Multilocational Production. The Advantages of Multilocational Operation

Classical industrial location theory focuses on decisions made by firms seeking to locate a single plant. However, industrial firms are increasingly maintaining several plants in different locations. A firm that maintains two or more production facilities is known as a multilocational enterprise.

The Advantages of Multilocational Operation.Large, multilocational corporations have several advantages over smaller firms whose activities are restricted toa single location. Large firms can take advantage ofeconomies of scale, or declining costs per unit of production in accordance with increasing production volume. Alarge corporation can use more efficient production methods to reduce unit costs.

In the case of multilocational firms, economies of scale are magnified. Production can be divided among locations in order to maximize overall firm profit. Labor-intensive operations can be concentrated in places where labor costs are low. High-technology aspects of the firm's operation can be located within easy access of universities and other sources of highly skilled engineers and scientists.

Corporate headquarters are often separated from production facilities. Many firms choose to set up their headquarters in suburban office complexes. A suburban headquarters may be attractive because of its convenience for firm executives and professional employees. Meanwhile, branch plants at which manufacturing itself takes place may remain within cities, near cheap sources of labor.

The fact that the manufacturing process may be noisy, smelly, or polluting also justifies separating corporate headquarters from branch plants. The location of Phillips Petroleum in Bartlesville, Oklahoma was chosen by company founders because there were no oil fields in the immediate vicinity of Bartlesville (Figure 8-10). Oilfield operations would not detract from the quality of life in the headquarters community; hence, executives and scientists would not be deterred from living there.

Figure 8-10 Corporate Headquarters and Manufacturing Sites. Corporate headquarters are often separated from manufacturing operations to ensure a high quality of life for company executives. The actual manufacturing is done at alternate sites, (a) Phillips Petroleum Headquarters in Bartlesville. Oklahoma and (b) a Petroleum plant in Port Arthur, Texas

Many new products are introduced by a number of small, independent companies simultaneously. Those firms that are located most favorably and that can manufacture their products most efficiently eventually drive their weaker competitors out of business. As markets come to be dominated by a few large firms, each establishes branch plants. This process is illustrated by the example of the North American automobile industry.

Automobiles were first produced for consumer markets in the 1890s. Between 1890 and 1918, numerous firms began to produce a variety of models of automobiles. By the 1950s, now-antique Stanley Steamers, Packards, and Studebakers had gone out of production, and the Big Three—General Motors, Ford, and Chrysler—had come to dominate the automobile market from their headquarters in Detroit. While small companies closed down, the Big Three expanded geographically by establishing branch plants at numerous locations nationwide and abroad.