Location

5.4 Oxford book

Factors in locating a business

Factors in locating a business

• Costs

• Competition

• Type of land

• Markets

• Familiarity with the area

• Labour pool

• Infrastructure

• Suppliers

• Government

• National, regional or international ambition

Bulk increasing

Buying in many components and building something bigger like a car or TV.

Bulk decreasing

Buying in large quantities of raw materials and turning them into smaller end products such as paper mills/glass foundries. 

Pull factors of globalisation

• Improved communications

  • Easy to transport products around the world. 

• Dismantling of trade barriers 

  • Easy to trade around the world with less barriers stopping them. 

• Deregulation on the world’s financial markets

  • Easy to transfer sums of money to start up business. 

• Increasing size of multinational companies

  • Easier to set up in other countries. 

Push factors of globalisation

By expanding they may be able to:

• Reduce costs 

  • Closer to materials

  • Cheaper labour 

• Increasing market share

  • Tap into a new market. 

  • Maybe harder due to different cultures, language barriers, local laws, etc. 

• Using extension strategies

  • Want to extend life cycle of their products

  • New areas, new markets. 

• Using defensive strategies

  • Doing it so their competitors don't do it first. 

Outsourcing (subcontracting)

• Using another business to complete a part of their work. 

• The business can focus on its core activity. 

Advantages of outsourcing

• Reduce costs 

• Focus on core activities 

• Improved capacity utilisation

• Reduced delivery time 

• Transfer of expertise 

Disadvantages of outsourcing

• Dependent on the supplier - what if they become unreliable 

• Less control on final product 

• Dilution of brand. Consumers realise that it's not produced by the company at all. 

Offshoring

• Extension of outsourcing - outsourcing outside the home country. 

• Cultural differences 

• Communication may be different due to language and time zones 

• Issues of quality and ethics. 

Insourcing

• The practice of performing peripheral activities internally within the company.

• Opposite of outsourcing 

• Want to feel in full control.

Reshoring

• The practice of bringing back business functions to the home country. 

• Opposite of offshoring. 

• Business still uses external providers just in home country.