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Factors affecting location decisions

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Marcos Ricaldoni

on 30 September 2014

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Transcript of Factors affecting location decisions

Factors affecting location decisions
Location of Industry
The location of a business is usually considered either when the business is first setting up or when its present location proves unsatisfactory for some reason.

A variety of factors will influence the location decisions of a business.

Factors affecting where a manufacturing business chooses to locate will usually be different from those factors affecting where a retailing business will set up.
Factors affecting the location of a manufacturing business
Factors affecting the location of a service sector
Factors affecting the location of a retailing business
Locating in different countries
The rapid growth of newly industrialising countries, increasing international trade, improved global communications and improvement i transport have meant that many businesses can now consider where in the world to operate rather than just considering a single country.
The role of legal controls on location decisions
The decisions by firms about where to locate their business can have a very important effect on the firm's profitability. Managers will want to locate their business in the best possible area.
Production methods and location decisions
The type of production methods used in manufacturing business is going to have a significant influence on the location of that business
If job production is used, the business is likely to be on a small scale so the influence of the nearness of components.
If production is on a large scale, the location of components suppliers might be of greater importance because a large number of components will need to be transported and the cost will be high.
Locating a factory near to the market used to be important when the product gain weight.

Today because improvement in transport, it is less important.
Raw materials
The raw materials may be more expensive to transport than the finished product so it is often cheaper to locate the business near the source of the raw materials.
External economies of scales
Firms which support the business in other ways might need to be located nearby.
Availability of labour
If particular skilled labour is needed, it may be easier and cheaper to recruit these empoyees if the business sets up in an area where people with the relevant skills live
Government influence
When a government wants to encourage businesses to locate in a particular area it will offer state-funded grants to encourage firms to move there.
Transport and communications
Businesses usually need to be near to a transport system, be it road, rail, inland waterway, port, airport.
Power and water supply
To some businesses having a reliable source of power and therefore no regular power cuts may be essential.
The same could be said for water.
This will not influence most manufacturing businesses but occasionally climate might be important.
Locating a service sector business near its customer will be very important for certain types of service. These are usually services where direct contact between the business and the customer is required.
Personal preference of the owners
The owners of busineses can influence where particular services choose to locate. They often locate their business near to where they live.
Some services are now conducted by telephone or via the internet and therefore the business it self does not need to be near to customers
Availability of labour
If a service business requires a large number of employees it will need to locate near to a large town or city.
Climate will affect some businesses particularly if they are linked to tourism in some way .
Near to other businesses
Some services serve the needs of large businesses, such as firms that service equipment found in big companies. They will need to be near busy
If the city does not need to be on the main streets in a town or city centre, then the business will locate on the outskirts of town to benefit from lower rents and taxes.
Most retailers will want an area which is popular, such as a shopping mall. The type of shopper an area attracts will also influence the attractiveness of the area to particular types of retailers.
Nearby shops
Being able to locate near to shops which are visited regularly, such as a post office or popular fast food outlet, will mean that a lot of people pass your shop on the way to other shops.
Costumer parking available
Where parking is convenient and near to the shops, this will encourage shoppers to that area and therefore possibly increase your sales.
The more central the site of the premises, the higher the rent and taxes will usually be.
Access for delivery vehicles
Access for delivery vehicles might be a consideration if it is very difficult for them to gain access to the premises.
High rates of crimes such as theft and vandalism may deter a business from locating in a particular area.
In some countries there may be laws restricting the trading or marketing of goods in particular areas.
Availability of suitable vacant premises
If a suitable vacant shop or premises is not available for purchase or rent, the business may not be able to locate in the area it wishes.
New market overseas
When a business sees a steady increase in its sales overseas it may decide to relocate near to these markets rather than transport its products from the existing manufacturing base as it may be more cost effective.
Cheaper or new sources of materials
If the raw material source runs out, a business must either bring in alternative supplies from elsewhere or move to a new sight in a country where it can more easily obtain these supplies.
Difficulties with the labour force and wage costs
If the business is located in a country where wage costs keep on rising, there may come a point when the business decides it is more profitable to relocate overseas, particularly labour intensive businesses, to reduce wage costs.
Rents/taxes considerations
If other costs such as rents or taxes keep increasing this might cost the business to relocate to countries where these rents or taxes are lower.
Availability of government grants and other incentives
Governments may want to encourage foreign businesses to locate in their country to bring in investment and job opportunities.
Trade and tariff barriers
If there are trade barriers, such as tariffs or quotas, then by locating in that country there will be no restrictions.
Why do governments try to influence in location decisions?
To encourage business to set up and expand in areas of high unemployment.
To discourage firms from locating in overcrowded areas or on sites noted for their natural beauty
To influence in the location of a firm, governments often use two measures:
Planning regulations: it will legally restrict the business activities in certain areas
By grants and subsidies: Many governments provide them to encourage businesses to locate in undeveloped parts of the country
Full transcript