Chapter 24: Factors affecting location

Location of industry
The location of a business is considered when it starts-up or when its present location is unsatisfactory. The business's objectives as well as the conditions of the environment change, so the business may need to look for a new location once in a while.

There are many factors that affect the location of businesses, and these factors are different for each business sector. We'll take a look at them below.


Factors affecting the location of a manufacturing business

Production methods and location decisions

• Small
  scale: transport and location of suppliers are less important.
  
• Large
  scale: transport and location of suppliers are more important.
  

Market

• Need to be near to transport perishable goods.
  
• Need to be near to cut transportation expenses.
  

Raw materials/components

• Need to be near to transport perishable goods.
  
• Need to be near to cut transportation expenses.
  

External economies of scale

• How good nearby businesses are.
  
  • For maintenance of equipments.
    
  • For training workers, etc…
    

Availability of labour

• Wages of the labourers.
  
• How skilled they are.
  

Government influence

• Grants/subsidies.
  
• Restrictions on dumping, etc…
  

Transport and communication

• To be able to transport product easily.
  

Power

• Need a reliable source of power to operate effectively.
  

Water supply

• A lot of water is needed in the production process (e.g. cooling, cleaning)
  
• Cost of water.
  

Personal preferences of the owners

• May locate in areas that:
  
  • They come from.
    
  • They like.
    
  • Pleasant weather, etc…
    

Climate

• E.g. to reduce heating costs in a warmer climate.
  
• Some climates are required to produce certain items.
  

Factors affecting the location of a retailing business

Shoppers

• Do shoppers go there?
  
• What kind of shoppers go there?
  

Nearby shops

• Competitors.
  
• Mass market.
  
• Gap in the market.
  

Customer parking available/nearby

• Convenience for the customer.
  

Availability of suitable vacant premises]

• Goods sites (e.g. in shopping centres) are in short supply.
  

Rent/taxes

• The more popular the site, the more expensive.
  

Access for delivery vehicles

• For delivering goods.
  

Security

• If the area is insecure
  
  • Goods will be stolen.
    
  • Insurance will be reluctant to insure the shop.
    

Legislation

• Laws restricting the trade of goods in certain areas.
  

Factors that influence a business to relocate either at home or abroad

• The present site is not large enough for expansion.
  
  • If a business simply prefers to expand elsewhere, the factors affecting location will have to be considered.
    
• Raw materials run out.
  
  • One alternative is to import raw materials from elsewhere.
    
  • Important for mining industries.
    
• Difficulties with the labour force
  
  • Wages are too high.
    
  • Need skilled labour.
    
• Rents/taxes rising.
  
• New markets open up overseas.
  
  • Cuts transport costs.
    
  • Bypass trade barriers.
    
• Government grants
  
  • To attract businesses to locate in development areas.
    
  • To attract foreign investment.
    
• To bypass trade barriers
  
  • Tariffs
    
  • Quotas
    
    
    

Factors affecting the location of a service sector business

Customers

• Whether customers require:
  
  • Direct contact.
    
    • Is it convenient for customers to go the business?
      
    • Will the service arrive at customers' houses in time?
      
  • No direct contact needed.
    
    • Mail
      
    • Internet
      

Personal preference of owners

• Near their homes.
  

Technology

• Technology allows businesses to locate in cheaper sites.
  
  • Telephone.
    
  • Internet.
    
  • Transport.
    
• No need to be near customers.
  

Availability of labour

• Need to locate to sites where skilled labourers live.
  
  • Labourers may relocate to be near the business.
    

Climate

• Important for tourism.
  

Near to other businesses

• Businesses that supply or repair machinery to others need to be near them to respond quickly.
  
• Post office/banks need to be in busy areas for the convenience of customers. That is, being near malls, shops, etc…
  

Rent/taxes

• If the business does not need direct contact with the customer, then it could locate in cheaper areas.
  

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