4.4 – Location Decisions

Question 1

When do you decide on Location?

Answer 1

At the time of setting up, when it needs to expand operations, and when the current location proves unsatisfactory for some reason

Question 2

Why is Location important?

Answer 2

It can affect the firm’s costs, profits, efficiency and the market base it reaches out to.

Question 3

What factors affect the location decisions of a manufacturing firm?

Answer 3

Production Method:For flow production, there will be a huge amount of components - so components need to be close by.
Market: if the product is a consumer good and perishable, the factories need to be close to the markets.
Raw Materials: If raw material needs to be fresh when processed, business should be located near the resource location.
External economies: the business may locate near other firms that support the business by provide services
Availability of labour: Businesses will need to locate near areas where they can get workers of the skills they need in the factory. Firms will want to set up in locations where wage rates are low.
Government Influence: the government sometimes gives incentives and grants to firms that set up in low-development, rural and high-unemployment areas. There may also be govt. rules and restrictions in setting up
Transport & Communication infrastructure: the factories need to be located near areas where there are good road/rail/port/air transport systems.
Power and water supply: Reliable and steady supply of both should be ensured by setting up in areas where they are available.
Climate: Eg: the dry climate in Silicon Valley aids the manufacturing of silicon chips.
Owner’s personal preferences