1.8 Flashcards
Decisions on Location
Getting started
Getting started
Businesses have to decide from where to operate. Should they choose a
site in the town centre, on an industrial or business estate, close to a
motorway, by a port or in the countryside?
● Businesses may be located in a wide range of different places and the
changing business environment will influence the choice of location.
Factors influencing the location and relocation of businesses
● Proximity to market, labour, materials and competitors*
● The nature of business activity
● The impact of the internet on location decisiones
● Influence of legal controls and trade blocs on location
Proximity to market labour, materials and competitors
● Businesses that make large or heavy products may be located close to
their customers to keep transport costs down.
● Restaurants, coffee shops, hair salons, taxis and dry cleaners have to be
located in towns and cities because this is where the majority of their
customers live, work and shop.
Proximity to labour
● Businesses needing a large number of workers have to consider wage
costs and labour skills.
● Wage rates may vary in different regions and large companies may also
consider locating in countries where labour is very cheap.
● Certain locations may be more suitable than others in terms of particular
types of skilled labour.
● A number of manufacturers in USA and Europe have relocated (moved to
another place) production operations to countries like Mexico and the far
east because labour is relatively cheap.
Proximity to materials
Businesses that use large amounts of raw materials that are difficult to
transport may choose to locate their premises very close to their sources.
● Some type of businesses that actively use large amounts of water might
choose to locate close to rivers.
● Some manufacturers still use large amounts of energy, so they may look
for locations where cheap energy sources are available.
Proximity to materials
● Some businesses (like supermarkets) require large areas of land to locate
buildings and parkings. They look to minimize land and property costs.
They may set up in areas where premises are cheap, taxes paid to the
local authorities are low, or land has been allocated for business
development such as brownfield sites or greenfield sites.
○ Brownfield sites are areas of land that were once used for urban development.
○ Greenfield sites are previously undeveloped areas of land, usually on the outskirts of
towns and cities.
Proximity to competitors
● Most service providers will prefer to locate where competition is
minimised. For example, a beauty salon may avoid locations where such
businesses already exist.
● However, some companies deliberately choose locations where
competitors are closely concentrated. This might be important in
industries where comparison shopping is popular. It might be possible to
catch the excess demand from existing businesses, particularly in the
restaurant and entertainment area.
Services
● When choosing a suitable location, businesses have to take into account
the ease of access and parking facilities.
● Traffic congestion is a growing problem in many parts of the world and
businesses need to choose locations where there is less chance of delays.
It is particularly important for customers since they will try to find
alternatives if they cannot park conveniently.
● Some service providers locate in specialist shopping areas such as malls
which are usually designed for easy access.
Office-based businesses
● In some fields of businesses, such as consultancy, financial services and
customer service provision, business activity is normally office based.
● Many businesses locate their head offices in large and popular cities. This
gives employees, customers and visitors access to a wide range of
facilities, such as theatres, cinemas, museums, bars and sports stadiums.
● Locating in a high profile city such as London, Paris, Dubai or New York
can also improve the image of a business, although some office based
businesses still prefer to locate where costs are lower.
Manufacturing and processing
● Different types of manufacturing have different needs:
○ Manufacturing that is labour intensive will need to locate where there is a good supply of
skilled and relatively cheap labour
○ Manufacturers that need very large areas of land may choose locations where land is
relatively cheap and there is lots of space on the edge of towns and cities, for example
Agriculture
● Most farmers require large areas of land for their businesses.
● Not all land is the same and some farming activity needs a particular type
of land.
The impact of the Internet on location decisions
The Internet
● Many people are switching to the Internet when shopping rather than
going to stores. The huge growth in e-commerce has had a massive
impact on business locations.
● The development of online businesses means that many entrepreneurs
have a lot more flexibility when choosing a location.
● Many retailers, for example, can serve national markets and operate in
premises far away from the actual customers.
● Businesses do not need to have fixed premises.
Influence of legal controls and trade blocs on location
Legal controls
● Governments may try to influence location decisions for several reasons:
○ Avoid congestion to reduce strain on infrastructure
○ Minimse the impact businesses have on local communities
○ Encourage manufacturers to locate where unemployment is high
○ Financial incentives may be used for businesses to locate in assisted areas, or areas that
have economic problems and are targeted to receive support
○ Attract foreign manufacturers to help create employment and have inward investment
● Businesses need official permission from authorities before settling in a
particular location. Viability studies must be completed before planning
permissions are given.
