5.4

Question 1

Factors in Locating a Business

Answer 1

Costs Invved (land, labour, transport)
Competition
Type of land required
Markets
Familiarity with the area
Labour Pool
Infrastructure
Suppliers
The Government

Question 2

Factors in Loacting a Business - Costs Involved

Answer 2

• Land: if the business is a large manufacturer, then a large surface area may be required whereas a technology firm may only require a small office space initially
• Labour: if the business is technical in nature (a laboratory will need highly skilled workers)
• Transport: transportation costs vary depending on the amount of products transported. Bulk buying, Bulk decreasing

Question 3

Bulk Increasing

Answer 3

Buying in many components and building something bigger.
E.g. televisions or cars, you may locate close to the market as transporting the finished bigger items would be more expensive than bringing in lots of small components.

Question 4

Bulk Decreasing

Answer 4

Buying in large quantities of raw materials and turning them into smaller end products.
E.g. papermills, the business may be located close to the raw materials toreduce cost of transportation.

Question 5

Factors in Loacting a Business - Competition

Answer 5

A balance needs to be made between finding a gap in the market and setting up not far from direct competitors. Retail outlets, cinemas and restaurants often set-up close to their competitors to increase their chance of passing trade if the area is known for a particular product.

Question 6

Factors in Loacting a Business - Type of Land Required

Answer 6

Global warming may mean locations that were once appropriate are no longer appropriate.
Ski resorts may be located in the alpes while beach resorts on the coast.

Question 7

Factors in Loacting a Business - Markets

Answer 7

Businesses have always located close to their customers and target market, because of e-commerce a physical marketplace is not needed anymore. Rather than depending on a physical market, businesses may now only require an efficient distribution system (amazon).

Question 8

Factors in Loacting a Business - Familiarity with the area

Answer 8

Setting up as a sole trader in your home city means yo have knowledge of local networks such as suppliers and possible customers. However, other areas may be larger and research and understanding of the area is needed to reduce risks.

Question 9

Factors in Loacting a Business - Labour Pool

Answer 9

The business needs to consider the skill level and quantity of potential candidates available in a particular area. If unemployment is high in an area, this could indicate possible savings on salaries (supply and demand).

Question 10

Factors in Loacting a Business - Infrastructure

Answer 10

Includes transport networks such as roads and airports as well as electronic networks such as internet and other forms of digital communication. Improvements in infrastructure make it easier to do business.

Question 11

Factors in Loacting a Business - The Government

Answer 11

Governments may offer support if a business locates in a deprived area resulting in significant savings. This may include:
- Non-returnable one time only funds such as grants
- Subsidies to offset the cost of production
- Soft loans at preferential rates of interest
- Tax rebates

Question 12

The impact of Globalisation on Location

Answer 12

Pull Factors: External Factors make relocating abroad an attractive option
Push Factors: Internal Factors make relocating abroad an attractive option

Question 13

The impact of Globalisation on Location - External Factors

Answer 13

Improved Communication
Removal of Trade Barriers
Deregulation of Financial Markets
Increasing size of MNC’s

Question 14

External Factors - Removal of Trade Barriers

Answer 14

Trade across the world has been liberalised due to WTO regulations and also the development of trading blocs such as the EU and NAFTA.

Question 15

External Factors - Deregulation of Financial Markets

Answer 15

Capital transfers are a lot easier now facilitating FDI, joint ventures and strategic alliances. Internet banking has also made it easier to transfer money from one country to another.

Question 16

External Factors - Increasing size of MNC’s

Answer 16

The size and influence enables MNC’s to convince countries to allow them to set up operations and have access to government grants reducing their costs due to the number of jobs they bring to the area.

Question 17

Internal Factors - Reduced Costs

Answer 17

Cheaper labour, more lax legislation and economies of scale make operations abroad more lucrative.

Question 18

Internal Factors - Increased Market Share

Answer 18

Tap into new markets that are not saturated. Having first mover advantage can be very lucrative, hence why so many businesses are entering China and India.

Question 19

Internal Factors - Defensive Strategies

Answer 19

Moving overseas so your competitors don’t do it first. This enables the business to grow and increase market share.

Question 20

Outsourcing

Answer 20

Paying other companies to fulfill certain activities. Used when the business doesn’t have the specialist equipment or expertise for the task. The business focuses on their core activities rather than peripheral activities, enabling them to be more productive and efficient.
E.g a bank hosting a charity

Question 21

Outsourcing Advantages

Answer 21

• Higher quality work as outsourcing company are specialists
• Recruitment and training costs are reduced
• Less equipment and staff members needed
• Do not need to invest in expensive technology/equipment

Question 22

Outsourcing Disadvantages

Answer 22

• Less control over outsourced work
• Communication between the two businesses must be very clear
• May have to share sensitive information (accountancy and legal oursourcing)

Question 23

Offshoring

Answer 23

Involves the relocation of business activities from the home country to a different international location.
E.g. from the US to China or UK to Poland

Question 24

Offshoring Advantages

Answer 24

• Access lower manufacturing costs
• To access potentially better skilled and higher quality supply
• To make use of existing capacity overseas
• To take advantage of free trade areas and avoid protectionism
• To make it easier to supply target international markets

Question 25

Offshoring Disadvantages

Answer 25

• Risk of poorer quality
• Longer lead times for supply
• Additional management costs (time, travel)
• Impact of exchange rates
• Communication (language and time zones)

Question 26

Reshoring

Answer 26

The reverse of offshoring. It involves a business returning production or operations to the host country that had previously been moved to a different international location.