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4 – Location Decisions – IGCSE AID

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4.4 – Location Decisions

Owners need to decide a location for their firm to operate in, at the time of setting up, when it needs
to expand operations, and when the current location proves unsatisfactory for some reason. Location
is important because it can affect the firm’s costs, profits, efficiency and the market base it reaches out
to.

Factors that affect the location decisions of a manufacturing firm:

Production Method: when job production is used, the business will operate on a small scale, so
the nearness to components/raw materials won’t be that important. For flow production, on the
other hand, production will be on a large scale- there will be a huge amount of components and
transport costs will be high- so components need to be close by.
Market: if the product is a consumer good and perishable, the factories need to be close to the
markets to sell out quickly before it perishes.
Raw Materials/Components: the factories may need to be located close to where raw materials
can be acquired, especially if the raw material is to be processed while still fresh, like fruits for
fruit juice.
External economies: the business may locate near other firms that support the business by
provide services- eg: business that install and maintain factory equipment.
Availability of labour: Businesses will need to locate near areas where they can get workers of the
skills they need in the factory. If lots of unskilled workers are needed in the factories firms locate
in areas of high unemployment. Wage rates also vary by location and firms will want to set up in
locations where wage rates are low.
Government Influence: the government sometimes gives incentives and grants to firms that set
up in low-development, rural and high-unemployment areas. There may also be govt. rules and
restrictions in setting up, e.g.: in some areas of great natural beauty. The business needs to
consider these.
Transport & Communication infrastructure: the factories need to be located near areas where
there are good road/rail/port/air transport systems. If goods are to be exported, it needs to be set
up near ports.
Power and water supply: factories need water and power to operate and a reliable and steady
supply of both should be ensured by setting up in areas where they are available.
Climate: not the most important factor but can influence certain sectors. Eg: the dry climate in
Silicon Valley aids the manufacturing of silicon chips.

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5/17/24, 6:03 AM 4.4 – Location Decisions – IGCSE AID

Owner’s personal preferences

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Factors that affect the location decisions of a service-sector firm:

Customers: service-sector businesses that have direct contact with customers need to locate in
customer-accessible and convenient places. Eg; restaurants, hairdressers, post offices etc.
Technology: today, with increasing use of IT to shop and make payments, customers do not need
direct access to services and proximity to the market/customer is not a very important factor in
location decisions. They locate away from customers in places where there are low rent and wage
rates. Eg: banks
Availability of labour: if large number of workers are required in the firm, then it will need to
locate close to residential areas. If they want certain types of worker skills, they will need to locate
in places where such skilled workers can be found. However, with work-from-home and
technology, this is not that big of a factor nowadays.
Climate: tourism services need to be located in places of good climate.
Nearness to other business: some services serve the needs of large companies, such as firm
equipment servicing and so they need to be very close to such businesses. Businesses may also set
up where close competitors are to watch them and snatch away their customers.
Rent/taxes
Owner’s personal preferences

Factors that affect the location decisions of a retailing frm:

Shoppers: retailers need to be located in areas where shoppers frequent, like malls, to attract as
many customers as possible.
Nearby shops: being located to other shops that are visited regularly will also attract attention of
customers into the shop. Being near competitors also helps keep an eye on competition and snatch
away customers.
Customer parking availability: when parking is available nearby, more people will find it
convenient to shop in that area.
Availability of suitable vacant premises: Obviously, there needs to be a vacant premise available
to set up the business. Vacant premises can also help the business expand their premises in the
future.
Rent/taxes: rents and taxes on the locations need to be affordable.
Access to delivery vehicles: if the retailer has home delivery services, then delivery vehicles will
be required.
Security: high rates of crime and theft can happen in shops. Shopping complexes with security
guards will thus be preferred by firms.

Why businesses locate in different countries?

New markets overseas.

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5/17/24, 6:03 AM 4.4 – Location Decisions – IGCSE AID

Cheaper or new raw materials available in other countries.

Cheaper and/or skilled workers are available overseas.
Rent/ taxes are lower..
Availability of government grants and other incentives
Avoid trade barriers and tariffs: when exporting goods to other countries, there will be some
tariffs, rules and regulations to get by. in order to avoid this, firms start operating in the country
itself, since there is no exporting/importing involved now.

The role of legal controls on location decisions

Governments influence location decisions:

to encourage businesses to set up and expand in areas of high unemployment and under-
development. Grants and subsidies can be given to businesses that set up in such areas.
to discourage firms from setting in areas of that are overcrowded or renowned for natural beauty.
Planning restrictions can be put into place to do so.

Notes submitted by Lintha.

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17 thoughts on “4.4 – Location Decisions”

1.
Tanatswa Vutoyi says:
October 16, 2023 at 2:32 pm
These are good notes
I can now go into the exam feeling more confident

REPLY
2.
Rakshambika Acharya says:
August 10, 2023 at 6:20 pm
Neat and precise notes. The effort has paid off. Very usable when it comes to last minutes
preparation!

REPLY

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5/17/24, 6:03 AM 4.4 – Location Decisions – IGCSE AID

3.
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November 6, 2021 at 3:23 pm
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March 11, 2021 at 7:51 pm
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5.
Dove says:
February 16, 2021 at 12:42 pm
Thank you! These are extremely helpful!

REPLY
1.
Lintha says:
February 16, 2021 at 1:30 pm
You’re welcome!!

REPLY
6.
Wania says:
January 18, 2021 at 11:47 am
I hope you know exactly how much it means to all us students. Thank you so much for your
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REPLY
1.
Lintha says:
January 26, 2021 at 7:25 am
Thank you for the kind words Wania! Glad to be of help!

REPLY
7.
Gospel says:
December 28, 2020 at 8:12 am
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REPLY
8.
rihtes says:
June 30, 2020 at 9:29 am
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REPLY

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5/17/24, 6:03 AM 4.4 – Location Decisions – IGCSE AID

1.
Lintha says:
July 1, 2020 at 3:55 am
Good luck!

REPLY
2.
gayatri2000 says:
July 3, 2020 at 11:11 am
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REPLY
9.
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August 10, 2018 at 7:20 am
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REPLY
1.
Sarah says:
August 11, 2018 at 1:15 pm
Thank you so much!
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REPLY
2.
Nesamoni says:
May 10, 2020 at 1:00 pm
Great effort. God bless your profession, sir.
Amen

REPLY
1.
Sarah says:
May 11, 2020 at 2:26 pm
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REPLY
1.
parhle bhadwe says:
January 9, 2024 at 10:11 pm

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