Location

Business Location

•Where to locate a business is one of the more fundamental decisions that managers have to take.
•The complexities of the decision have increased as many businesses consider locations in different countries.

•In general a business will look to locate its activities where the costs of production are minimised

•The nature of the business will heavily influence location decisions:

–Type and nature of market

–Type of business

– production of goods or services, retail, wholesale?

–Sector; primary, secondary, tertiary?

Three key location factors

-Costs of the operation

-Desired customer service level

-Potential revenues

Supply factors = These are mainly concerned with the operating costs of the location.

Demand factors = These factors mainly affect customer service and revenues.

Factors of Location

•Costs – labour, site, services (eg gas)

•Infrastructure

•Political, Economic and social factors 

•Closeness to market and raw materials

•Government incentives

•Labour – availability and type / skill

•Proximity to competition

Costs ; Costs have a direct impact on profit!

•Premises / land –purchasing or rental / leasing

•Refurbishment

•Business rates

•Labour costs

•Transport costs

•Services – electricity, water, gas

•Planning permission

Prestige

•Cost vs. brand/image

•Image important for some firms e.g. perfume from Paris, Whisky from Scotland

•Image is important for solicitors, high street stores, hotels etc.

Cost

A new business may be unable to choose the ideal location for their business as they may not be able to afford the location costs.  Therefore new businesses will often consider locating elsewhere, accepting that they are not selecting the optimum location. The other key location factors will become important. 

Labour

•Availability of labour –Labour intensive?

•Cost of Labour –Minimum wage?

•Skill of labour –Depending on nature of business may require unskilled or appropriately skilled labour

Labour Skill Sets

•Businesses can be attracted to certain areas by the skilled labour that might be available:

–Leeds– Project management

–London – Finance

–Birmingham – Call centres

–Cambridge – software developers

The Market

•The market is the place where buyers and sellers meet •Retail location should be driven by access to market (customers) 

  –Balance between footfall and rental / lease costs

•Consider the amount and type (demographics) of footfall

•B2B customers need to be close if JIT is required

Competition

•Competition is other firms within the same industry
•Sometimes, being in close proximity to competitors, a business can benefit from their marketing efforts

•Some firms will prefer to locate away from competitors

Economies of concentration or agglomeration

•Occur when a number of businesses in the same, or related industries, locate close together.

•They are able to gain mutual advantages. 

•New businesses are attracted by existing infrastructure clusters

•In high-tech industries it is often worthwhile for specialist businesses and universities to undertake research, provide education, training and information, from which all businesses can benefit.

•Competitor businesses locate close together to create more customer interest and higher individual sales

Infrastructure

•Infrastructure refers to the structure and facilities needed for the operation of a business.

•Infrastructure includes:

–roads,rail, shipping, electronic communication systems, training agencies, financial services, buildings

Infrastructure

•All businesses require energy sources, such as gas and electricity, as well as telephone and transport links if they are to operate efficiently. 

•Regions with good infrastructure are generally attractive to footloose businesses.

Footloose firms

•Footloose businesses are those that move from location to location, basing themselves wherever best suits their needs at a particular point in time

•A footloose business is one that is not tied to any particular location or country and can relocate across national borders in response to changing economic conditions (eg manufacturing firms). 

•Footloose businesses follow cheap capital, low cost labour and tax advantages.

Government Intervention

•The availability of government grants

–Financial support by the government to locate/relocate to to areas of unemployment 

•The decision of a firm to set up in a particular country can create hundreds/thousands of jobs.

•Planning permission

•Tax breaks

–Government taxation policies can also impact location decisions (eg tax breaks to help with recruitment and training of workers)

•Help with recruitment and training of workers

Political, economic and social factors

•For firms making international location decisions economic and political factors can be important. 

–Businesses want economically and politically stable environments.  Countries that offer stable exchange rates, low rates of taxation and low levels of crime are attractive to businesses.

•Managers want to live in an environment that suits them and their families.

•Employees want leisure facilities, good schools, and low crime.

Close to raw materials / suppliers

•Manufacturing companies usually locate near suppliers (close to raw materials) or near customers (close to market).

•Bulk increasing companies, where the item being manufactured increases in bulk, are best to locate near customers, reducing distribution costs e.g. Soft drinks

•Bulk decreasing companies, where the item being manufactured reduces in bulk, are best to locate near suppliers, reducing supply costs e.g. Waste management

•Also, consider access to power supplies such as electricity, negotiating bulk discounts can be very important

Different location factors will be of more/less important for different types of business

Type of business

-Manufacturing businesses =  Require efficient infrastructure, need to be close to raw materials.May need to be close to customers .Size of land may need to be large for manufacturing factory.

-Retail based businesses = Need to be close to the market, footfall important. Internet made this less important?

Different location factors will be of more/less important for different types of business

Type of business

Online businesses = Need to be close to transportlinks, good electronic infrastructure, prestige/image/footfall less important.

New businesses = May be unable to choose the ideal location as they may not be able to afford the location costs

Relocation

Relocation involves a firm changing their place of business

International Location

Amongst the factors driving the increasing internationalisation of business are:

•Cross-border mergers and acquisitions (e.g. a UK manufacturer buys a competitor in the USA)

•Organic growth overseas (e.g. a UK retailer opening stores in China)

•Moving production overseas – to enable faster lead times to customers and / or lower labour costs

•Increasing use of offshoring 

Evaluation

•Location is a key aspect of all business operations.

•The optimum location is the one that allows the business to keep costs down whilst maximising revenue.

•Incorrect location decisions can be costly.

•Locations need to be evaluated regularly to assess their ongoing suitability.

•Optimum location is dependent on the type and nature of the business

•A new business may be unable to choose the ideal location for their business as they may not be able to afford the location costs

Why might firms decide to relocate (especially overseas)?

•Availability, cost, quality of labour

•Expansion and Growth

•Access to cheaper factors of production

•Freedom from restrictions (eg legislation)

•Accessing demand in suitable markets

– growth of emerging markets

•Cost reductions

Why might firms decide to relocate (especially overseas)?

•Favourable exchange rates

•Favourable trade barriers - Political factors eg trading blocs

•Political stability / instability

•Falling costs of international transport

•Economic factors

•Tax advantages / avoidance