IB Business Management SL 5.4 Location Question Bank

FrioAire Appliances (FA)


FrioAire Appliances (FA) manufactures medium-priced and medium-quality refrigerators. It is a multinational public limited company. Its factory is located in a less economically developed country that has high unemployment, a tradition of autocratic leadership and labour costs lower than FA's home country. The factory is profitable, and FA pays consistently good dividends. Market growth for medium-priced and medium-quality refrigerators is limited.
As part of a strategic objective to increase productivity and to enter a fast-growing market for high-priced and high-quality refrigerators, F A is considering building a new factory in and relocating production to Germany. This would require closing the factory in the less economically developed country. The new factory will:
- use innovative technologies, including advanced robotics and 3D processes
- require fewer employees, but those it does require will need to have better skills and qualifications.
Germany has a highly skilled, qualified and productive workforce. The new factory would allow FA to reposition its products. However, FA would need to raise significant finance to build and equip the new factory.
FA's leadership style at the factory in the less economically developed country is autocratic. Members of FA's board wonder whether this style would be suitable for the new factory in Germany, where workers have more bargaining power because of their high skill level and the labour-friendly cultural traditions. In Germany, FA would have to follow more regulations regarding the environment, health and safety, and employee rights.
FA workers in the less economically developed country are very loyal to F A, which has continued operation through a civil war at significant cost to itself (for security). If FA were to close in the less economically developed country, the workers would not find such good jobs.

Evaluate the option of building a factory in, and relocating, to Germany.

Alexa's Apparel Ltd. (AA)

Alexa and Antonio Pérez founded Alexa's Apparel Ltd. (AA) in 2020. AA is located in Arizona, United States (USA). Alexa designs traditional Mexican dresses and offshores the manufacturing to women in indigenous communities in Mexico. The dresses are individually handmade by artisans working at home, who hand-cut, hand-sew, and hand-embroider (decoratively sew) the dresses. Customers order these custom-made dresses at designer markets throughout Arizona. On average, a dress takes 10 days to complete, and artisans typically make two dresses per month.

State two features of offshoring.