The role of logistics in the overseas production location decision of U.S.-based multinational corporations

Some of the most critical decisions a U.S.-based multinational corporation makes are the locations of their overseas production facilities. This decision is extremely complex, and a number of variables are important as firms make their determinations. The research in this study was designed to determine the process that U.S.-based multinationals follow in the overseas location decision process in order to determine the relative importance of logistics as a location selection factor.

Top management personnel experienced in the overseas facility location decision process were interviewed. The study is based upon information gathered from eight firms. These firms exhibited a wide range of product type, size in terms of revenue, number of overseas facilities, technological sophistication of the production process, growth objectives, and cost of distribution.

In all cases the identification of the market was the initial step in the process. The estimate of revenue was judged to be more difficult, while the firms were satisfied with their abilities to project costs. All costs were deemed to be important. Location decisions were not based upon favorable ratings of a single variable, but rather on the accumulated ratings of all appropriate cost factors.

Logistics was always a cost to be reviewed. In cases where the goods were destined for export the outbound aspect of logistics received a greater emphasis. When goods were to be consumed within the domestic market, inbound logistics received greater emphasis.

Logistics is an important variable in the overseas production facility location decision of U.S.-based multinational corporations. However, logistics is viewed as a group of functions, rather than as a system. That is transportation or raw material sourcing, for example, are incorporated into the decision process. These functions are viewed as costs rather than as strategic factors.