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Location Decisions (Factors Affecting the Location of a Manufacturing…
Location Decisions
Factors Affecting the Location of a Manufacturing Business
Production methods
Small scale prouduction/
Job production
Can be far from components
Large scale production/
Flow production
Closeness of components are necessary
Market
Weight-gaining products should be produced near markets for cheaper transport costs
Products that perish quickly should be produced near markets to decrease chance of spoilage
Raw Materials/ Components
Weight-losing products should be processed near the source of raw materials to decrease transport costs
If the product requires a lot of components, a location near to a majority of the components would be preferable
External Economies of Scale
Firms which support the business in other ways might need to be located nearby
Availability of Labour
Skilled labour
Area where people with the relevant skills live
Large number of unskilled labour
Area with high employment will be most suitable
Government Influence
Grants
The government gives money to the business to locate in a particular location
Regulations
Some legal boundaries in certain locations might forbid the manufacturing or sale of the product
Transport and Communications
Must locate near a transport system for cheaper costs of transport and ease of employees
Power and Water supply
Reliable source of power, no regular power cuts
Climate
Certain products might only be able to be produced in specific climates
Factors Affecting the Location of a Service Sector Business
Customers
Direct Contact
A quick response time might be expected from the service and therefore the service must locate near to its customers
Non-Direct Contact
The business can locate anywhere since no direct contact is needed, so it can locate in more remote areas, saving money
Personal Preference of Owners
The owners preference can influence the location choice
Technology
Improvements in technology allow for businesses to locate far away from its customers.
Availability of Labour
Large number of employees
Cannot locate in remote area, as it would greatly disfavor the employees to travel long distances
Near to the area where a particular skill group lives
Climate
Will affect tourist-centered businesses
Proximity to other businesses
Some services serve the needs of large businesses, they will need to respond quickly, so they must be nearby
Rent/ Taxes
If the business does not need to be in the center of the city, it can locate in remote areas, for lower rents and taxes
Factors Affecting the Location of a Retailing Business
Shoppers
Area which is popular
Area which suits the products the retailer is selling
Nearby Shops
Locate near shops which are visited regularly
Customer Parking
Locate where customers are near to a convenient place to park. Lack of parking may put people off visiting
Availability of suitable vacant premises
The the desired location is not up for purchase or rent, the business will not be able to relocate there
Rent/ Taxes
The more central the site of the premises, the higher the rent and taxes will usually be, or if the area is popular
If the area is less popular, like the edge of town, rent and taxes would be cheaper.
Access to delivery vehicles
Access for delivery vehicles might be a consideration if it is very difficult for them to gain access to the premises
Security
High areas of crime may deter a business from locating in a particular area. Buying insurance for that location would also be harder
Legislation
In some countries there may be laws restricting the trading or marketing of goods in a particular area
Locating in Different Countries
New Market Overseas
When a business sees a steady increase in its sales overseas, it may decide to relocate nearer to those markets, to decrease transport costs
Locating to country with the most sales of its products might be beneficial
Cheaper or New Sources of Materials
When a raw material runs out, a business might opt to relocate into another country with its raw material in supply
It might also be cheaper to buy materials in other countries
Difficulties with the Labour Force and Wage Costs
Wages in current country rising too high, wages in less developed countries are cheaper
Relocate to a country with the necessary skilled labour to support the business
Rent/ Taxes Considerations
Other countries have lower rent/ taxes
Availability of government grants and other incentives
Grants let the business operate in favor of the government and with monetary support from the government
Trade and Tariff Barriers
Locating in a country with the least trade restrictions and tariffs will decrease the costs of production
The Role of Legal Controls on Location Decisions
Why do Governments help businesses?
To encourage businesses to set up and expand in areas of high unemployment
To discourage firms from locating in overcrowded areas or on sites which are noted for their natural beauty
Government's measures
Planning Regulations
Rules and regulations that will legally restrict the business activities that can be undertaken in certain areas
Government Grants/ Subsidies
Non-repayable amounts of money are paid to a business to locate in a particular area.