13-4c Relocation of Production Facilities

The Harley-Davidson company was founded in 1903 by William Harley and Davidson brothers Arthur, Walter, and William.

Philippe Lissac/Godong/Corbis

The third consideration in deciding upon production facility location for products relates to the product’s image. Germany’s famous auto engineering has made it an attractive country for car manufacturers. Italy would be of interest to firms with products in the leather industry, such as coats and shoes, because of Italy’s historical supremacy in leather products. That is, customers would prefer to buy cars made in Germany and shoes made in Italy.

The location of a production facility is a long-term decision, and because this decision is such a significant cost driver, the consulting firm McKinsey believes that location has the power to provide success to a company. As new opportunities appear around the world, sometimes it will become desirable for a company to relocate a production facility. In early 2009, Dell identified such an opportunity and announced that it would be moving its Irish manufacturing operations to Poland in the next year. This was part of a company-wide initiative to cut costs by $3 billion, which would result in the loss of 1,900 Irish jobs, or approximately 50 percent of the computer maker’s workforce in Ireland. Dell established a manufacturing facility in Limerick, Ireland in 1990, and since then has become the second-largest foreign employer in Ireland—and one of its biggest exporters. However, in 2006, Dell was dethroned as the world’s largest manufacturer of personal computers, when its rival Hewlett-Packard surpassed it. One major difference between Dell and Hewlett-Packard is that Dell owns the plants around the world where its computers are produced, whereas Hewlett-Packard decided years ago to outsource most of its production to contract manufacturers in Asia. “This is a difficult decision, but the right one for Dell to become even more competitive,” said Sean Corkery, the vice president of the Dell’s Europe, Middle East, and Africa operations, in a statement.12

REALITY CHECK LO-4

Locate in the business press a recent case of a company relocating its production facilities. Identify the winners and losers in that relocation decision.