5.4 FACTORS IN LOCATING A BUSINESS

Question 1

Locating a Business

Answer 1

One of the most important decisions. The objectives of the company and the particular time will affect where the business is set up or realocated.

Question 2

Factors affecting the location of a business

Answer 2

1. Costs
2. Competition
3. Type of Land
4. Markets
5. Familiarity with the area
6. Labor pool
7. Infrastructure
8. Suppliers
9. Government
10. National, International or Regional ambition

Question 3

Costs

Answer 3

• Land: If business is a large manufacturer will need a large, flat surface area. Whereas a small home-based business will need a small spare room.
• Labour: If business is technical it will required skilled labor, the biggest cost will be labor.
• Transport: If producing in large quantities

Question 4

Competition

Answer 4

A balance needs to be made between finding a gap in the market and setting up not far from the direct competitors. It helps ensure that the business can both capitalize on untapped demand and benefit from existing customer traffic that competitors have already established.

An example can alos be cannibalist marketing.

Question 5

Type of Land

Answer 5

Different types of land will incur different cists, and their suitability for a given business will vary.

Question 6

Markets

Answer 6

The presence and size of potential customer bases in an area are crucial. A business should ideally be located near its target demographic to maximize accessibility and sales, and to tailor its offerings to local preferences and demands.

Question 7

Familiarity with the area

Answer 7

amiliarity with local customs, culture, and the business environment can greatly reduce the risks associated with starting a new business. Understanding the local market dynamics, consumer behavior, and economic conditions can lead to more informed decision-making and strategic planning.

Question 8

Labour pool

Answer 8

Accessibility to a skilled and capable workforce is essential for the operation of any business. The availability of potential employees with the necessary skills and qualifications affects productivity, efficiency, and the capacity to grow.

Question 9

Infrastructure

Answer 9

Quality infrastructure including transportation systems, telecommunications, and utilities supports business operations efficiently. Good infrastructure facilitates smooth supply chain management, ease of distribution, and cost-effective logistics.

Question 10

Suppliers

Answer 10

Proximity to reliable and cost-effective suppliers can reduce costs associated with shipping and receiving goods, ensure faster delivery times, and allow more agile responses to market demands or changes in production.

Question 11

Government

Answer 11

The local government’s regulatory environment can significantly impact business operations through taxes, zoning laws, employment regulations, and environmental controls. Favorable government policies, including incentives for business development and economic support, can enhance business prospects.

Question 12

National, Regional or International Ambition

Answer 12

The business location should align with the company’s growth strategies, whether they aim to dominate local, national, or international markets. This involves considering market access, legal and logistical aspects of operating in different regions, and potential barriers to expansion.

Question 13

Pull Factors (External) of the Impact of globalization on location

Answer 13

• Improved Communications
• Dismantling Trade Barriers
• Deregulation of the world’s financial markets
• Increasing size of multinational companies

Question 14

Improved Communications

Answer 14

Easier to transport products around the world and to communicate with suppliers, customers and co-workers, no matter their location or time zone.

Question 15

Dismantling Trade Barriers

Answer 15

More than 3/4 of the world’s countries are part of the World Trade Organization which has the commitment to reduce trade barriers. Countries can invest in other countries such as China acquiring foreign banks or sponsoring football teams.

Question 16

Deregulation of the world’s financial markers

Answer 16

Thanks to it the transfer of vast sums of money is easy, which has facilitated quicker start-ups. Also internet banking has made it easier to track a company’s finances, and has made international investemnt a possibility. Helps build collaboration, such as joint ventures and strategic alliances or working with venture capitalists.

Question 17

Increasing size of multinational companies

Answer 17

Multinational companies (MNCs) act as pull factors for businesses by boosting local economies through infrastructure improvements and increased investment. Their presence enhances workforce skills and introduces advanced technologies, creating a favorable environment for local business growth and attracting further investments.

Question 18

Push Factors (Internal) of the Impact of globalization on location

Answer 18

• Reduce costs
• Increase Market Share
• Use extension startegies
• Use defensive strategies

Question 19

Reduce Costs

Answer 19

Setting up facilities abroad businesses can be closer to raw materials and have access to cheaper Labor. Also more favorable tax regimes and acheieve finanical economies of scale.

Question 20

Increase Market Share

Answer 20

New Branch in a New Country = New Market = Increase Market Share.

However, Risks:
- Language barriers
- Different cultural practices
- Historical tensions between countries
- Lack of knowledge of local or regional networks
- Local law and politics, especially labor law
- Challenges in finding reliable, trustworthy partners

Question 21

Use Extension Strategies

Answer 21

They help sustain product life cycles and explore new markets. By adapting products or marketing approaches to suit different cultural preferences or legal requirements, companies can maintain relevance and competitive edge. This not only mitigates market saturation in the home country but also capitalizes on untapped potential abroad, driving global expansion and diversification of revenue sources.

Question 22

Use Defensive Strategies

Answer 22

Some bsuiensses might go overseas because they don’t want their competitors to do it first, they use it as a defensive strategy. Use it to secure supply aswell.

Question 23

Ways of reorganizing production, both nationally and internationally.

Answer 23

• Outsourcing
• Offshoring
• Insourcing
• Reshoring

Question 24

Outsourcing

Answer 24

The practice of using another business to complete a part of the work. That work is ‘contracted out’. Helps the organization focus on its core activities. It can also help a business cut costs and earn competitive advantage. Also can achieve economies of scale because these subcontractors are specialists.

Question 25

Outsourcing Advantages + Disadvantages

Answer 25

+ It can reduce costs
+ It can allow the business to focus on its core activities, ensuring improvements in quality
+ Can lead to improved capacity utilization
+ Delivery time can be reduced
+ Can lead to transfer of expertise
- Business can become dependent on the supplier
- Business may have less control of the final product.
- Dillution of the brand. Could affect what customers think of the product, affecting the business’ image.

Question 26

Offshoring

Answer 26

Outsourcing but overseas. Same advanatges and disadvantages as outsouring but:
- There may be cultural differences between the companies, both in terms of national and coorporate culture
- Communication could sometimes be difficult, different laguages and time zones
- Issues with quality and ethics

Question 27

Insourcing + A/D

Answer 27

Insourcing refers to the practice of transferring a business operation that was previously contracted out to a third-party firm back to the control of the original company.

+ Control Over Operations: Allows a company to have full control over its business processes and decision-making, which can lead to improved integration and coordination across various departments.

+ Quality Assurance: By managing processes internally, companies can ensure higher quality standards are met according to their own criteria and adjustments can be made swiftly and effectively without external dependencies.

• Higher Costs: Insourcing can be expensive as it involves potentially higher labor and operational costs than outsourcing, where tasks can be performed at a lower cost in other regions.
• Resource Allocation: It requires a significant allocation of resources, including staff, technology, and facilities, which might strain a company’s capacity to focus on its core competencies.

Question 28

Reshoring + A/D

Answer 28

Reshoring is the process of bringing manufacturing and services back to the company’s home country from overseas. This decision is often influenced by the desire to reduce transportation and production costs, improve product quality, and have greater control over manufacturing processes.

+ Enhanced Quality Control: Bringing operations back to the home country allows companies to better oversee the production process and maintain high-quality standards consistent with local expectations.

+ Market Appeal: Reshoring can appeal to patriotic sentiments of local consumers who prefer products made at home, potentially boosting sales and brand loyalty.

• Increased Production Costs: Operating in the home country, especially in developed economies, often means higher labor and production costs compared to countries typically chosen for outsourcing.
• Operational Disruption: Reshoring can lead to significant operational disruptions as supply chains and manufacturing processes are relocated and reestablished, potentially leading to temporary decreases in productivity and increased costs.