Structure of the presentation
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Introduction: Behavioural Approach
Firms as informational processors
Decision-making process
Locational search processes
Locational evaluation
Methods of locational evaluation
Negation of behavioural erguments
Foreign plant location
Conclusions
Structure of the presentation
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Introduction: Behavioural Approach
Firms as informational processors
Decision-making process
Locational search processes
Locational evaluation
Methods of locational evaluation
Negation of behavioural arguments
Foreign plant location
Conclusions
Behavioural Approach
 Homo Oeconomicus  unrealistic
 Decision Makers = Satisficers
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Evaluation of information
Accepting the first satisfactory solution
 Evaluation of coping with uncertainty
Decision-making
 (McDermott, 1973) Leather industry could profitably
locate anywhere.
 (Taylor, 1970) Fireworks factory could locate anywhere
aswell.
 (Warren, 1979) Spatial limits to survival are broad for
both iron and steel industry.
 CONCLUSION -> The first satisfactory requirement can
be easily met!
Structure of the presentation
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Introduction: Behavioural Approach
Firms as informational processors
Decision-making process
Locational search processes
Locational evaluation
Methods of locational evaluation
Negation of behavioural arguments
Foreign plant location
Conclusions
Firms as informational processors
(Simon, 1955, 1957)
 ”Learning, estimating, information processing
organism”
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Do not enjoy perfect information nor act in a perfectly
rational way
”optimal decision” is an abstraction
Subjective judgements
Satisficers have limited both information sources and
rationality so they cannot evaluate all possible
alternatives!
That does not mean that…
… the factory location is random! Companies,
according to behavioural theory:
 Consider only a limited number of choices
 Search and evaluate alternatives in a strongly
sequentional way
 Choose the first solution that is satisfactory
The spatial bias (Abler, 1971)
 The decision about factory location is
made by a person or group of people
 Individual preferences:
 Gossips
 Living place
 Investment place
 Locations which are popular just
because they are popular
Behavioural Matrix (Pred, 1967)
 Firms
– informational processors
 Environment
– information bed
 Links between them – information flows
The actual knowledge firms have about the
market varies according to length, frequency and
type of the contact
Behavioural Environment
Part of the objective environment which
represents the total sum of information
in the economy. In such an environment
firms send and receive information flows.
Uncertainty
 Imperfect information
 It is impossible to predict the future
 Raises the possibility of unexpected
outcomes
 True uncertainty
 Knowledge gap
Structure of the presentation
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Introduction: Behavioural Approach
Firms as informational processors
Decision-making process
Locational search processes
Locational evaluation
Methods of locational evaluation
Negation of behavioural arguments
Foreign plant location
Conclusions
Decision-making process
 Approach based on identification of
distinct processes
 Stimulous
 Search
 Evaluation
 Approach based on geographical scale
 Choice of country
 Choice of region
 Choice of sites
Stages in the locational
decision-making process
Satisficer firms exist as open learning systems
 If there’s no reason to change established practices,
firms are satisfied with their relations
 Disturbances forces decision making
 Stresses
 internal sources: changes in corporate philosophy
 externally generated stresses – actions taken or
threatened by customers, rivals or governments,
unexpected occurrences
 Stresses may occur suddenly or evolve slowly
Structure of the presentation
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Introduction: Behavioural Approach
Firms as informational processors
Decision-making process
Locational search processes
Locational evaluation
Methods of locational evaluation
Negation of behavioural arguments
Foreign plant location
Conclusions
New site
investment
vs
Expansion at
existing site
Locational search processes
 New and Small firms – location of new factories within
the existing mental maps of the decision-makers
 Large firms are more likely to delegate some functions
of locational search and evaluation and to conduct
analyses which include hard data on the hard factors
or tangible features
 However senior management have the final word
Locational search processes
 When firms, especially medium-size and large
firms, expand interregionally they usually take
more than 1 region into consideration
 Locational search and evaluation involves time
and cost which can be significant
 Investment in a foreign country – requires an
assessment of its distinctive social, economical
and political conditions
Structure of the presentation
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Introduction: Behavioural Approach
Firms as informational processors
Decision-making process
Locational search processes
Locational evaluation
Methods of locational evaluation
Negation of behavioural arguments
Foreign plant location
Conclusions
Locational evaluation
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Principal factors for a selection of a region:
Government regional policy
Labour relations
Markets and strategic communications
(general transportation and communication
requirements)
Global scale
 Multi National Corporations want stable
governments but also pro-development
governments
 Being democratic is of lower importance e.g
China
Structure of the presentation
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Introduction: Behavioural Approach
Firms as informational processors
Decision-making process
Locational search processes
Locational evaluation
Methods of locational evaluation
Negation of behavioural arguments
Foreign plant location
Conclusions
Methods of locational evaluation
 At least 2 broad tendencies
1) Large firms ---> formal, systematic analysis of
locational alternatives
2) Systematic analyses are more likely to be
conducted at community/site scales of
analysis than at regional or international
scales
Methods of locational evaluation
 Some firms use some ad hoc procedures
 Increasing number of firms conduct
comparative cost analyses of tangible location
factors and ‘weight ranking’ schemes
 The evaluation cannot be reduced to a
mechanical calculation of costs (due to
intangible factors of location factors)
Kepner and Tregoe’s method of site
evaluation
1) Decision-makers identify a set of ‘musts’ or
minimum requirements
2) Drawing-up a list of ‘wants’
3) Wants are assigned a weight + each locational
option is assigned a score
4) The score and weight are multiplied for each
locational factor
Timing – crucial matter
 Postponing the decision about investment may
trigger losses – market upswings and
downturns
The advantages of MNCs over smaller
firms
 In contrast to small single-plant firms, MNCs
enjoy geographically extensive behavioural
environments
 Access to formal and informal information
networks
 Having prior experiences in choosing new
locations + more resources to plan for new
location + the ability to afford specialised,
locational consultants
Structure of the presentation
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Introduction: Behavioural Approach
Firms as informational processors
Decision-making process
Locational search processes
Locational evaluation
Methods of locational evaluation
Negation of behavioural arguments
Foreign plant location
Conclusions
The dismissal of behavioural arguments – ‘The
world is our oyster’ hypothesis
 The largest MNCs are already global and familiar with
all cultures and territories
 Communication is virtually spatially costless
 MNCs are promoting standardisation of production all
over the world - as their power increases the cultural
differences decline
 Trade liberalisation and deregulation foster capital
mobility
‘The power of geography’ hypothesis
 The resistence of local culture to universalising
tendencies
 Nations are still influential forms of organising
territory
 Even for established MNCs locating in foreign
countries remains a problematical excercise
Structure of the presentation
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Introduction: Behavioural Approach
Firms as informational processors
Decision-making process
Locational search processes
Locational evaluation
Methods of locational evaluation
Negation of behavioural arguments
Foreign plant location
Conclusions
Foreign plant location
1) Foreign firms favour established core regions
of host countries
2) Foreign firms are more likely to invest in
peripheral areas, especially when there are
some incentives offered
 Incentives: popular in the UK in the 1970s, not
popular in Germany, the Netherlands or
Denmark
Foreign plant location
3) National culture is important in understanding
the location preferences of foreign firms.
4) Foreign firms may excercise the equivalent of
personal preference in choosing locations
5) Foreign firms change locational preferences
following initial entry into a country
Industrial location policy in a
behavioural landscape
 Industrial location incentives can serve to
change locational preferences in 2 ways
1) They serve as signal to firms to take a given
region into consideration
2) It offers compensation for any costs
concerned with learning or uncertainty
Structure of the presentation
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Introduction: Behavioural Approach
Firms as informational processors
Decision-making process
Locational search processes
Locational evaluation
Methods of locational evaluation
Negation of behavioural arguments
Foreign plant location
Conclusions
Conclusions
 A weakness of the behavioural approach – it provides
no sense of conflict or the controversies that often
surround matters of location
 In behavioural location theory, imperfect information
and bounded rationality modify the decision-making
capabilities of Homo Economicus, while neoclassical
cost and revenue surfaces are similarly modified by
information surfaces or mental maps
THE END