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5.5 Location

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Mario Alvarado M.

on 1 July 2015

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Transcript of 5.5 Location

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Location refers to the geographical position of a business, i.e. where it is sited.
Unit 5.5
The location decision will depend on many factors such as:
The nature of the business
The nature of the product
The nature of human resources
decision occurs when managers need to consider moving to alternative premises, perhaps because of
Quantitative Factors Affecting
Location Decisions
1. Availability, suitability and cost of land
Managers have to balance the cost of land with
earning potential
; the busier the area, the higher the earning potential, but the higher the cost of land.
For some businesses, the
of land must also be considered. In agriculture you will need to locate in areas with arable land and suitable climate.
2. Availability, quality and cost of labor
Another crucial quantitative factor affecting location is the availability and quality of labor.
Both will essentially affect the level of wages paid to workers and will be critical in any location decision.
3. Proximity and access
to raw
The nearness to and availability of raw materials is a major factor in determining the location of many firms that operate in the primary and manufacturing industries.
Bulk-reducing businesses, AKA weight losing industries, locate near the source of raw materials that are more heavy and costly to transport than the final product.
4. Proximity to the market (customers)
On the other hand, certain products such as bottled water or alcohol, will increase in weight during the production process:
weight-gaining industries
In the
manufacturing sector
, firms that rely on
JIT production
need to locate near their customers.
5. Government incentives and policies
Governments may offer
to attract businesses to locate in, or relocate to, a certain region.
Such incentives tend to be financial (
Such financial incentives are more likely to be approved if the business locates in areas suffering from:
High unemployment
Low incomes
Areas experimenting economic regeneration
Such areas are known as: assisted areas or enterprise zones
6. Feasibility of using e-commerce
Qualitative Factors Affecting Location Decisions
Choosing a location
In reality, it is a
of all the above factors that makes a certain location (domestic or overseas) attractive to businesses.
1. Management preferences
Managers may prefer a certain location due to personal preference, familiarity, and gut feeling (instinct).
2. Local knowledge
Managers know the locations and its culture well, thereby giving it a potential
competitive advantage
3. Infrastructure
is the term used to describe transportation, communication and support networks.
Transportation networks:
The most appropriate means of transportation network for a business will depend on the size of a business and the products it sells.
Communication networks:
The access to telephone lines for telephone and broadband internet services, and mobile phone coverage.
Support networks:
Support and complementary services that are essential for running a business (utility firms providing fuel and power, for example.)
4. Political and economical factors
Managers need to consider the economic and political stability of the country in which they wish to locate.
5. Government restrictions and regulations.
Administrative and bureaucratic processes vary from country to country. Ex.: it takes 2 days to register a company in Canada and Australia. And in average: 8 days in France, 56 in Ecuador, 152 in Brazil and 203 in Haiti.
6. Ethical Issues
A business that produces lots of waste, noise or pollution may choose to locate in out-of-town and remote areas to avoid complaints from the local community.
7. Comparative shopping (clustering)
means that businesses locate near other organizations that provide for similar or complementary markets.
Location Versus Relocation
From time to time businesses may need to consider relocation (higher rents, more attractive locations, etc.)
However, there are problems with relocation and hence there is a reluctance to relocate:

industrial inertia
acquired advantages
are the benefits that have been established over time by the firm's presence in a certain location.
Footloose organizations
are those that have no cost advantages from being tied down in any particular location.

Question 5.5.1
Location, location, location
Growing demand from financial companies and other businesses has raised land and property prices in central business districts throughout the world. The world's most expensive places to rent office space include London, Tokyo and Hong Kong. Prime office rents have also been surging in Moscow, Paris, Dublin and Abhu Dhabi.
a. Outline how rising demand for a product, such as land, can push up its price. (2 marks)
b. Using a PEST framework, analyze the advantages and disadvantages to a firm deciding whether to relocate overseas. (8 marks)
Question 5.5.3
Fifth Avenue, New York
Retail space in New York's Fifth Avenue has one of the highest rental values in the world. The high price of leasing land has been accelerated by the world's top brands competing to secure a key spot in this prime location. Other highly sought after retail locations include Causeway Bay in Hong Kong, Oxford Street in London and Avenue des Champs-Élysées in Paris.

a. Explain why location is an important management decision for retail businesses. (4 marks)
b. Examine why retail businesses might be prepared to pay exceptionally high rents in prime areas such as Fifth Avenue.

(6 marks)
Full transcript