Cost of the site
The firm will need to find out
How long the site will be needed?
Should it be rented or purchased?
Will the site need to be drained and levelled?
What is the level of rates payable to the local council?
Is there room for expansion?
Are there any risks with the site will this raise the insurance premiums?
Geographical factors
The business needs to locate near water supplies especially paper manufacturers, pharmaceuticals, and electricity generation.
Waste disposal is also important for the business as some firms produce a great deal of waste during production there are various laws, which strictly control how this should be disposed of.
Prevailing wind is very important as the wind direction can take pollutants away from areas that are densely populated.
Visibility
Businesses need to locate somewhere people can see it. This will also increase the chances of attracting more customers, therefore increasing sale revenue. It will also help to widen the appeal to their secondary target market. A prime location is at the corner as it has bigger frontage.
Competition
Businesses also need to check the amount/intensity of competition in and near their location. It will not be wise for a small start-up to locate near big, established businesses that sell the same or similar product. However, this will allow businesses to benefit from economies of scale. Electrical companies usually do this. It gives the business an access to a major customer base and can reduce the cost of deliveries.
Where are customers located?
This is another important factor to take into consideration. If the main customer base is located hundreds of miles away from the location of operations, heavy transportation costs will be incurred.
I believe that all the reasons stated above are very influential when it comes to a business deciding where it will locate its base of operations.
Below is an example of a survey study that specifically addressed warehousing and distribution sectors. This was survey conducted by Transportation & Distribution magazine in 1994-95. A total of 1,000 survey forms were mailed out to subscribers of the publication with 147 usable returns collected. The survey indicated that geographic location, land transportation, and high worker productivity are the most vital factors in the site selection process, followed closely by low taxes, tax exemptions, and the availability of skilled labour. The result of this survey does appear to rank taxes somewhat higher than do those studies that cover manufacturing or industry in general.
The 25 factors from this study are listed in Table 5-1, in order of decreasing importance to the survey respondents. The tax variable “low taxes” ranked fourth on the list of 25 with an average score of 3.50; “tax exemptions” was fifth with an average score of 3.30, and “tax credits” were seventh with an average score of 3.28.
TABLE 5-1
SUMMARY OF WAREHOUSE LOCATION FACTORS
From a Survey by Transportation & Distribution magazine
Response Choices and Score of Each:
Not at all Important = 1; Slightly Important = 2;
Somewhat Important = 3; Vitally Important = 4
Plant Location Factor Average Response
Geographical location 3.73
Land transportation 3.64
High worker productivity 3.59
Low taxes 3.50
Tax exemptions 3.30
Skilled labor availability 3.29
Tax credits 3.28
Community acceptance 3.26
Favorable regulatory environment 3.25
Low union profile 3.24
Unskilled labor availability 2.90
State government support 2.81
Air transportation 2.76
Long-term financing 2.67
Waste disposal facilities 2.64
Rail transportation 2.62
Worker training programs 2.59
Energy/energy sources 2.53
Secondary education facilities in area 2.53
Ample fresh water availability 2.43
Recreational facilities in area 2.40
Raw materials availability 2.38
Colleges & universities in the area 2.34
Cultural amenities in the area 2.34
Sea transportation 2.16
Source: Transportation & Distribution subscriber survey entitled “Selecting Sites: Warehouse, Distribution Center, Plant,” project manager: Traci J. Jackson. Penton Publishing, Cleveland, Ohio, 1994-95.
As is shown above, numerous factors are taken into consideration when the location of a business is considered. It is always important to recognize the weaknesses and the strengths of any given location in order to be able to make a correct and informed decision. The most important factor that influenced location was by far “Geographical Location”. This means that businesses were basing their decisions on where to move on the terrain of certain areas and how accessible those areas were.