Businesses can choose where to locate. Choice of location is critical and could be a major factor in if the business is successful.

University Degree Business and Administrative studies

Factors influencing location

Every business will locate where they think they will be successful. Businesses need to remember that they need:

Staff to work there
Raw materials to produce finished products
Customers
To keep their costs as low as possible

Factors affecting location

One of the first decisions any owner of a business has to make is where they will locate their business in order for it to be successful. In order to do this, they have to assess the costs carefully. The best location would be the one where costs are cheaper. The owner of the business has to look at the benefits of location to a particular place and the help that might be available to them from the government. Factors that might be affecting the location of a business can be divided into three main areas:

Costs of location
Benefits of location
Government influence on location

Costs and Benefits affecting location

For every potential site, the business needs to look at a combination of factors in order to weigh up the advantages and disadvantages of each factor. If a site is to be chosen, it will be the site that provides the best result but not necessarily the best in every category. All of the factors have to be assessed and ranked in order of importance to make a final choice for where to locate. Some of the factors are:

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The need to be close to the customers
Nearness to raw materials and natural resources
Transport costs
Land costs
Cost of premises
Supply of skilled and experienced labour
Safety
Waste disposal
Communication
Regional advantages
Government influence
History and tradition

Local labour supply

All businesses need to employ staff so it would be an advantage to locate in an area where people live. A remote area would have difficulties finding people to work for them. The factors that influence a particular location are often local skills and cost of labour.

Local skills

If you wanted to set up ...

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The need to be close to the customers
Nearness to raw materials and natural resources
Transport costs
Land costs
Cost of premises
Supply of skilled and experienced labour
Safety
Waste disposal
Communication
Regional advantages
Government influence
History and tradition

Local labour supply

Local skills

If you wanted to set up a pottery business, it would be a good idea to locate in the Midlands or if you wanted to make cutlery, then Sheffield would be where to locate. If you wanted to manufacture shoes, then Northamptonshire would be the ideal place to go.

Cost of labour

The cost of labour will be more significant to businesses that are labour-intensive than those which are capital-intensive. A labour-intensive firm is one that has a big number of staff e.g. schools, colleges, call centres and supermarkets. A capital-intensive firm is one where machinery does most of the work e.g. a modern electricity generation plant. The cost of labour is less important in the choice of location.

The cost of premises

The forces of demand and supply determine the cost of premises. The more demand for premises and the less that are available, the higher the cost. For that reason, premises in city centres are much more expensive than the cost of premises in the suburbs and regions. Businesses that are not dependent upon passing trade will loose their business outside of town and city centres in cheap areas or industrial estates. In Britain, many local boroughs offer businesses pay packages to encourage them to locate in their idea. They may give financial help to large firms for small enterprises. Specialist rental companies will also offer good pay packages to allow businesses to locate easily in special workspace sites, office complexes or retail centres. All these attract businesses to locate where costs will be cheap and where they will be able to expand their business without increasing their costs.

Transport links for supplies and distribution

Businesses need to be able to get supplies easily and transport them to their customers quickly. Large manufacturers, retail superstores and distribution companies need good transport links to operate profitably. Large superstores have more than one depot where they hold bulk supplies to deliver to individual stores in the area. Not every business relies on road links. Rail links are normally used for heavy goods, for example, a cement factory. Some businesses locate near airports or seaports because their business involves storing goods waiting to go overseas or arriving from overseas.

Suppliers and natural resources

Many businesses locate near its suppliers and raw materials. This is normally the case if they either:

Need a specific item that is only available in specific areas of the country.
The raw materials they need are heavy and expensive to transport.
Depend on specialist suppliers for the product they need.

If you wanted to set up in business making cement, it would be wise to locate your business near a quarry to avoid paying a lot of money to have it delivered to you. If you have a business in car making, suppliers would locate near a production company. In many cases, natural resources cannot be moved or are too expensive to move.

Competitions with businesses involved in the same activity

Too many businesses in one area competing for the same business is likely to end in some being successful and some failing miserably. In large cities, you will find many restaurants in the same area e.g. McDonalds, KFC, Burger King etc. All these restaurants compete with each other but also rely on each other. Though some businesses rely on their competitors, it is better when they are far apart in order to be successful, for example, theme parks. Relocating to a different area where there is less competition benefits a business because the chance of being successful increases.

Nearness to customers

Being close to customers is important. That is the reason why most companies are located in the south east of Britain, which is the largest consumer market in the country. Nearness to customers is not very important in industry if transport costs are cheap and customers are spread all over the country. Being near to customers is important where smaller industrial companies service the needs of larger organisations in a particular trade.

History & Tradition

The reasons for location in a particular place may be the history and tradition of the area. It also may be because a particular entrepreneur liked the area. It could also be for geographic conditions, including climate and proximity. Some firms prefer to remain in the same location because they have built up associations and supportive links.