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Part Two
Design
Controversially, the state government had
expropriated land for the factory using an old law dating
from 1894, which requires private owners to sell land
for a ‘public purpose’. The government justified this
action by pointing out that over 13,000 people had
some kind of claim to parts of the land required for the
new plant. Tata could not be expected to negotiate, one
by one, with all of them. Also financial compensation was
offered at significantly above market rates. Unfortunately
about 2,250 people refused to accept the offered
compensation. The political opposition organized mass
protests in support of the farmers who did not want to
move. They blocked roads, threatened staff and even
assaulted an employee of a Tata supplier. In response,
Ratan Tata, chairman of the Tata group, threatened to
move the Nano plant from the state if the company
really was not wanted, even though the company
had already invested 15 billion rupees in the project.
Eventually, exasperated with being caught in the
‘political crossfire’, Tata said it would abandon its
factory in the state. Instead, the company selected a
location in Gujarat, one of India’s most industrialized
states, which quickly approved even more land than
the West Bengal site.
Spatially variable costs
The objectives of the location decision
The aim of the location decision is to achieve an appropriate balance between three related
objectives:
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the spatially variable costs of the operation (spatially variable means that something
changes with geographical location);
the service the operation is able to provide to its customers;
the revenue potential of the operation.
In for-profit organizations the last two objectives are related. The assumption is that the
better the service the operation can provide to its customers, the better will be its potential
to attract custom and therefore generate revenue. In not-for-profit organizations, revenue
potential might not be a relevant objective and so cost and customer service are often taken
as the twin objectives of location. In making decisions about where to locate an operation,
operations managers are concerned with minimizing spatially variable costs and maximizing
revenue and customer service. Location affects both of these but not equally for all types of
operation. For example, with most products, customers may not care very much where they
were made. Location is unlikely to affect the operation’s revenues significantly. However,
the costs of the operation will probably be very greatly affected by location. Services, on the
other hand, often have both costs and revenues affected by location. The location decision for
any operation is determined by the relative strength of supply-side and demand-side factors
(see Fig. 6.5).
Figure 6.5 Supply-side and demand-side factors in location decisions