Business 4.4 Location decisions

Business 4.4 Location decisions

1. Choice of location

   • Choosing the right location is  important for a firm.  Some main factors a firm should consider are outlined below.
   • Utilities
     • A business must consider five standard utilities: gas, electricity, water, disposal of waste and drainage. Industries such as food preparation and paper production use large quantities of water.  Food processing creates waste and the cost of waste disposal will affect location.
   • Distance to markets
     • Many businesses need to be located close to their market. (i.e. their customers).  Many manufacturing industries locate close to markets, particularly if they produce bulky or fragile items that are expensive to transport. Service industries such as hairdressing, restaurants and entertainment, need to be near to customers.
   • Cost and availibility of labour
     • The right sorts of labour and skills are easier to find in some areas than others. If businesses want a large pool of cheap labour, they might set up in centres of population where there are not many employers. IF they want skilled labour they will set up where they are most likely to find those skills. In recent years, many western companies have set up call centres in India, where there are large numbers of higly educated people with information technology skills, and where wage costs are relatively low.

2. Transport costs

   • Two major influences on transport costs are the raw materials and how near the market is.  These depend on whether the industry is 'bulk increasing' or 'bulk decreasing' (i.e. whether the goods become larger and heavier or smaller and lighter as they are assembled). Many businesses (e.g. hotels, factories) set up close to good transports links- for example near a major road junction, rail station or airport.

3. Safety

   • Some industries( e.g. nuclear power stations, munitions factories and some chemical companies) will be wise to locate their premises well away from heavily populated areas, to avoid danger to the public.

4. Reliable communications

   • Many businesses need a strong core of IT communications systems. It is therefore important to set up in areas where communications are clear and reliable. This might exclude some mountainous or highland areas, or countries where the links do not exist. Cities with excellent wireless and broadband facilities are a strong attraction for new businesses.

5. Government incentives and other legal factors

   • The government provides financial support to businesses to set up in some regions. These will usually be areas of higher unemployment. There are also legal factors such as not being able to locate industrial premises in residential areas.

6. Cost of land/ premises

   • Land costs are vary considerably. Firms such as large automobile production plants that need a wide area to make their goods, or giant supermarkets that need a large selling area, will choose sites that are out of town where costs are lower.

7. Overseas factors

   • Some firms may decide to set up operations overseas or it could be because the firm will have acces to a larger market. The same factors as above will apply in choosing the overseas location. However, there are also more specific factors that must be considered: * Language barriers * Political and Governmental stability * Exchange rates and stability of the currency * Trade barriers.