QUESTION 6: How should a firm with self-sufficient production facilities in several ASEAN countries respond to the creation of a single market?
What are the constraints on its ability to respond in a manner that minimizes production costs?
ANSWER 6: The creation of the single market means that it may no longer be efficient to operate separate duplicative production facilities in each country. Instead, the facilities could either be linked so that each specializes in the production of only certain items or several sites should be closed down and production consolidated at the most efficient locations. Existing differences between countries as well as the need to be located near important customers may limit a firm’s ability to fully consolidate or relocate production facilities for production cost reasons. Minimizing production costs is only one of many objectives. For example, location of production near R&D facilities can be critical for new product development. The location decision needs to examine long run economic success, not just cost minimization.