Choosing the United States (Porter & Rivkin, 2012) Location decisions reflect a nations competitiveness; as firms will

bring jobs, investments, tax revenues and development to their chosen location. Thus, governments will compete for these location decisions. In the US however, poor policies (regulation, barriers) deter countries from staying/coming to the US with their operations. Nevertheless, a nation will aim to attract high-end, innovation-driven activities such as R&D. Low-end activities (e.g. simple manufacturing/production) will be off-shored. What is the US competing for? - Before, companies based their location choice on the question Which countries do we want to serve?. Nowadays, companies need to both serve markets from a distance, and to spread and coordinate activities throughout the value chain. - The location choice also depends on the type of business activity and characteristics. - Activities that require scarce natural resources will be located near those resources. - Activities that are tied to customers/markets will also be located near those customers/markets. Companies thereby aim to tap foreign demand, gain insights into local customers, and to adapt products to the local market. All of these factors boost revenue and increase demand for supporting activities at home. Customer -tied activities gravitate to large, growing, profitable markets (i.e. before US, now China). - Mobile activities can be placed anywhere and can be moved as circumstances change. They gravitate towards where they can be performed most efficiently and at the lowest cost. Due to technological advances many activities have become mobile. There are more and more countries that meet off-shoring requirements: many countries now have open markets, stable macroeconomic policies, improved infrastructure, strong economic institutions and a skilled workforce. One off-shored mobile activity in the value chain often pulls others to its location. Sophisticated, skill-intensive mobile activities (e.g. R&D) are the key battleground for advanced economies. How often is the US chosen and why? - US companies are more likely to consider offshoring than staying in the US - Most common alternatives: China, India, Brazil, Mexico, Singapore Reasons for moving out of the US Reasons for not leaving the US - Lower wage rates in destination - Proximity to US customers country - Less corruptions - Proximity to customers - Better access to skilled labour - Better access to skilled labour - Greater safety for people and - Higher productivity of labour property - Faster-growing market - Stronger intellectual property - Lower tax rates protection - More generous incentives from local - Proximity to home market authorities - Similar language and/or culture - Fewer or less expensive regulations - Better transportation infrastructure - Proximity to suppliers - Proximity to other company - Proximity to other company operations operations

- US business environment compared to other advanced economies Better than other & improving Better than other but deteriorating - Higher education - Capital markets - Entrepreneurship - Flexibility in hiring & firing - Innovation infrastructure - Communications infrastructure - IP rights - Availability of skilled labour - Business sophistication - Logistics infrastructure - Clusters Worse than other but improving Worse than other & deteriorating N/A - Efficiency of legal framework - Regulation - Macroeconomic policy - Complexity of tax code - Public education system - Effectiveness of political system - Greatest impediments to locating & creating jobs in the US (in order): current&future uncertainties about: Regulations, talent, taxes, macroeconomic conditions, politics. How managers choose locations - Location-decision processes are complex and dynamic, but are often made on rules of thumb, rough estimates, or history. - Companies dont often assess the outcome of arelocation. But they should do this, as these decisions can cascade over time, since location choices build on one another. - Obvious benefits of off-shoring include lower wages, energy costs and taxes. - But there are hidden costs of off-shoring: Short-term direct costs - Hiring of more workers - Less efficient use of raw materials - Lower first pass quality levels - Higher scrap rates Short-term indirect costs - Additional supervision and training costs - More inspections and security - Higher freight costs - Greater inventory costs - More packaging - Higher travel and telecom expenses Long-term indirect costs - Lessened ability to respond to shifts in demand - Loss of intellectual property - Coordination costs - Partner negotiations

Long-term direct costs - Wage inflation - Costs of higher personnel turnover - Currency appreciation

Improve, not move Instead of seeking the best short-term benefit (e.g. the lowest wages today), companies should stay put and seek to upgrade the local business environment and build local clusters.