India
Entrepreneurship is all about making decisions and one of the key decisions every manufacturing entrepreneur faces is the best location and layout for the plant or factory. Should it be in a city, semi-urban or industrial area? Is proximity to an employee pool, educational centres and public transport important? What about public utilities? Taxation and incentives? Which amenities are likely to be most vital to success?
We’ve been thinking about this at Podrain and went back to basics on it.
Plant location is a strategic decision that is nearly impossible to change without incurring considerable losses. The ideal location is one that minimizes the cost of production, supports a large market share, maximises social benefit and eliminates risk. Locational analysis that takes into account demographics, trade area (availability of and access to customers), competitive, economic and traffic analyses and can help determine the right location.
A location in which some costs are higher may still be the best choice if it maximises net advantage, i.e., its overall unit cost of production is lowest.
Here are some things we are considering when selecting a suitable location for a factory:
- Natural or climactic conditions
- Cost of land or land lease
- Availability and access to raw material
- Transport costs – inward, to bring in raw material, and outward, to sell or distribute finished products
- Availability and access to market
- Availability and access to infrastructure – developed industrial sheds, link roads, transport hubs, public utilities, civic amenities, means of communication
- Availability and access to both skilled and unskilled labour, as required, and local labour rates
- Availability and access to banking and financial institutions
- Safety and security of the plant, its workers and its assets
- Government and regulatory environment – positive and negative incentives, including cheaper utilities, tax relief, liberal local labour laws, pollution control and waste disposal regulations, among others
- Personal reasons, such as being close to family, familiarity with a particular place, or a network of known associates whom we can call upon for financial, operational and emotional support. This isn’t intuitive to admit but it’s really important to have a good support system.
Not all these considerations carry equal weight. For example, government incentives cannot compensate for poor public infrastructure. Running costs at a plant can contribute significantly to the overall cost of manufacturing, and poor location selection can cause a business to fail as its growth and efficiency are constrained.
MSMEs like us often do not have the financial or operational capacity to compensate for the shortcomings of public infrastructure , so our ability to adjust to an unsupportive environment is extremely low, particularly in the early stages of the manufacturing journey.
Is there something else we should include? What is your experience. Do write to us or add your comments to let us know.