business location Flashcards
what is business location and what is it determined by
location for new and existing businesses is still largely determined by:
access to customers
access to factors of production
minimization of costs
what are the factors that need to be considered when locating a new business
Labour
Infrastructure
The market and
competition
Costs
Increased choice in international location
Government influence
Social reasons
how does cost effect business location
most important location is likely to be the cost. the setting up of a new business will incur a number of location costs including:
planning permission
purchasing or rental/leasing
refurbishment
business rates
labor costs
transport costs
New businesses, especially sole traders, have limited capital to start off with therefore they may not be able to afford the ideal of their choice. New businesses need to consider the
importance of location on its success.
how does social reasons effect business location
Managers want to live in an environment that suits them and their families. Managers can often retain a commitment to their existing workforce, even when it makes economic and business sense to relocate a business.
how does the market and competition effect business location
The market is the place where buyers and sellers meet. Most commercial B2C exchanges (buying and selling in consumer markets) still take place face-to-face, so a physical location is required.
Retail location should be driven by access to customers but there will be a balance between customer footfall and rental/lease costs.
Costs of location will vary according to likely sales and customer potential, but within each price band there will be both good and bad locations.
An anchor tenant is usually the first and the leading tenant in a shopping center whose prestige and name recognition attracts other tenants.
Being in close proximity to competitors, a business can benefit from their marketing efforts.
Manufacturers of components in many industries need to be located close to the users of their products.
how does labour effect business location
It can be a deciding factor in determining location. By labour, its meant cost of labour, availability of labour, and the skills of labour.
Businesses can be attracted to certain areas by the skilled labour that may be available. Cardiff is rapidly developing a booming media industry, which is attracting new international investors looking to recruit talented employees.
The cost of labour is also a determining factor. International location has a habit of following low-cost labour to wherever it is available. Many UK manufacturing businesses have relocated to the far East and China, where labour costs are
very low
how does government influence effect business location
Cost of labour can be affected by the availability of government grants and government taxation policies.
The availability of low cost and suitable land resources can also be an important factor when determining location. National governments often ensure that planning permission is available to allow large developments to proceed. They also offer incentives like tax breaks and help with recruitment and training of employees
how does infrastructure effect business location
The type and quality of infrastructure also affects access to markets. Infrastructure used to mean roads, rail and shipping. However, a more modern definition includes electronic communication systems, training agencies and financial services.
For many modern businesses, such as
those that are e-commerce based or the rapidly growing call center industry, quality infrastructure has a very different meaning from that understood by road haulers and heavy goods manufacturers.
Economies of concentration or
agglomeration occur when a number of businesses in the same or related industries locate close together. They are able to gain mutual advantages. New businesses are attracted by existing infrastructure clusters and in high-tech industries.
how does increased choice in international location effect business location
Footloose businesses are those that move from location to location, basing themselves wherever best suits their needs at a particular point in time:
changing patterns of trade
improved communications
freer flows of capital.
All of the above mean that the largest businesses have the alternative of locating their production facilities virtually anywhere in the world. As long as there is a stable political background and an available workforce, most countries will offer the possibility of hosting a production (or even a remote service) base. The main influences on international location beyond politics and labour force factors are likely to be:
Maximizing economies of scale. If businesses are able to have a single plant supplying all their
requirements for a type of product or range of components, then the business’s average costs of production can fall. Therefore, there are huge factories providing cakes to sell throughout Europe
or producing injection-molded plastics for distribution throughout the world. The falling costs of international transport have allowed this to occur.
Political factors can also have an influence on location. Tariff and quota-free access to trading blocs such as the EU or NAFTA (North American Free Trade Association) may depend on setting up a production facility within that trading bloc. Far Eastern companies such as Toyota and Honda, wanting free access to European markets, have large production units in the UK today.
Companies sometimes establish head office operations where taxation levels are lower than their home base. This can allow transfer costing to take place. Transfer costing is a process by which businesses are able to inflate their profits in countries where taxation levels are relatively low and decrease their profits where taxation levels are relatively high.
Comparative international wage levels also need to be considered when deciding on worldwide location. High-tech industries can often choose from willing and skilled workforces from many different global locations.
Freedom from restrictions, which would otherwise increase costs or constrain production methods, can be a driver of location. Businesses can reduce their costs if they locate operations in countries where red tape is less present or employment law is less strict.
