Thursday, August 2, 2012

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.

  • 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.

  • 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…

  • 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


  • 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.

  • The more popular the site, the more expensive.
Access for delivery vehicles

  • For delivering goods.

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

  • 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


  • 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 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.

  • 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…

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


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  7. chapters 24 and 25 comes mostly in which papers?

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  12. Hi! This is excellent! But can you answer the activities 24.1 to 24.4 in this chapter, please? I know the book has the answers at the back but some say Student's own answer and others are not fully explained as it should be. I want them fully explained. I have to do a presentation on this topic and my teacher asked me to explain the activities as well as the revision questions of this chapter in the book. PLEASE!! Thank you

    1. For 24.1, the main factors could be Power, since the factory is far away from the cities, it'll be hard to get electricity from a region which is far away from the city, same goes for the Water Supply. And Transport and communication is also a factor since it won't be easy to contact the business, thus the business will have trouble getting their products from the supplier. That's all I know XD

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  15. do we have to knw all the factors and knw how to explain them?

    1. It would help if you knew them, its possible that it asks you to name and explain and maybe also examples

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