4.4 Location decisions

Cambridge IGCSE Business Studies 4.4 – Location decisions

Production methods – Large scale production requires the business to be near component or raw material suppliers.
Market – Being near to the customer is important if the product is bulky/heavy or is perishable (likely to go bad e.g. Fresh food.)
Availability of labour – is there a sufficient supply of suitably skilled labour in the area
Government influence – may offer grants and subsidies to encourage firms to locate to a specific area (e.g. Government may want factories to be built in area with high unemployment rates to create jobs) The government may also restrict certain locations for factories a specific reason e.g. to protect the natural environment
Transport – Suitable transport is required for supplies/products to be delivered (e.g. near airport to deliver product to customer)
Power – Reliable source of electricity is needed

Shoppers – Need a lot of consumers in the area
Nearby shops – Locate near businesses that are visited regularly (e.g. Schools)
Parking facilities must be close by
Security/crime in the area

Clustering – Competitors in the same area attract consumers (e.g. Clothing stores all next to each other)

*Retail factors apply to service business

Customers – Be near customers for a quick response time (e.g. Electrician located in residential area can provide service to homes quickly)
Labour – Availability of suitably skilled labour in the area
Rents and taxes in the area – Businesses that don’t need to be near customers can be located further away where rents are low
Technology – Some services can be provided online which means that the business won’t need to be located near customers.
Personal preference of the owner

New markets overseas – Locate near customers in another country (Reduce transport costs)
Cheaper materials – Raw materials may be cheaper in another country
Unstable/expensive labour – A business (especially factories) may want to relocate to another country with cheaper labour
Rents and tax may be cheaper in another country
Government grants for foreign businesses – The government may give businesses grants(money) and reduce tax because they want the business to relocate to their country
Overcome trade and tariff barriers – Some countries may charge tax on imported goods and businesses can overcome them by relocating their factory to that country instead.