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

Stages in the locational decision-making process

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

New site investment

vs Expansion at existing site

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

THE END