Location Decisions-Business chapter 21

• Factors affecting the location of a manufacturing business:

  • If job production is used, the business is likely to be on a small scale and so the influence of the nearness of components, for example, will be of less importance to the business than if flow production is used.
  • If flow production is used on a large scale, the location of component suppliers might be of greater importance because a large number of components will need to be transported and the cost will be high. It also depends if JIT is used. (Must be near suppliers, if not whole production stops when no more parts.)
• If Job production is used, business doesn't need to be near suppliers, as they only produce when they receive an order (no need for so much supplies)

  If Just-In-Time is used, no need to be near component suppliers, as they only produce when they get an order
• Market:

  • If product is heavy and need transportation, it should be near market (retail shop where it is sold at), saves costs.
  • If the product perishes quickly and needs to be fresh when delivered to the market, such as milk, bread or cakes, the factory must be located close to its retail outlets.
• Raw materials/ components:

  • It is cheaper to locate the raw material factory to the factory, expensive to transport the raw materials over long distances.
  • If a particular process uses many different components, a business might look very carefully at its location. If many of these component suppliers are located near ot one another, it might be preferable to locate near ot these suppliers.
  • If the raw material needs to be processed quickly while still fresh, locating near to the raw material source is still important (like tinned fruits that need to be processed quickly)
• External economies of scale:

  • Firms which support the business in other ways might need to be located nearby. Support businesses which install and maintain equipment may be better if nearby so that they can respond quickly to breakdowns. (for if you have capital-intensive business)
• Availability of labour:

  • If a particular skillled labour is needed, it may be easier and cheaper to recruit these employees if the business sets up in an area where people with the relevant skills live.
  • If the manufacturing process requires a large number of unskilled workers, an area where there is high unemployment may be more suitable.
• Government influence:

  • If an area has high unemployment, the government may give money to businesses which locate in that area
  • Government influence may also be negative, there may be regulations or restrictions on what businesses can do.
  • A government can refuse to allow a business to set up altogether. An example is where the business produces a harmful waste product during the manufacturing process and the government doesn't want the waste product to poison the surrounding area. (gov's job is to ensure welfare of their citizens)
• Transport and communications:

  • Businesses usually need to be near to a transport system, be it road, rail, inland, waterway, port or airport.
  • Where the product is for export, the ability to easily get to a port will be important. A nearby motorway can reduce costs by speeding up the time spent delivering the products to market even when the market is quite a distance away.
• Power and water supply"

  • If large supplies of water are needed as part of the manufacturing process like for cooling purposes in a power station, then being near to a water supply, such as the sea or river, will be important.
  • To some industries, having a reliable source of power and no regular power cuts may be essential
• Climate:

  • This will not influence most manufacturing businesses but occasionally climate might be important.
  • For instance, Silicon Valley in the USA has a very dry climate which aids the production of silicon chips.
• Factors affecting the location of a service sector business:

  Customers:

  • Locating a service sector business near its customers will be very important for certain types of services (when direct contact between business and customer is required, like if it provides a personal service).
  • If a quick response time is needed to serve the customers then the business needs to be located nearby (like plumbers and electricians who serve the local area they live in, need to arrive fast to customers place to fix the things)
• Factors affecting the location of a service sector business:

  Personal preference of the owners:

  • Busines owners can influence where to locate the service centre. They often locate their business near to where they live
• Factors affecting the location of a service sector business:

  Technology:

  • Technology has allowed some services to locate away from their customers. Some services are now conducted by telephone or via the internet and therefore the business itself doesn't need to be near the customers (eg: website designers)
  • These service businesses can locate anywhere and can therefore choose to locate on the outskirts of cities or even in remote areas, so that they can take advantage of cheaper rent.
• Factors affecting location of a service sector business:

  Availability of labour:

  • If a service business requires a large number of employees, then it cannot locate in remote areas. It will need to locate near to a large town or city.
  • If a particular type of skilled labour is required, then it may also have to locate near to where this labour is found. (but its more likely that the labour will move near to the business, not the other way around)
• Factors affecting location of a service sector business:

  Climate:

  • Climate will affect some businesses, particularly if they are linked to tourism.
  • Hotels often need to locate themselves where the climate is good and near to a beach
• Factors affecting the location of a service sector business:

  Near to other businesses:

  • Some services serve the needs of large businesses, like firms that service equipment found in large companies. They will need to be nearby to respond quickly to a call to repair equipment. (machine fixing businesses must be near factories, so that they can respond quickly to machine breakdowns)
  • Services such as banks need to be near busy areas for the convenience of customers
• Factors affecting the location of a service sector business:

  Rent/taxes:

  • If the service doesn't need to be on the main streets in a town or city centre, then the business will locate on the outskirts of town to benefit from lower rents and taxes.
  • (Like law firms don't usually locate on ground floors, their usually on 1st or 2nd floors, because they don't need to be on the ground floor to attract people as they pass by, and also rent is less expensive for them if they don't locate on ground floor)
• Factors affecting the location of a retailing business:

  Shoppers:

  • Most retailers want an area which is popular, like a mall.
  • The type of shopper and area attracts will also influence the attractiveness of the area to particular types of retailers. If a retailer sells expensive goods, it need to be in an area where people on high incomes might visit; if the goods are small gift type products, the retailer might want to be in an area visited by tourists.
• Factors affecting the location of a retailing business:

  Nearby shops:

  • Being located next to shops that people visit frequently may help attract customers to your shop, when people go into those shops, they will pass by your shop and maybe go in to your shop to make a purchase
  • If there are many competitors nearby, businesses won't go there or else have to fight for customers.
  • But competition can also be good. If the business sells clothes, then being located near to many other clothes shops encourages people to visit the area as there is a lot of choice, therefore increasing business.
• Factors affecting the location of a retailing business:

  Customer parking:

  • Where parking is convenient and near to the shops, it will encourage shoppers to visit that area and therefore possibly increase sales.
  • A lack of parking may put people off visiting the area and sales will be lower
• Factors affecting the location of a retailing business:

  Availability of suitable vacant premises:

  • If a suitable vacant shop or premise is not available for purchase or rent, the business may not be able to locate in the area it wishes.
• Factors affecting the location of a retailing business:

  Rent/ taxes:

  • The more central the site of the premises, the higher the rent and taxes will usually be.
  • If a retail area is popular, there will be a high demand for sites in this area and therefore the cost of renting these sites will be higher. If the area is less popular, like on outskirts of town, the demand and therefore the rents will be lower.
  • In highly populated areas, rental is high but demand for your businesses is more, so more customers too
• Factors affecting the location of a retailing business:

  Access for delivery vehicles:

  • Might be a consideration if it is very difficult for them to gain access to the premises
• Factors affecting the location of a retailing business:

  Security:

  • High rates of crimes like theft and vandalism may deter a business from locating in a particular area. Insurance companies may not want to insure the business if it is in an area of high crime.
  • A shopping area which is patrolled by guards, even though it will be more expensive to rent the premises, might prove preferable
• Factors affecting the location of a retailing business:

  Legislation:

  • In some countries, there may be laws restricting the trading or marketing of goods in particular areas
• Factors that a business could consider when deciding in which country to locate operations:

  New markets overseas:

  • When a business sees a steady increase in its sales overseas it may decide to relocate nearer to these markets rather than transport its products from the existing manufacturing base, as it may be more cost effective.
  • If the business is in the service sector, then locating near to its customers may be essential. The better the forecasts for growth in these markets, the more attractive the location for business
• Factors that a business could consider when deciding in which country to locate operations:

  Cheaper or new sources of materials:

  • If the raw material source runs out, a business must either bring in alternative supplies from elsewhere or move to a new site in a country where it can more easily obtain these supplies. This is particularly true of mineral sources such as oil wells- these need to be in a country where the oil is found
  • It might be cheaper to use the raw materials at their source rather than transport them to another country to process
• Factors that a business could consider when deciding in which country to locate operations:

  Difficulties with the labour force and wage costs:

  • If the business is located in a country where wage costs keep on rising, they may decide that its more profitable to relocate overseas to reduce wage costs (especially for labour intensive businesses)
  • (In countries with full employment, you have no one to work for you, cuz everyone has a job alr. So you need to offer them a very high wage to entice them to join you, will increase costs)
• Factors that a business could consider when deciding in which country to locate operations:

  Rent/taxes considerations:

  • If rent or taxes keep increasing this might cause the business to relocate to countries where these rents or taxes are lower.
  • But areas with low rent have low populations, not many customers (No sales)
• Factors that a business could consider when deciding in which country to locate operations:

  Availability of government grants and other incentives:

  • Governments may want to encourage foreign businesses to locate in their country to bring in investment and job opportunities. They may give grants, lower taxes or other incentives to businesses to induce them to come to their country rather than go elsewhere.
  • Governments do this because the businesses will provide jobs and possibly teach new skills and import their technology into the economy
• Factors that a business could consider when deciding in which country to locate operations:

  Trades and tariff barriers:

  • Businesses will relocate to another country to avoid tariffs.
• The role of legal controls on location decisions:

  Governments try to influence location decisions because:

  • To encourage businesses to set up and expand in areas of high unemployment- in some countries these are called development areas.
  • To discourage firms from location in overcrowded areas or on sites which area noted for their natural beauty
• Two types of measures are often used by government to influence where firms locate:

  • Planning regulations: Legally restrict the business activities that can be undertaken in certain areas. In certain parts of many countries, especially in particularly beautiful areas, it is not possible to establish any kind of business other than farming
  • Government grants or subsidies to businesses to encourage them to lcoate in undeveloped parts of the country. This assistance could be in the form of financial grants. These areas often have high unemployment and there is a great need for new jobs.