Production operations are the ‘processes that produce goods and services’ or the ‘processes that transform inputs into products and services’ (Krajewski and Ritzman, 2002, p. 1). As such, they play a crucial role in the value creation of a firm, and need to be managed carefully. Production operations management in an international setting differs from production operations management at home in many ways. In managing production operations in China, transnational corporations need to take into account the Chinese business environment and the challenges that that environment poses for them. In this chapter we discuss some key issues that TNCs need to address in managing production operations in China, including the siting of their manufacturing facilities, the choice of location, localization of sourcing and localization of research and development.

The siting of manufacturing facilities

In establishing manufacturing facilities in China, transnational corporations need to think about the way in which the manufacturing facilities are arranged – that is, the siting of the facilities. China is a huge country with a vast territory.