U18

FACTORS INFLUENCING LOCATION AND RELOCATION DECISIONS

Location decisions of manufacturing and service businesses

The role of legal controls + choosing a location

Why businesses locate their operations to another country

Quantitative factors

Qualitative factors

They can be measured in financial terms and will directly affect the costs, revenues and profitability of a site.

They outlined above, businesses need to also consider qualitative factors in their decision-making process.

Labour costs

Transport costs

Market potential

Cost of site

Government potential

The size of the available site

Legal restrictions

Ethical issues and concerns

Quality of local infrastructure

To locate production closer to the market: this reduces delivery time to customers and reduces transport costs.

To achieve growth: location overseas might be the best way of achieving growth for companies whose sales have reached the top.

To reduce production costs: labour costs in Eastern Europe much lower than in the Western.

Access to global markets

the development of economies has opened up markets to businesses whose sales in their home market.

Avoidance of legal barriers and import tariffs

although many countries have removed their barriers to free trade, they stilll exist.

Cultural differences

these may affect the workplace and/or the marketplace.

Government incentives

governments around the world can see the benefits of attracting overseas businesses to locate in their country.

Lower labour costs

businesses may decide to relocate from a high-labour-cost country to one where labour costs are much lower.

Communication problems

language differences may be a barrier to communication between employees...

Ethical concerns

a decision to relocate to another country may affect the workforce in the home country.

Quality issues

it is more difficult to control the quality in international markets.

Benefits

Limitations

When considering a location, a business may also need to think about possible legal controls.

The task of owners or managers is to select the best location. This is never easy because every location will have factors which are a benefit and others which are a limitation.