues, because they sensitively recognize the â€Å"Corporate Social Responsibility† performance of a corporation. When a company does well in this field, the customer is finally willing to buy its product or to keep on buying its product, because he or she feels comfortable investing in a company who helps the public and treats its employees very well. This finally results in better revenues, which is a financial parameter. Furthermore employees are feeling much more comfortable and thus work more efficient, when the corporation gives them the feeling of feeling important and investing in them. Higher Efficiency finally results in better products, which affects the buying-decision of the customer, again. Moreover business partner and suppliers are more willing to cooperate with a corporation, who has a good image and who treats them fairly. By cooperating with good business partner and suppliers the corporation ensures good quality of its products, which finally results in better products and thus greater customer-satisfaction, again. So we can see that there is a strong correlation between the financial performance of a corporation and its social performance, which we also know as â€Å"Corporate Social Responsibility†. Additionally, according to Kanji and Chopra (2010) these are the six dimensions in CSR that are most important for companies, they are (1) Organizational Strategic Planning Systems, (2) Social accountability and Social Investment, (3) Environment Protection and sustainability, (4) Corporate Governance and Economic Responsibility, (5) Ethics and Human Resources, and (6) Corporate Social Responsibility Index. Furthermore, there are more advantages of â€Å"Corporate Social Responsibility† than the financial one, which we can see while looking at the business relations, mentioned above. Although, â€Å"Corporate Social Responsibility† has become much more important over the last years, it is still a field, which has to be more researched about, when we refer to the number of articles already published. The less number of articles published in this field could be related to its definitions, which are very broaden and sometimes difficult to express, because of large number of issues involved. To sum it up, because of the growing awareness of ethical, social and sustainable activities of corporations the field of â€Å"Corporate Social Responsibility† has become a core strategic activity of corporations and for some even a source of competitive advantage. Location decision, clusters and CSR in relationship. As one can already notice when reading the in-depth perspectives above, there are some common grounds for the three topics. When one forms a cluster it will likely increase the country opportunity by specifically creating very attractive industry opportunities. As the cluster generates knowledge, resources, and capabilities attractive for some specific firms. Moreover, they create the necessary infrastructure and often the right political climate is thus present. Often this contributes to better economic circumstances in that area or region, increasing the market opportunities. Market opportunities are strongly connected to corporate social responsibility. Often industrialized countries demand more corporate social responsibility of a firm than a developing country does. Again this whole process influences the location decision that a company has to make and the market attractiveness for a firm.