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The ability of consumers to affect the supply and demand processes of companies, especially those based abroad, is questionable, with the mechanism of local feedback not operating as efficiently as with regional businesses. Within the energy and utility sectors the ecology factor emerges additionally, as “in the household energy sector, utility providers are incentivised through subsidies to assist consumers in reducing their energy consumption” (Bocken, Short, Rana, & Evans, 2014, p. 52).
This abating of profit loss through subsidies aims to help consumers but does not deal with the issue of lack of customer influence, especially on an international level. Companies moving abroad may also incur the “negative risk of supply chain interruption associated with the movement of manufacturing to numerous regions” (Ellram, Tate, & Petersen, 2013, p. 20). Hence, the detachment between customers and companies leads to mutual disadvantages, needing rectification through other means, like adequate chain supply management.
With customers constituting the metaphorical invisible hand, that controls the demand and supply of the market, clear lines of communication between client and provider seem decisive in creating a beneficial business environment. With businesses opting to produce abroad, the components affecting decisions relating to production become essential to both, producer and consumer. However, the extent of the power of customers to defend their demands in the chain of supply remains questionable, with their disconnection from the original companies producing goods and services.
Factors Affecting Business Location and International Operations
The location decision of a company relies on different factors, which separate into supply and demand determinants, labor and energy costs being an example of the former, customer convenience, and site suitability of the latter. A study by Ellram et al. (2013) examining manufacturing businesses shows that “transaction cost economics suggests that individual firms will tend to move away from higher cost to lower cost regions, all else being equal” (p. 15). Hence, the decision of moving business away is influenced predominantly by the desire for higher revenue, creating a business network that becomes reliant on interregional or international operations.
Creating an extensive business network may mean more revenue, but it also creates a more complex system, with goods and services going through different pathways than before. Some arguments against international operations include the fact that a business with a location outside the country of destination of their goods and services does not have adequate contacts within it, thus neglecting local connections (Shenkar, Luo, & Chi, 2015). Therefore, revenue can be lost, when the initially posed goal was to increase profits, leaving firms and companies with the choice of a trade-off between lower costs of production and lesser market knowledge.
Specifics of Energy and Utility Firms
Consumers mostly do not have a choice in choosing their utility providers, leaving them at a disadvantage in influencing the supplying companies, especially considering the ecological concerns of providing energy and utilities. A study by Bocken et al. (2014) argues that “if value is perceived [by companies] in reducing…customers’ energy and water bills, this will positively influence the product offering decisions towards environmentally and socially better products” (p. 52). It seems implausible that companies would opt for newer, untested methods of production; however, breaching this influence gap between company and purchaser is possible through scrutiny and management of the supply chain.
The energy and utility businesses seem detached from their target consumers, considering the lack of choice within the client base. Keeping in mind the setbacks of international operations (such as the neglect of local contacts) it may seem that internationally operating businesses are at a disadvantage of being disconnected from their purchasers. This structure may be changed in favor of consumers through supply chain management, overcoming the gravitation towards profit within companies through the justification of revenue in other ways of production and their demand.
Bocken, N., Short, S., Rana, P., & Evans, S. (2014). A literature and practice review to develop sustainable business model archetypes. Journal of Cleaner Production, 65, 42-56. Web.
Ellram, L., Tate, W., & Petersen, K. (2013). Offshoring and reshoring: An update on the manufacturing location decision. Journal of Supply Chain Management, 49(2), 14-22. Web.
Shenkar, O., Luo, Y., & Chi, T. (2015). International business (3rd ed.). New York, NY: Routledge.