Your firm has developed a global presence with exporting and acquisition of a fe

Question

Your firm has developed a global presence with exporting and acquisition of a few businesses, which are now well integrated into your enterprise. You know there is a growing demand for your products, which consist of large kitchen appliances. As a result, you are considering expanding production. Trade barriers are relatively high in several of your key markets, and you do not foresee any major changes in this area. You know from experience that consumers in several key markets have very different preferences in design but the functionality remains essentially unchanged. You are fairly certain that financial markets will be characterized by volatility rather than stability. The manufacture of your product is not sophisticated.

The ________________ affects location decisions because of its influence on transportation costs.

a) flexible manufacturing technology

b) product's value-to-weight ratio

c) minimum efficient scale

Explanation / Answer

When a product is shipped by ocean going ship , the freight for that commodity is charged on basis of weight or volume whichever is higher. The shipping company normally does not take note of intrinsic value or market value of the product. In other words freight is normally not charged on “ad valorem” basis.

It is common sense that higher the value of the product, higher the freight rate it can absorb. On the contrary, lower the value of the product, lower the freight rate it can absorb.

When a ship makes long distance voyage in ocean, the chargeable freight per unit of product increases. Thus as explained, a product with high value-to-weight ratio is preferable or long distance ocean transportation since product with high value – to -weight ratio can absorb high freight rate. Therefore , a product’s value-to-weight ratio decides choice of location for reason explained as above.

THE PRODUCT’S VALUE-TO – WEIGHT RATIO AFFECTS LOCATION DECISION BECAUSE OF ITS INFLUENCE ON TRANSPORTATION COST

THE PRODUCT’S VALUE-TO – WEIGHT RATIO AFFECTS LOCATION DECISION BECAUSE OF ITS INFLUENCE ON TRANSPORTATION COST

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