ACM Question 1




Thereare two potential locations, which are Hong Kong and Kuching.Advantages of relocating to Hong Kong are that the labor isinexpensive because of increased labor access, good transportinfrastructure, and increasing number of Original EquipmentManufacturers (OEMs) are likely to move in the location in the nextseveral years. A disadvantage of relocating in Hong Kong is thatcustomers are geographically dispersed, which may render transportcosts to be high (Langella, n.d). On the other hand, relocating toKuching also has advantages and disadvantages. The advantages arethat there is stable and inexpensive labor, the transportinfrastructure is good, and the location offers access to naturalresources as well as other production inputs. One of thedisadvantages of relocating to the location is that the port is notaccessible or large as that of Hong Kong or Singapore (Langella,n.d). Also, there are doubts concerning the frequency of ship visitsto this location in case the port does not receive frequent servicefrom container ships, the transport cost of shipping components toOEMs is likely to increase.


Otherfactors that may have prompted the team’s decision to relocate theplant from Singapore may include expensive raw materials. In case theraw materials are exceedingly expensive in Singapore, the plant teammay see the need of moving to other areas since the highly-priced rawmaterials may have an effect of lowering the plant’s margins. Also,another aspect which may have led to the team’s decision is high orincreased taxation. When the taxes are exceedingly high, the team maymake the decision of relocating to other locations since heavytaxation may have the effect of decreasing the net income of theplant. Another aspect which may have led to the team’s decision torelocate the plant may entail low sales, which may be because of lackof ready market in the area.


Transportinfrastructure is very important in the making of the decision torelocate the plant because the plant has to distribute itsmanufactured electronic components to original equipmentmanufacturers. Since the original equipment manufacturers are notlocated in one area, but geographically distributed, transportinfrastructure emerges as an important consideration. Where thetransport infrastructure is poor, it means that the plant would notbe capable of supplying electronic components when needed. Also,transport infrastructure may influence profitability because it mayinfluence transport costs to be low or high.


Differentfactors may change in the long-term. One such factor is the cost oflabor. The labor cost keeps on changing emanating from itsavailability and access. In the long-term, labor cost in Singaporemay start decreasing. A decrease in the labor cost would render theplant to become more profitable, which may influence the decision ofcontinuity of the plant in Singapore. Another factor that can changein the long-term is Energy cost. New forms of energy may becomedeveloped, a move that may bring down energy costs. This may alsomake the team make the decision of the plant continuing itsoperations in Singapore.


Thealternative that I would recommend is the plant consideringcontinuing its operations in Singapore under the circumstance that itis going to receive a 5-year exemption on taxes and a subsidizationof labor, water, and energy costs partially for a period of 5 years.


Langella,M.I. (n.d). CaseStudies: Finding a Location for Electronics Component Manufacturingin Asia.