CHAPTER 18

LOCATION DECISIONS

❑ What influences the location decision of manufacturing

businesses and service businesses?
❑ Why do businesses decide to locate their operations in
another country?
❑ How do legal controls affect location decisions?
 LOCATION DECISIONS
➢ Every business, whether producing goods or services,
has to be based somewhere

➢The decision where to locate or relocate a business might

make the difference between business success or failure

➢The place where a business is located affects the

operation costs, how it makes sales and delivers
customer service

➢Once a location decision is made, it is difficult for the

business to change location
FACTORS INFLUENCING LOCATION DECISIONS

➢ Qualitative factors and Quantitative factors

➢ Quantitative factors can be measured in financial terms and will directly

affect costs, revenues and profitability of a site

➢ Qualitative factors must be considered in addition to the quantitative factors

 QUANTITATIVE FACTORS

Transport Market Government

Cost of site Labour costs
costs potential incentives

How close to Location can affect National and local

The average suppliers is the authorities may
revenue from sales
wage paid to site provide incentives to
– customers must encourage
workers in the be able to easily
area businesses to locate
access the site in a particular area
How expensive What will be the
the land and cost of transporting
buildings are to goods to and from
rent or buy Influenced by the the site
supply of For secondary Incentives
employees, the skill sector proximity
level required and How easy it is for to customers is
reduce the set-
competitors for the customers to not as important up costs
labour concerned access
GOVERNMENT
INCENTIVES
& BUSINESS
LOCATIONS
 QUALITATIVE FACTORS
The size of the Quality of local Ethical issues and
Legal restrictions
available site infrastructure concerns
• The site needs to be • Some countries • Road, rail, air and • How existing
large enough for the restrict businesses sea transportation workforce is affected
needs of the from locating • Water, power, by relocation from
business now and wherever they want telecommunications one country to
considering future due to planning another or from one
expansion restrictions region to another
• Business reputation
may be damaged if
many employees
become redundant
 CHOOSING A
LOCATION
➢The location of a business has
implications for cost and potential
revenue
➢If the site is not suitable, relocating a
factory can be very expensive or
impractical
➢Location decisions must be made
depending on the sector in which your
business operates – primary,
secondary, tertiary, and the goods and
services they provide
 CHOOSING A LOCATION FOR A
MANUFACTURING BUSINESS
➢ Factors for a manufacturing business to consider when choosing the location:

Access to raw
Access to power
Transport links Access to labour materials and
and water
supplies

Availability of
suitable land – Government
Distance to market
expansion, influence
facilities, cost
CHECK YOUR UNDERSTANDING
 CHOOSING A LOCATION FOR
A SERVICE BUSINESS

➢ Factors for a service business to consider when choosing the location:

Being close to
Being close to
Access to competitors/
the market/
labour
Technology Rent/Taxes Climate
other
customers
businesses
 CLOSE TO THE MARKET/CUSTOMERS

➢ Being close to a customer is very important for many service type

businesses.
➢ Especially those where quick responses are needed, e.g. plumber,
electrician etc
➢ Others need to be convenient, café, hairdresser etc
➢ With the increasing use of the internet this is becoming less important for
some businesses
 LABOUR

➢ If the business needs a lot of workers to

provide services, it will need to be located
near a large population.
➢ Business should also consider whether it
needs skilled labour.
 TECHNOLOGY

➢ Because of technology, some businesses don’t need

to be close to the customers, e.g. call centres or
website designers
➢ They can locate anywhere – they can take advantage
of cheaper rent
 RENT/TAXES

➢ The rent and taxes of a town are much higher in

the centre of town than on the outskirts.
➢ Depending on financial capacity, it might benefit
the business to be located on the outskirts of
town.
 CLIMATE

If the services are tourism related, they will

need to be close to popular tourist destinations.
 PROXIMITY TO OTHER
BUSINESSES

➢ Some services are needed by big businesses.

➢ It’s a good idea to locate the service business
close to the businesses that require their
services, e.g. computer repairs.
CHECK YOUR UNDERSTANDING
WHY DO BUSINESSES RELOCATE TO
ANOTHER COUNTRY?

To achieve To reduce
growth production costs

To locate
production closer
to the market
 Lower
labour
costs

Access to
global
markets
BENEFITS OF
RELOCATING TO
ANOTHER COUNTRY Avoidance of
legal barriers
and import
tariffs

Govern-
ment
incentive
 LIMITATIONS OF RELOCATING TO
ANOTHER COUNTRY

• Cultural differences

• Communication problems ❖ Miscommunicating across countries

➢ Increased redundancy in home country

• Ethical concerns
➢ Exploitation of child labor overseas

• Quality issues ✓ Hard to control quality of international

suppliers
FACTORS TO CONSIDER WHEN DECIDING ON
THE RIGHT COUNTRY FOR THE BUSINESS

Rules and Language

regulations Each country has its barrier Management and
own rules on control may be
taxation and what difficult, if people
can be made and speak a different
sold language

Incentives may be
available, depending
on the economic
objectives of the
government
FACTORS TO CONSIDER WHEN DECIDING ON
THE RIGHT COUNTRY FOR THE BUSINESS

Tariffs
Culture Traditions and
and These can restrict
attitudes vary – what quotas what and how much
is acceptable in one is imported and can
place, may not be influence where the
acceptable in another business is based
 THE ROLE OF LEGAL CONTROLS
➢ Legal controls influence costs, as well as restrict
where a business can locate and how it is allowed
to operate
➢ Planning regulations can restrict where a
business can locate
➢ Environmental controls affect how a business is
allowed to operate e.g. waste disposal,
machinery, materials or techniques used
➢ Employment controls affect areas such as health
and safety and minimum wages
CHECK YOUR UNDERSTANDING
 REVIEW
1. State three factors that might influence location decisions
2. Explain two reasons why a business may decide to relocate in
another country
3. Explain how legal factors can influence location decisions
4. How can a relocation decision affect a business's existing
workforce?
5. How might consumers influence a location decision?
6. Should cost be the major influence on location decisions?
7. How and why might a country's government encourage a business
to locate in its country?
EXAM PRACTICE QUESTION
Identify and explain two factors Aisha should consider
when choosing the location for her hairdressing salon.

ⓘ Start presenting to display the poll results on this slide.