One of the most important decisions affecting the success of a business organisation is its location. A good location can help make a business successful.

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Mustafa Bhalloo 10.3


One of the most important decisions affecting the success of a business organisation is its location. A good location can help make a business successful. A location that has the lowest possible costs helps the firm to make the largest possible profit.

  • Factories. Manufacturing businesses will be looking for a factory where they can produce their goods ready for sale.

  • Offices and shops. Businesses providing services will try to find a suitable shop or office, depending on the type of business.

  • Natural resources. Some businesses require land, or other natural resources, as well as buildings.

The factors affecting the location of a business are:

  • Distance to market

Many businesses need to be located close to their market. Service industries such as entertainment and banking also have to locate near their markets to be available for their customers. Many manufacturing industries locate close to their markets, particularly if they produce bulky or fragile items which are expensive to transport.

Centres of population tend to attract bulk-increasing industries. These are industries where the output is more expensive to transport than the raw materials. They need to be close to their market in order to minimise transport costs.

  • Availability of raw materials

Some businesses use a lot of heavy and bulky raw materials in the construction of their products. However, these products may be a lot smaller and lighter compared to the raw materials with which they were built.

If the raw materials are heavy and bulky to transport, businesses often find a location near to them. These industries are known as bulk-decreasing industries, as their output is much cheaper to transport than their input. If the raw materials are heavier, the business would find  a location close to the supplier.

  • Transport costs

Different industries have different transport needs. Two major influences are the pull of the market and of raw materials. These depend on whether the industry is bulk-increasing or bulk-decreasing. However, many industries markets are spread out and raw materials come from several suppliers.

  • Availability of land

Land costs vary a lot from area to area. Some firms dealing with large quantities of goods require a lot of space. Others may need to check that a site has the right geology to support heavy weights, or the right climate for producing certain goods.

  • Availability of labour

The right sorts of labour and skills are easier to find in some areas than others. If a firm moves to an area which does not have the right sort of labour, it will have to pay employees tom ‘relocate’, or train people in the skills it needs. This costs money. In some areas there may be tradition of work in a particular industry and there will be large pool of workers with the right skills already available.

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Footloose industries are ones which do not have to be located anywhere in particular. These industries will be attracted to areas where labour is cheap.

  • Safety

Some industries have to locate their premises well away from heavily populated areas – for example, nuclear power stations, munitions factories and some chemical plants.

  • Utilities

A business must consider five utilities:

  • Gas

  • Electricity

  • Water

  • Disposal of waste

  • Drainage

Aluminium smelting for example, uses vast quantities of cheap hydro-electric power. Industries such as food preparation and paper production use large quantities ...

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