Mogit Siting of Technology Organizations


Last Updated 12/10/01

History of siting dates centuries back. For past many years, multinational enterprises (MNEs) have been locating some of their advanced engineering activities in emerging/newly industrializing economies (E/NIEs) but in some cases depending on the needs of companies a developed economy like US is also selected in siting process. These activities are then coordinated with engineering activities in the home country and at other sites. U.S. producers of hard disk drives, for example, continue to perform most of their product design in the United States, but have shifted their manufacturing process and development activities to Southeast Asia.

What is siting?

Siting is defined as locating of facility (which can be R&D, Manufacturing or any supporting activity like call center) geographically away (may be another state or country) from parent company location.Essentially, the expansion of international production is driven by three main factors: First, Liberalization, opening up national markets and the allowance of varied FDIs and new equity arrangements; Second, Rapid technological change with increasing cost and risks, which make it imperative for firms to tap world markets and share costs and risks; Last, heightened competition which forces firms to explore new ways of increasing efficiency by extending their international reach to new markets and by shifting production. So international production has take on creative activities to reduce costs, and consequently have struck new ownerships and contractual arrangements, by locating new activities abroad.

Who sites and what they site?

Though siting of facilities at other location than parent company is common in all sectors of industry but it is most prevalent in large sized high-tech companies located in developed economies like US, EU or Japan involved in sectors like IC manufacturing, software development. One reason for this is that development in this sector requires expertise in the field. Companies looking for this expertise end up in locating their facilities in places where they can find such expertise. Secondly, Countries attract such siting as it brings inflow of technology along with employment. Another reason which is more applicable for software companies is that there is no shipping involved in moving the manufactured product (which in this case is developed software). Another common trend among these high tech companies is to locate their tech-support centers in emerging/newly industrializing economies (E/NIEs). The main reason behind this cost saving.

Factors motivating companies to site facilities (either R&D or manufacturing) at other places (countries)

The biggest motivating factor behind any company's decision to site a manufacturing or R&D facility in foreign country is COST SAVING. Savings from low wage rate and low overhead costs is the driving force for companies to site their facilities in developing countries like China, India, and Malaysia. Obviously there are other factors which have strong influence on this decision. These include demand factors i.e. the need to be close to final markets, growth potential of a particular market. For example china is a emerging as a big market for software(especially games).So the companies which want to explore China's market must place their development center in China as these software need to be written in Chinese (at least interface for which we need Chinese speaking developers), Expertise i.e. the ability to access local scientific talent, local technology, and 'know-how' like in late nineties India emerged as favorite software development market because of abundance of software engineers in India and general competitive factors (e.g., the desire to monitor and scan the technological and competitor environment in a particular location)[1]

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