An electronics firm is considering how best to supply the world market for microprocessors used in consumer and industrial electronic products.
A manufacturing plant costs about $500 million to construct and requires a highly skilled workforce.
The total value of the world market for this product over the next 10 years is estimated to be between $10 billion and $15 billion.
The tariffs prevailing in this industry are currently low. What kind of location(s) should the firm favor for its plant(s)?
. A chemical firm is considering how best to supply the world market for sulfuric acid. A manufacturing plant costs about $20 million to construct and requires a moderately skilled workforce. The total value of the world market for this product over the next 10 years is estimated to be between $20 billion and $30 billion. The tariffs prevailing in this industry are moderate. What kind of location(s) should the firm seek for its plant(s)?
. A firm must decide whether to make a component part in-house or to contract it out to an independent supplier. Manufacturing the part requires a nonrecoverable investment in specialized assets.
The most efficient suppliers are located in countries with currencies that many foreign exchange analysts expect to appreciate substantially over the next decade. What are the pros and cons of
(a) manufacturing the component in-house and
(b) outsourcing manufacturing to an independent supplier?
Which option would you recommend? Why?
. Reread the Management Focus “IKEA Production in China,” and then answer the following questions:
a. What are the benefits to IKEA of shifting so much of its global production to China?
b. What are the risks associated with a heavy concentration of manufacturing assets in China?
c. What strategies might IKEA adopt to maximize the benefits and mitigate the risks associated with moving so much product?