Quantitative factors affect choice of location
- Location is a big concern for most businesses. The wrong location could mean high costs or that potential customers won't notice you. Choosing the right location can be a huge competitive advantage.
- When deciding where to locate or relocate, businesses analyse the potential impact on costs and revenues. Investment appraisal techniques such as payback and average rate of return can be used to calculate this.
- Factors that can be measured in financial terms are called quantitative factors.
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Location decisions depend on distribution and supp
- Manufacturing businesses which provide bulky finished products should be located near to their customers to cut down on distribution costs. Bulky products made from lightweight components are called "bulk increasing" goods. E.g. beer - made of water (available anywhere), plus hops and barley (low in bulk compared to the finished product). Breweries tend to be located near consumers and transport infrastructure, not near hop or barkley fields.
- Other products need bulky raw materials to make a lightweight end product - these are "bulk decreasing" goods. They need to be located near the source of raw materials to keep transport costs down. E.g. the steel industry in South Wales. The three basic ingredients are iron ore (imported to local ports), coal and limestone (both from South Wales). The product is rolled steel, which is less bulky and can be transported by rail.
- A good transport infrastructure cuts distribution costs.
- Services don't have large distribution costs. Decisions on where to locate services are based mainly on other criteria.
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Location decisions depend on the availability and
- There must be a good supply of labour resources in the area where a business will be located.
- The labour force must also be suitable - e.g. they might need special skills.
- The area might need local training facilities for staff.
- The area needs facilities such as affordable housing, suitable schooling, medical facilities, retail and leisure outlets to provide a good standard of living for staff.
- Businesses can afford to pay workers less in areas where the cost of living is lower. To take full advantage of this, businesses need to locate overseas where labour costs are often lower than in the UK.
- Businesses also need the right land resources. They may need room for future expansion.
- The cost of land and property for factories and business premises varies significantly from area to area - land in or near London is far more expensive than land in mid Wales, for example.
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Location decisions depend on the market
- Some businesses such as retailers need to locate near to customers, in order to catch the passing trade.
- Businesses need to be based in locations which will maximise their revenue.
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A good location needs an efficient and appropriate
- Business organisations benefit from access to motorways, fast rail links, sea ports and airports.
- Transport infrastructure is needed for the import of raw materials, the distribution of finished products, and for staff to get to work.
- Businesses also need support services. Most business organisations need some form of commercial support such as banking, insurance and marketing agencies.
- They often need technical support such as engineering services and IT assistance.
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There are also qualitative factors involved in cho
- Entrepreuners might choose to start a business near where they live - e.g. Dyson is based in Wiltshire, near the owner and inventor's home.
- Some places have a good image which suits the image of the product. High fashion works better in New York, London and Paris than in Scunthorpe or Workington - New York, London and Paris already have a fashion image.
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Businesses may need to relocate
- Established businesses sometimes have to move. This may be because the firm has grown too large for its premises, or because government incentives have been withdrawn, or because taxes have risen.
- Some firms have "industrial inertia" - it seems sensible for them to relocate, but other factors prevent them from doing so. For example, it might make sense to relocate closer to suppliers or customers, but the cost of relocation might be too high to justify moving.
- Deciding where to relocate is similar to deciding where to locate, with some added problems:
- Production is likely to be reduced during the move - there may be downtime.
- Staff may not want to move. They may need to be paid to relocate, especially if they have dependent family.
- Notifying suppliers and customers costs money. Updating headed notepaper and brochures costs money.
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Expansion is a common reason for businesses to rel
- Expansion is another word for growth.
- When a company expands, they often have more stock, staff, machinery and even customers than they had before. This means they're likely to need extra space.
- Some companies can extend their existing premises when they expand. However, if there's a lack of available land or the business fails to get planning permission the business might have to relocate instead.
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Multi-site businesses operate from several differe
- A business can expand by opening new factories, offices or stores whilst also remaining in their existing premises. This called a multi-site location. Shops and restaurant chains often expand this way.
- Having a multi-site location can be a good way of increasing a company's sales and capacity. It can also make it easier for companies to respond to local market conditions.
- Multi-site businesses often have a lot more staff than similarly-sized businesses operating from a single location (e.g. they might have a different manager overseeing each site) - this can lead to high overheads.
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