• If the capacity being used is greater than the expected market demand, a company may need to sacle back production by perhaps reducing the number of emplyees or work shifts at some facilities 
• If market demand is growing, managers must determine in which facilities to expand production or whether additional facilities are needed to expand capacity 
• Extremely important for service companies 

• Are one of the driving forces behind the globalizaiton of the steel industry 
• By building steel mills in countries where their customers are lcoated, steel producers significantly reduce thrier transportation costs 
• the physical landscape also affect the centralization vs decentralizaiton decision 
• This is why low cost producers often choose locations with the lowest combind production and transportation costs 

• Selecting highly favorable lcoations often allows a company to achieve
• Economic benefits derived from locating production activities in optimal locations 
• Result from teh right mix of the kinds of elements 
• To take advnatage, companies either undertake business activities themsleves in a particular locations or obtain products and services from other companies located 

• Almost any business activitiy that companies  in a particular location perform very well 
• The key fact to remember is that each production activity generates more vlaues in particular lcoation than it could generate elsewhere 
• Productivity is very important factor in determine value that a location adds to a certain economic activity 

Two resource 

Labor and Capital 

heavily influence the productivity of a location 

• Facilities are spread over several location and could even mean having one facility for each national business environment in which the company markets its products---a common policy for companies that follows a multinational strategy 
• Companies that sell differentiated products may find decentralized production the better option 
• Remain in close contract with customers and can respond quickly to changing buyer behavior  in local culture 

• Refers to the concentration of production facilities in one locaiton 
• in pursuit of low cost strategies 
• Take advantages of economies of scale 
• Global strategy 
• Large quantities

• Vertical integration is the process by which a company extends its control over additional stages of production--either inputs or outputs 
• "upstream" activities 
• Low cost 
• Greater control 
• Making a product can be a good idea when buying from a supplier means providing the supplier with a firm's key technology 
• But if a company's competitive advantage depends on that technology, the licensor could indavertently be creating a future comeptitor 

• Generally speaking, the manufacturer's profit is the difference between the product's selling price and its production cost 
• Thus in-house production allows a company to lower its own production cost 
• By this rule of thumb might not necessarily hold if the comapny possesses a properietary technology or some other competitive advantage that is not easily copied 

• Quality control is especially important when customer are highly sensitive to even slight declines in quality or company reputation 

• Continuous specializaiton and technological advancement 
• Extremely popular in the business of comaputer manufacturing 
• When a firm cannot integrate vertically by manufacturing a product for less than a supplier can, it will typically outsource
• Low Risk 
• Greater Flexiblity 
• Market Power 
• Barrier to Buying 

• One way a company can eliminate the exposure of assets to political risk in other countries is simply by refusing to invest in plants and equipment abroad 
• This policy also eliminates the need to purchase expensive insurance converage that is needed when a company undertakes production in an unstable country 

• Making an in-house product that requires large investments in equipment  and buildings often reduce flexibility 
• That source products from one or more outside supplier gain fliexiblity 
• Maintaining flexibility is improtant when the natonal business environment  of suppliers are volatile 
• By buying from multiple suppliers located in several countries company can maintain the flexiblity needed to change sources and reduce the risk associated with sudden swings in exchange rates 
• Unencumbered by investment in costly production equipment and facilities a firm can altert its production line very quickly 
• This capability is especially important for products with small production runs or those with highly uncertain potential 

• Companies can gain a great deal of power in their relationship wiht suppliers simply by becoming important customers 
• this situation gives the buyer significant control in dictating quality improvements, forcing cost reductions, and making special modificaitons 

• The government of the buyer's country may impose import tariffs designed to improve the nation's balance of trade 
• The service provided by intermediaries increase the cost of buying abroad 

• Tangible 
• Such as production facilities 
• Many companies have the option of either 

• inventory warehouse 
• Retail outlets
• Production 
• Office equipment 

• Acquiring or modifying existing factories 
• Building entirely new facilities 

• A production technique in which inventory is kept to a minimum and intputs to the production process arrive exactly when they are needed 
• Develop in Japan 
• Reduce the costs associated with large inventories
• Reduce wasteful expense