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Structure of the presentation
Introduction: Behavioural Approach Firms as informational processors Decision-making process Locational search processes Locational evaluation Methods of locational evaluation Negation of behavioural erguments Foreign plant location Conclusions
Structure of the presentation
Introduction: Behavioural Approach Firms as informational processors Decision-making process Locational search processes Locational evaluation Methods of locational evaluation Negation of behavioural arguments Foreign plant location Conclusions
Behavioural Approach
Homo Oeconomicus unrealistic
Decision Makers = Satisficers Evaluation of information Accepting the first satisfactory solution
Evaluation of coping with uncertainty
Decision-making
(McDermott, 1973) Leather industry could profitably locate anywhere.
(Taylor, 1970) Fireworks factory could locate anywhere aswell.
(Warren, 1979) Spatial limits to survival are broad for both iron and steel industry.
CONCLUSION -> The first satisfactory requirement can be easily met!
Structure of the presentation
Introduction: Behavioural Approach Firms as informational processors Decision-making process Locational search processes Locational evaluation Methods of locational evaluation Negation of behavioural arguments Foreign plant location Conclusions
Firms as informational processors (Simon, 1955, 1957)
”Learning, estimating, information processing organism”
Do not enjoy perfect information nor act in a perfectly rational way
”optimal decision” is an abstraction Subjective judgements
Satisficers have limited both information sources and rationality so they cannot evaluate all possible
alternatives!
That does not mean that…
… the factory location is random! Companies, according to behavioural theory:
Consider only a limited number of choices Search and evaluate alternatives in a strongly
sequentional way Choose the first solution that is satisfactory
The spatial bias (Abler, 1971) The decision about factory location is
made by a person or group of people
Individual preferences: Gossips Living place Investment place
Locations which are popular just because they are popular
Behavioural Matrix (Pred, 1967)
Firms – informational processors
Environment – information bed Links between them – information flows
The actual knowledge firms have about themarket varies according to length, frequency and
type of the contact
Behavioural Environment
Part of the objective environment which represents the total sum of information in the economy. In such an environment firms send and receive information flows.
Uncertainty Imperfect information It is impossible to predict the future
Raises the possibility of unexpected outcomes
True uncertainty Knowledge gap
Structure of the presentation
Introduction: Behavioural Approach Firms as informational processors Decision-making process Locational search processes Locational evaluation Methods of locational evaluation Negation of behavioural arguments Foreign plant location Conclusions
Decision-making process
Approach based on identification of distinct processes
Stimulous Search Evaluation
Approach based on geographical scale
Choice of country Choice of region Choice of sites
Satisficer firms exist as open learning systems
If there’s no reason to change established practices, firms are satisfied with their relations
Disturbances forces decision making Stresses internal sources: changes in corporate philosophy externally generated stresses – actions taken or
threatened by customers, rivals or governments, unexpected occurrences
Stresses may occur suddenly or evolve slowly
Structure of the presentation
Introduction: Behavioural Approach Firms as informational processors Decision-making process Locational search processes Locational evaluation Methods of locational evaluation Negation of behavioural arguments Foreign plant location Conclusions
Locational search processes
New and Small firms – location of new factories within the existing mental maps of the decision-makers
Large firms are more likely to delegate some functions of locational search and evaluation and to conduct analyses which include hard data on the hard factors or tangible features
However senior management have the final word
Locational search processes When firms, especially medium-size and large
firms, expand interregionally they usually take more than 1 region into consideration
Locational search and evaluation involves time and cost which can be significant
Investment in a foreign country – requires an assessment of its distinctive social, economical and political conditions
Structure of the presentation
Introduction: Behavioural Approach Firms as informational processors Decision-making process Locational search processes Locational evaluation Methods of locational evaluation Negation of behavioural arguments Foreign plant location Conclusions
Locational evaluation
Principal factors for a selection of a region: Government regional policy Labour relations Markets and strategic communications
(general transportation and communication requirements)
Global scale
Multi National Corporations want stable governments but also pro-development governments
Being democratic is of lower importance e.g China
Structure of the presentation
Introduction: Behavioural Approach Firms as informational processors Decision-making process Locational search processes Locational evaluation Methods of locational evaluation Negation of behavioural arguments Foreign plant location Conclusions
Methods of locational evaluation
At least 2 broad tendencies1) Large firms ---> formal, systematic analysis of
locational alternatives2) Systematic analyses are more likely to be
conducted at community/site scales of analysis than at regional or international scales
Methods of locational evaluation
Some firms use some ad hoc procedures Increasing number of firms conduct
comparative cost analyses of tangible location factors and ‘weight ranking’ schemes
The evaluation cannot be reduced to a mechanical calculation of costs (due to intangible factors of location factors)
Kepner and Tregoe’s method of site evaluation
1) Decision-makers identify a set of ‘musts’ or minimum requirements
2) Drawing-up a list of ‘wants’3) Wants are assigned a weight + each locational
option is assigned a score4) The score and weight are multiplied for each
locational factor
Timing – crucial matter
Postponing the decision about investment may trigger losses – market upswings and downturns
The advantages of MNCs over smaller firms In contrast to small single-plant firms, MNCs
enjoy geographically extensive behavioural environments
Access to formal and informal information networks
Having prior experiences in choosing new locations + more resources to plan for new location + the ability to afford specialised, locational consultants
Structure of the presentation
Introduction: Behavioural Approach Firms as informational processors Decision-making process Locational search processes Locational evaluation Methods of locational evaluation Negation of behavioural arguments Foreign plant location Conclusions
The dismissal of behavioural arguments – ‘The world is our oyster’ hypothesis
The largest MNCs are already global and familiar with all cultures and territories
Communication is virtually spatially costless MNCs are promoting standardisation of production all
over the world - as their power increases the cultural differences decline
Trade liberalisation and deregulation foster capital mobility
‘The power of geography’ hypothesis
The resistence of local culture to universalising tendencies
Nations are still influential forms of organising territory
Even for established MNCs locating in foreign countries remains a problematical excercise
Structure of the presentation
Introduction: Behavioural Approach Firms as informational processors Decision-making process Locational search processes Locational evaluation Methods of locational evaluation Negation of behavioural arguments Foreign plant location Conclusions
Foreign plant location
1) Foreign firms favour established core regions of host countries
2) Foreign firms are more likely to invest in peripheral areas, especially when there are some incentives offered
Incentives: popular in the UK in the 1970s, not popular in Germany, the Netherlands or Denmark
Foreign plant location
3) National culture is important in understanding the location preferences of foreign firms.
4) Foreign firms may excercise the equivalent of personal preference in choosing locations
5) Foreign firms change locational preferences following initial entry into a country
Industrial location policy in a behavioural landscape
Industrial location incentives can serve to change locational preferences in 2 ways
1) They serve as signal to firms to take a given region into consideration
2) It offers compensation for any costs concerned with learning or uncertainty
Structure of the presentation
Introduction: Behavioural Approach Firms as informational processors Decision-making process Locational search processes Locational evaluation Methods of locational evaluation Negation of behavioural arguments Foreign plant location Conclusions
Conclusions A weakness of the behavioural approach – it provides
no sense of conflict or the controversies that often surround matters of location
In behavioural location theory, imperfect information and bounded rationality modify the decision-making capabilities of Homo Economicus, while neoclassical cost and revenue surfaces are similarly modified by information surfaces or mental maps
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