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Ch. 8: Decisions on location T-10

The location of a business can make an important difference to its success. Choosing the right
location means taking into account a number of factors.

The importance of location

Location is the place where a firm decides to site its operations. Location decisions can have
a big impact on costs and revenues.

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Factors influence the location and relocation of businesses

1) Proximity(closeness) to the market

 Businesses that make large or heavy products may be located close to their
customers to keep transport costs down.
 Service providers have to locate their premises close to their markets.(Customers)

2) Proximity to labour
 Wage cost
 Labour skills

3) Proximity to materials
 Businesses that use large amounts of raw materials that are difficult to transport
may choose to locate their premises very close to their sources.
 Some businesses such as large supermarkets and manufacturers, require large
areas of land to locate buildings, staff car parks and other facilities.

(1) Premises are cheap – Ina nosiness park or on an industrial estate(away from
residential area)
(2) Business rates(Tax)
(3) Development sites
Brownfield sites : areas of land that were once used for urban
development
Greenfield sites: Previously undeveloped areas of land, usually on the
outskirts of towns and cities.

4) Proximity to competitors
 Most service providers will prefer to locate where competition is minimized.

The nature of business activity and location decisions

a) Services: ease of access and parking facilities, traffic congestion.

b) Office-based businesses : sufficient facilities nearby, cost/rent

c) Manufacturing and processing: Good supply of skilled and cheap labour, access for
raw materials or imports.

d) Agriculture :need fertile area, Climate conditions

Internet (Connectivity)

 Connectivity: ability of computers and other electronic equipment to connect with

other computers or programs.
 Growth of e- commerce
 Business do not need to have fixed premises.
 Required greater network speed and capacity (Cloud computing) to operate efficiently.

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Legal controls

Reasons:
 To avoid congestion
 To minimize the impact businesses might have on local communities
 To encourage manufacturers to locate where unemployment is high.
 To influence business choice of location by financial incentives.
 To attract foreign manufacturers to the country.

5) Trade blocs
 Group of countries situated in the same region that join together and enjoy trade
free of barriers.
Ex: NAFTA,

A business needs to decide on the best location taking into account factors such as:

 Customers - is the location convenient for customers?

 Staff - are there sufficient numbers of local staff with the right skills willing to work
at the right wage?
 Support services - are there services offering specialist advice, training and support?
 Cost - how much will the premises cost? Those situated in prime locations (such as
city centres) are far more expensive to rent than edge-of-town premises.

The importance of infrastructure

Infrastructure refers to the facilities that support everyday economic activity, eg roads,
phone lines and gas pipes.

An efficient transport network enables staff to get to work easily. It also allows supplies to
be brought in from far afield and permits finished products to be moved to market cheaply
and quickly.

The impact of location depends on the type of business. For example, it is important for shops
and restaurants to be conveniently located for customers. A delivery-only takeaway may
prefer to locate in inexpensive premises on the edge of town close to good transport links.

Government and location

The government offers grants and assistance to businesses that locate in areas with high
unemployment. Incentives include:

 Grants - to help with the cost of setting up a business. Grant money does not need to
be repaid.
 Loans - which are repayable over many years at low rates of interest.
 Tax breaks - for example firms may be made exempt from paying business rates.

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Overseas location decisions

Setting up a business overseas involves a number of challenges including:

 cultural and language barriers where managers are unfamiliar with local customs
 legal issues where local laws are different
 exchange rate issues - unexpected changes in the value of sterling can have an impact
on prices, costs and profits

Worksheet 8: Decisions on location

Section 1: Decisions on Location
Fill in the gaps.

Traditionally, ___________________ businesses were located near to essential resources such as

____________________ and raw materials. One reason for this was that transportation of power
and raw _______________ was difficult. Steel and chemical heavy industries were located close to
power sources such as____________ , and raw materials such as water and iron ore. Today, power
such as, ________________ and gas, can be supplied to most places, and raw materials can be easily
______________ using road and rail networks. Manufacturers can now also ________________ raw
materials from other countries to reduce costs. Manufacturers are highly likely to consider several
factors when choosing where to locate such as ___________________ to the market, availability of
labour, proximity to raw materials and the location of competitors.

materials coal electricity power

transported import manufacturing proximity

Section 2:
Go back to your pre-activity, where you selected a business. Using that business (or any other
business you are interested in) score them out of 10 in terms of locating…

Ranking Explain your judgement

… close to their 1 2 3 4 5 6 7 8 9 10
customers/market (1 is far from their customers – 10
is close to their customers)

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… close to labour 1 2 3 4 5 6 7 8 9 10
(1 is far from labour – 10 is close to
labour)

… close to 1 2 3 4 5 6 7 8 9 10
materials (1 is far from materials – 10 is close
to materials )

… far away from 1 2 3 4 5 6 7 8 9 10

competitors (1 is close to competitors – 10 is far
from competitors)

1 How is a business 'location' best described?

The place where customers buy products

The place where a business sites its operations
The place where suppliers send components

2 What can location decisions have a big impact on?

Costs
Revenues
Costs and revenues

3 Which of these is NOT an advantage of an efficient transport network?

It enables staff to get to work easily

It allows supplies to be brought in from far afield
Increased time getting finished products moved to market

4 Which of these is a challenge a business faces when setting up a business overseas?

Greater control of your business activities overseas

Cultural and language barriers
Can provide a more personalised service to customers based locally

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5 Which is an example of infrastructure?

Staff
Markets
Roads

6. What happens when a government gives a business a location grant?

It is repaid
It is repaid with interest
It need not be repaid

7 Which of the following is an example of relocation?

Redundancies
Moving production overseas
Extra investment in new machines

8 What is the most likely reason for relocating a factory overseas?

Reduce manufacturing costs

Reduce transport costs
To act ethically

9 What is a new shop in a city centre NOT likely to benefit from?

Low rents
An established infrastructure
Availability of specialist support services

10 Where are restaurants most likely to locate?

In areas that are most convenient for owners

In areas that are most convenient for suppliers
In areas that are most convenient for customers

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