plant location and external environmental analysis

1. Institute of Business Management,
Chhatrapati Shahu Ji Maharaj University,
Kanpur
ENTERPRENEURIAL DEVELOPMENT
 Plant Location Submitted To:-
Prof. Mukesh Ranga
 External environment analysis
MBA(BUSINESS Submitted By:-
ECONOMICS) Abhay Agarwal
SESSION (2011-13) Aditya Kumar
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2. Plant Location
Every entrepreneur is faced with the problem of
deciding the best site for location of his plant or
factory.
What is plant location?
What is an ideal location?
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3. What is plant location?
 Plant location refers to the choice of region and
the selection of a particular site for setting up a
business or factory.
 But the choice is made only after considering cost
and benefits of different alternative sites. It is a
strategic decision that cannot be changed once
taken. If at all changed only at considerable loss,
the location should be selected as per its own
requirements and circumstances. Each individual
plant is a case in itself. Businessman should try to
make an attempt for optimum or ideal location.
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4. What is an ideal location?
 An ideal location is one where the cost of the
product is kept to minimum, with a large market
share, the least risk and the maximum social
gain. It is the place of maximum net advantage or
which gives lowest unit cost of production and
distribution. For achieving this objective, small-
scale entrepreneur can make use of locational
analysis for this purpose.
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5. LOCATIONAL ANALYSIS
Demographic Analysis
Trade Area Analysis
Competitive Analysis
Traffic analysis
Site economics
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6. 1. Demographic Analysis
It involve study of population in the area in terms of total
population (in no.), age composition, per capita income,
educational level, occupational structure etc.
2. Trade Area Analysis
It is an analysis of the geographic area that provides continued
clientele to the firm. He would also see the feasibility of
accessing the trade area from alternative sites.
3. Competitive Analysis
It helps to judge the nature, location, size and quality of
competition in a given trade area.
4. Traffic analysis
To have a rough idea about the number of potential customers
passing by the proposed site during the working hours of the
shop, the traffic analysis aims at judging the alternative sites in
terms of pedestrian and vehicular traffic passing a site.
5. Site economics
Alternative sites are evaluated in terms of establishment costs and
operational costs under this. Costs of establishment is basically cost
6 incurred for permanent physical facilities but operational costs are
incurred for running business on day to day basis, they are also called

7. Table: Comparative Costs of
Alternative Locations
Costs Site A Site B
Cost of establishments: Amount (Rs.) Amount (Rs.)
Land and Buildings 350000.00 230000.00
Equipment 60000.00 60000.00
Transport facilities 20000.00 30000.00
Cost of operations:
Materials, freight and carriage 34000.00 24000.00
Taxes and insurance 10000.00 7500.00
Labour 100000.00 70000.00
Water, power and fuel 10000.00 8000.00
Totals 584000.00 429500.00
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8. SELECTION CRITERIA
 Natural or climatic conditions.
 Availability and nearness to the sources of raw material.
 Transport costs-in obtaining raw material and also distribution or
marketing finished products to the ultimate users.
 Access to market: small businesses in retail or wholesale or
services should be located within the vicinity of densely
populated areas.
 Strategic considerations of safety and security should be given
due importance.
 Banking and financial institutions are located nearby.
 Availability of skilled and non-skilled labour and technically
qualified and trained managers.
 Banking and financial institutions are located nearby.
 Strategic considerations of safety and security should be given
due importance.
 Government influences: Both positive and negative incentives to
motivate an entrepreneur to choose a particular location are
made available. Positive includes cheap overhead facilities like
8 electricity, banking transport, tax relief, subsidies and
liberalization. Negative incentives are in form of restrictions for

9. Table: Factors Affecting Location
Decision
Entrepreneur’s Response
Considerations Hills Plains Total
No. % No. % No. %
Homeland 15 67 11 39 26 52
Government Incentives 3 14 1 4 4 8
Availability of Raw 0 0 1 4 1 2
material
Availability of labour 2 9 0 0 2 4
Availability of market 0 0 5 18 5 10
Availability of 1 5 9 32 10 20
infrastructure
Facilities
Others 1 5 1 4 2 4
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Totals 22 100 28 100 50 100

10. SIGNIFICANCE
From the discussion above, we have already learnt
that location of a plant is an important
entrepreneurial decision because it influences the
cost of production and distribution to a great extent.
In some cases, you will find that location may
contribute to even 10% of cost of manufacturing
and marketing. Therefore, an appropriate location is
essential to the efficient and economical working of
a plant. A firm may fail due to bad location or its
growth and efficiency may be restricted.
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13. MANUFACTURING PLANT
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14. EXTERNAL ENVIORNMENTAL
ANALYSIS
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15. External Environmental Analysis
 A continuous process which includes
 Scanning for early signals of potential
changes and trends in the general environment
 Monitoring changes to see if a trend emerges from
among those spotted by scanning
 Forecasting projections of outcomes based on
monitored changes and trends
 Assessing the timing and significance of changes
and trends on the strategic management of the firm
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16. Analysis of the External Environment is
divided among followings:-
 General environment
-Focused on the future
 Industry environment
-Focused on factors and conditions influencing a firm’s
profitability within an industry
 Competitor environment
-Focused on predicting the dynamics of competitors’
actions, responses and intentions

17. Purpose of External
Environmental Analysis
 Organizations are affected by conditions in the
environment
 Managers need to be aware of these conditions
in order to:-
- Be the Market Leaders by working on their
Strengths.
- Find out Weakness in order to capitalize on
available resources.
- Take advantage of Opportunities that can lead to
higher profits.
17 - Reduce the impact of Threats that can harm the
organization’s future.

18. EXTERNAL ENVOIRNMENT
FACTORS
P olitical factors
E conomic factors
S ocial factors
T echnological
factors
E nvironmental
factors
L egal factors

19. MICHAEL E. PORTER’s 5 FORCES ON
EXTERNAL ENVIRONMENT ANALYSIS
Rivalry
Threat of new
among
entrants
competing
Threat of Bargaining
substitute power of
products suppliers
Bargaining
power of
buyers
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20. Threat of New Entrants
 Fundamental question: how easy is it for
another company to enter the industry?
 Factors making easy entry to industry
 Low economies of scale
 Low product differentiation
 Low capital requirements
 No switching costs for buyer
 Easy access to distribution channels
 Little government regulation
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21. Bargaining Power of Supplier
 Fundamental question: how badly does a
supplier need your business?
 Factors giving power to supplier:
 Supplier industry dominated by few firms
 Buyer is not important to customer
 Supplier’s product is important input to buyer’s
product
 Supplier’s products have high switching costs
 Supplier can “integrate forward” and become
competitor of buyer
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22. Threat of Substitutes
 Fundamental question: what other products
or services could perform the same function
as your products or services?
 Factors indicating high threat of substitutes:
 Few switching costs for buyer
 Price of substitute lower or quality higher than for
your products
 Firms offering substitutes have high profitability
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23. Bargaining Power of Buyer
 Fundamental questions: How badly does a
buyer need your products or services?
 Factors contributing to high buyer power:
 Few buyers compared to the number of sellers
 Buyers purchases high relative to seller’s sales
 Products are undifferentiated
 Buyer has low switching costs
 Buyer has low profits
 Buyer can “integrate backward” and supply the
product to itself
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24. Competitive Rivalry
 Fundamental question: how intense is
competition in the industry?
 Factors leading to high competitive rivalry:
 Numerous or equally balanced competitors
 High fixed costs
 Slow industry growth
 Lack of differentiation or switching costs
 High strategic stakes
 High exit barriers
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25. Examples of Key Success Factors
in Selected Industries
 Pharmaceuticals: Research and personal
selling
 Beer: Advertising and distribution
 Restaurant: Quality food, service, location
 Retailer: Location and priced-for-quality
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26. BIBLIOGRAPHY
 Drew S, Strategic Direction: Strategic Analysis.
Henley Management College 1997
 Sondhi, Rakesh. Total Strategy, Airworthy
Publications 1999
 Senge Peter M. The Fifth Discipline. Century
Business.
 Grant, Robert M. Contemporary Strategy Analysis,
3rd edition .Blackwell Publishers
 Charantinath M Poornima, Entrepreneurship
Development Small Business Enterprises: 6Pearson
Education First Impression, 2006
 Florence. P. Sargent, Investment, Location and Size
of plant, London: Cambridge 8University Press, 1984
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 Government of India (Office of the Economic Adviser),

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