Diversify or concentrate. That is a question manufacturers grapple with every time they consider physically expanding their business.
Should they concentrate their resources by expanding in their current location, or should they diversify them by putting their new expansion in an entirely different city, or state, or even country?
Naturally, there are a whole host of reasons for expanding into an entirely different geographic region: to be closer to markets or supplies, or to access a bigger or better labor pool, just to name a few.
However, most of the basic objectives for an expansion -- to lower operating costs, to increase capacity, or to modernize equipment and facilities -- do not require relocating to a different geographic region.
In most cases, the final decision of whether to expand in place or elsewhere is based mainly upon cost considerations. If it is cheaper to expand an existing facility in order to open up a new line than it is to build an entirely new facility 500 miles away, that’s generally what most executives would do. Makes perfect sense.
However, cost, while important, is not always the overriding consideration. Sometimes the need to “spread the risk” outweighs the straight dollars and cents assessment.
We’re all fond of saying that the world is getting smaller, that we’re all part of one big global economy. It sounds impressive, but what does it really mean for the typical manufacturer?
Well, one thing it means is that, theoretically at least, you have the ability to shift production from one site (location) to another in order to overcome local obstacles.
Say, for example, you are Intel Corp. and you’re faced with the possibility of rolling blackouts this summer in your California plants. Or you are Ford Motor Co. and are faced with the prospect of labor unrest in one of your international plants. When you’re as big as those two companies, it’s pretty easy to seamlessly shift or spread production over several other facilities that don’t have that particular local obstacle.
Or maybe you’re a much smaller company in the Midwest, and your one and only manufacturing facility is put out of commission because of flooding along the Mississippi. Or perhaps too much snow has caused your the roof to collapse. Or maybe you’re in the Southeastern U.S. and a hurricane puts you out of commission for a couple of weeks.
There’s not much you can do about the damage aspect of these scenarios -- that’s what insurance is for. But there is something you can do about the opportunity cost of lost business in such mishaps.
Being able to shift production, even temporarily, from one plant to another in response to local conditions is an important asset, much like a balanced portfolio is. Is it worth doing, even if it might cost more? I don’t know. You be the judge.
But at least you ought to consider it.
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