Plant Location External environment analysis ENTERPRENEURIAL DEVELOPMENT Submitted To :- Prof. Mukesh Ranga Submitted By :- Abhay Agarwal Aditya Kumar Institute of Business Management, Chhatrapati Shahu Ji Maharaj University, Kanpur MBA(BUSINESS ECONOMICS) SESSION (2011-13) 1
Transcript
1. Institute of Business Management, Chhatrapati Shahu Ji
Maharaj University, Kanpur ENTERPRENEURIAL DEVELOPMENT Plant
Location Submitted To:- Prof. Mukesh Ranga External environment
analysis MBA(BUSINESS Submitted By:- ECONOMICS) Abhay Agarwal
SESSION (2011-13) Aditya Kumar1
2. Plant Location Every entrepreneur is faced with the problem
of deciding the best site for location of his plant or factory.
What is plant location? What is an ideal location?2
3. What is plant location? Plant location refers to the choice
of region and the selection of a particular site for setting up a
business or factory. But the choice is made only after considering
cost and benefits of different alternative sites. It is a strategic
decision that cannot be changed once taken. If at all changed only
at considerable loss, the location should be selected as per its
own requirements and circumstances. Each individual plant is a case
in itself. Businessman should try to make an attempt for optimum or
ideal location.3
4. What is an ideal location? An ideal location is one where
the cost of the product is kept to minimum, with a large market
share, the least risk and the maximum social gain. It is the place
of maximum net advantage or which gives lowest unit cost of
production and distribution. For achieving this objective, small-
scale entrepreneur can make use of locational analysis for this
purpose.4
5. LOCATIONAL ANALYSIS Demographic Analysis Trade Area Analysis
Competitive Analysis Traffic analysis Site economics5
6. 1. Demographic Analysis It involve study of population in
the area in terms of total population (in no.), age composition,
per capita income, educational level, occupational structure etc.
2. Trade Area Analysis It is an analysis of the geographic area
that provides continued clientele to the firm. He would also see
the feasibility of accessing the trade area from alternative sites.
3. Competitive Analysis It helps to judge the nature, location,
size and quality of competition in a given trade area. 4. Traffic
analysis To have a rough idea about the number of potential
customers passing by the proposed site during the working hours of
the shop, the traffic analysis aims at judging the alternative
sites in terms of pedestrian and vehicular traffic passing a site.
5. Site economics Alternative sites are evaluated in terms of
establishment costs and operational costs under this. Costs of
establishment is basically cost6 incurred for permanent physical
facilities but operational costs are incurred for running business
on day to day basis, they are also called
7. Table: Comparative Costs of Alternative Locations Costs Site
A Site B Cost of establishments: Amount (Rs.) Amount (Rs.) Land and
Buildings 350000.00 230000.00 Equipment 60000.00 60000.00 Transport
facilities 20000.00 30000.00 Cost of operations: Materials, freight
and carriage 34000.00 24000.00 Taxes and insurance 10000.00 7500.00
Labour 100000.00 70000.00 Water, power and fuel 10000.00 8000.00
Totals 584000.00 429500.007
8. SELECTION CRITERIA Natural or climatic conditions.
Availability and nearness to the sources of raw material. Transport
costs-in obtaining raw material and also distribution or marketing
finished products to the ultimate users. Access to market: small
businesses in retail or wholesale or services should be located
within the vicinity of densely populated areas. Strategic
considerations of safety and security should be given due
importance. Banking and financial institutions are located nearby.
Availability of skilled and non-skilled labour and technically
qualified and trained managers. Banking and financial institutions
are located nearby. Strategic considerations of safety and security
should be given due importance. Government influences: Both
positive and negative incentives to motivate an entrepreneur to
choose a particular location are made available. Positive includes
cheap overhead facilities like8 electricity, banking transport, tax
relief, subsidies and liberalization. Negative incentives are in
form of restrictions for
9. Table: Factors Affecting Location Decision Entrepreneurs
Response Considerations Hills Plains Total No. % No. % No. %
Homeland 15 67 11 39 26 52 Government Incentives 3 14 1 4 4 8
Availability of Raw 0 0 1 4 1 2 material Availability of labour 2 9
0 0 2 4 Availability of market 0 0 5 18 5 10 Availability of 1 5 9
32 10 20 infrastructure Facilities Others 1 5 1 4 2 49 Totals 22
100 28 100 50 100
10. SIGNIFICANCE From the discussion above, we have already
learnt that location of a plant is an important entrepreneurial
decision because it influences the cost of production and
distribution to a great extent. In some cases, you will find that
location may contribute to even 10% of cost of manufacturing and
marketing. Therefore, an appropriate location is essential to the
efficient and economical working of a plant. A firm may fail due to
bad location or its growth and efficiency may be restricted.10
11. 11
12. 12
13. MANUFACTURING PLANT13
14. EXTERNAL ENVIORNMENTAL ANALYSIS14
15. External Environmental Analysis A continuous process which
includes Scanning for early signals of potential changes and trends
in the general environment Monitoring changes to see if a trend
emerges from among those spotted by scanning Forecasting
projections of outcomes based on monitored changes and trends
Assessing the timing and significance of changes and trends on the
strategic management of the firm15
16. Analysis of the External Environment is divided among
followings:- General environment -Focused on the future Industry
environment -Focused on factors and conditions influencing a firms
profitability within an industry Competitor environment -Focused on
predicting the dynamics of competitors actions, responses and
intentions
17. Purpose of External Environmental Analysis Organizations
are affected by conditions in the environment Managers need to be
aware of these conditions in order to:- - Be the Market Leaders by
working on their Strengths. - Find out Weakness in order to
capitalize on available resources. - Take advantage of
Opportunities that can lead to higher profits.17 - Reduce the
impact of Threats that can harm the organizations future.
18. EXTERNAL ENVOIRNMENT FACTORS P olitical factors E conomic
factors S ocial factors T echnological factors E nvironmental
factors L egal factors
19. MICHAEL E. PORTERs 5 FORCES ON EXTERNAL ENVIRONMENT
ANALYSIS Rivalry Threat of new among entrants competing Threat of
Bargaining substitute power of products suppliers Bargaining power
of buyers19
20. Threat of New Entrants Fundamental question: how easy is it
for another company to enter the industry? Factors making easy
entry to industry Low economies of scale Low product
differentiation Low capital requirements No switching costs for
buyer Easy access to distribution channels Little government
regulation20 20
21. Bargaining Power of Supplier Fundamental question: how
badly does a supplier need your business? Factors giving power to
supplier: Supplier industry dominated by few firms Buyer is not
important to customer Suppliers product is important input to
buyers product Suppliers products have high switching costs
Supplier can integrate forward and become competitor of buyer21
21
22. Threat of Substitutes Fundamental question: what other
products or services could perform the same function as your
products or services? Factors indicating high threat of
substitutes: Few switching costs for buyer Price of substitute
lower or quality higher than for your products Firms offering
substitutes have high profitability22 22
23. Bargaining Power of Buyer Fundamental questions: How badly
does a buyer need your products or services? Factors contributing
to high buyer power: Few buyers compared to the number of sellers
Buyers purchases high relative to sellers sales Products are
undifferentiated Buyer has low switching costs Buyer has low
profits Buyer can integrate backward and supply the product to
itself23 23
24. Competitive Rivalry Fundamental question: how intense is
competition in the industry? Factors leading to high competitive
rivalry: Numerous or equally balanced competitors High fixed costs
Slow industry growth Lack of differentiation or switching costs
High strategic stakes High exit barriers24 24
25. Examples of Key Success Factors in Selected Industries
Pharmaceuticals: Research and personal selling Beer: Advertising
and distribution Restaurant: Quality food, service, location
Retailer: Location and priced-for-quality25
26. BIBLIOGRAPHY Drew S, Strategic Direction: Strategic
Analysis. Henley Management College 1997 Sondhi, Rakesh. Total
Strategy, Airworthy Publications 1999 Senge Peter M. The Fifth
Discipline. Century Business. Grant, Robert M. Contemporary
Strategy Analysis, 3rd edition .Blackwell Publishers Charantinath M
Poornima, Entrepreneurship Development Small Business Enterprises:
6Pearson Education First Impression, 2006 Florence. P. Sargent,
Investment, Location and Size of plant, London: Cambridge
8University Press, 198426 Government of India (Office of the
Economic Adviser),