Firms face many challenges in the face of globalisation. One of these challenges is the decision on where to base various parts of its operations. This essay will discuss several of the important issues that managers will have to consider when attempting to make this decision. It will examine them through four main categories. In order to give an industry perspective on this issue, relevant examples will be used to highlight these points. By discussing these considerations it will be seen that each must be considered on its own merit and then collectively used to determine the best option. .
Firms must consider several important issues when considering the location of its various production facilities. These issues can be categorised into four main groups. Firstly, a firm must consider issues that are country related. These include the political, economic, and legal systems of a country, the culture differences, the availability and cost of resources, the host country's infrastructure, and the country of origin effect. (MacCormack, Newman, Rosenfield. 1994, pp69-80).
The political system of a nation is an important issue to consider when looking to base production facilities. The firm must consider the amount of political risk involved. Robock (1971 p.6) defines political risk as " the likelihood that political forces will cause dramatic changes in a country's business environment that adversely affect the profit and other goals of a particular business enterprise." If the likelihood that political forces will affect the business environment is high, then there is less likelihood that the firm will invest there. .
The economic system of a nation can also affect a firm's decision to enter that nation. Countries operating under market systems are more conducive to international operations. Countries operating under command and fixed economies do not provide the best operating situations for a firm.