Local factor prices and cultural considerations generally play only a secondary role in the manufacture of these products. Retail profit formulae however can easily be distorted in foreign markets. Local factor prices for labor, and cultural considerations such as the availability of prime real estate in city centers, play determinant roles in the value chain for most retailers. For example one retailer enjoyed superior margins in its European operations. It nevertheless had weaker returns in Europe due to higher labor and operating costs.
Labor is typically a significant share of costs for retailers.
This can distort an otherwise profitable formula. For many manufactured goods for whom labor is a small share of the total cost structure the relative handicap of Europe s high cost unskilled labor environment is less. The availability of prime retail space cannot be taken for granted in many jurisdictions. One retailer had an efficient money-making formula based upon a 150 square meter formula. When this retailer moved into France it discovered that old French cities offered few prime locations of this size.