Cost‐reduction location strategies

Increasing competition in the market causes continued pressures for many companies to control or reduce costs. This has led to various responses by companies to seek more efficient operating models, in which the location where activities are performed has become a key determinant. The fast pace at which many low‐cost regions are developing into acceptable business environments has offered enormous opportunities for companies to change their geographic network of operations. The result is an ongoing shift of activities from welldeveloped, but high‐cost areas to low‐cost locations elsewhere in the world. This paper describes the relocation trends in the last decade, the drivers for cost reduction and the responses of companies. A location evaluation approach is described which helps to understand the cost and quality of doing business in various locations. Typically, there is a trade‐off between those two dimensions: low‐cost locations offer lower quality, whereas higher‐quality locations are more expensive. The challenge for companies aiming at cost reduction is to identify those locations where costs are low and quality is at an acceptable level.