Making location decisions

Question 1

What are the 3 investment appraisal methods that can be used to make a location decision?

Answer 1

• payback
• average rate of return
• net present value

Question 2

An optimal location can reduce costs. State 3 ways optimal locations can lower business costs.

Answer 2

• Lower labour costs (important for labour intensive work where labour represents a high proportion of costs).
• Reduced administrative/legal costs (there may be fewer laws in some countries in which a business has to comply. This can streamline the production process & reduce costs).
• Avoiding tariffs (taxes on import). Many overseas firms locate within the EU to avoid paying import charges.

Question 3

Give 2 ways in which an optimal location may benefit firms non-financially.

Answer 3

Access to the latest research facilities (some high-tech firms locate on university research parks, giving the access to high quality research).

High-calibre staff (an optimal location can attract high quality staff).

Question 4

Define multinational.

Answer 4

Firms that operate (as opposed to just selling) in more than one country.

Question 5

State 4 advantages of multi-site locations.

Answer 5

• Allows firms to be closer to the market and to monitor market trends better.
• Multi site location encourages greater delegation and empowerment. This can enhance motivation and employee performance.
• Can allow the firm to operate on a large scale without potential problems of DEOS.

Question 6

Give 3 disadvantages of multi-site locations.

Answer 6

• Communication is problematic. Employees cannot meet face to face and barriers to communication arise.
• Greater operating costs can occur if materials need to be transported from site to site.
• The firm may not be able to take full advantage of economies of scale.

Question 7

What influences international location decisions?

Answer 7

• government incentives e.g. grants
• aim of location e.g. production
• costs
• ability to maximise profits

Question 8

What do multinationals look for when making location decisions?

Answer 8

• effective communication systems and transport networks
• trained and productive labour (available at relatively low rates of pay)
• low rates of corporation tax
• local and national government grants to support the industry

Question 9

State 2 quantitative techniques used to make location decisions.

Answer 9

• investment appraisal techniques

- break even analysis