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TOPIC QUESTION - PAPER 1
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Terry
October 4, 2020 at 3:33:31 AM
Oct/Nov 2018
Version 1
Operations Management
4.4 Location Decisions
YOUR ANSWER
Should AHP relocate to Asia, they will have to pay extra cost of transportation to transfer raw materials 4,000km to factory location. More cost will be incurred if AHP increase production, while AHP must also adapt to new culture and legal controls in a new country. This may increase AHP's cost of operation, similarly should AHP remain manufacturing in Country X.
However, should AHP manage to discover a substitute raw material in the country they relocate to, it will reduce their cost significantly, while they could expand their market to Asia and obtain lower interest loan to finance expansion.
Overall, I still think it is best for AHP to remain in Europe, as 80% of their market share are from Europe, as such, they will be closer to their distribution channels and will save a lot on transportation cost. Rising interest rates also indicates a contracting economy, therefore, it will be safer for AHP to save on cost.
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