Business - decisions on location and the importance and growth of multinational companies

what are the decisions on location?

• proximity to: market, labour, materials, competitiors

• services, office based businesses, manufacturing and processing, agricultural

proximity to the market

• businesses may be located close to their customers to keep costs down

• many service providers locate near their markets because the services are sold direct to consumers

proximity to labour

• if a firm needs a particular type of skilled labour, certain locations may be more suitable than others

• companies may consider locating where the labour is very cheap

proximity to materials

• businesses that use large amounts of raw materials that are difficult to transport may choose to locate near their sources

• some require land to to locate buildings, they look to minimise cost

proximity to competitors

• most service providers prefer to locate where competition is minimised

• others may choose locations where competition is concentrated on purpose

sevices

• some service providers locate in specialist shopping areas which are usually designed for easy access and a very large number outlets

• they can attract many more visitors

office based businesses

• in some fields of business such as creative marketing, business activity is office based

• businesses may need to ensure sufficient facilities if there are many employees

• many businesses locate their head offices in large and popular cuties

• this can also improve the image of the business

manufacturing and processing

• different types of manufacturing have different needs

• for example: manufacturers that need very large areas of land may choose locations where land is relatively cheap

agricultural

• most farmer need large areas of land for their businesses

• however, some farming activity need a particular type of land

what is the impact of the internet on location decisions?

• the development of online businesses mean that many entrepreneurs have a lot more flexibility when choosing a location

• they also don’t have to have a fixed premise

• so they can be located anywhere in the world and still serve a global market

why do governments try to influence decision on location?

• to avoid congestion which will reduce the strain on existing infrastructure

• to minimise the impact businesses may have on local communities

• to encourage manufacturers to locate where unemployment is high to help improve job distribution

• to attract foreign manufacturers

how have multinationals developed?

• economies of scale: many companies have developed into multinationals since larger companies enjoy lower costs

• marketing: by relying on effective marketing

• technical and financial superiority: they have developed advanced technology and can afford to invest in research and development

what are the benefits to a business of becoming a multinational?

• larger customer base: they will have access to a much larger market, and boost their sales by selling to global markets which will help increase profit

• lower costs: they can buy resources at lower prices and borrow money at cheaper rates

• higher profile: the business will enjoy a higher profile in the market. this can encourage existing customers and attract new ones

• lower taxes: they can reduce the amount of tax they pay by basing their head offices in countries with low tax

what are the benefits of multinationals to a country or economy?

• increase in income and employment: multinationals create new jobs in developing countries so economic growth is increased, as well as living standards

• increase in tax revenue: this can be used to improve government services

• transfer of technology: they may help local suppliers to purchase resources and modernise production facilities

• enterprise development: they encourage more people to set up in less developed countries

what are the disadvantages of multinationals to a country or economy?

• environmental damage: they are heavily involved in extraction industries which cause damage to the environment

• exploitation of less developed countries: they often pay low wages, employ child labour and often have poor conditions in working facilities.

• lack of accountability: because multinationals are so large and powerful, they lack accountability they may also be keener to operate where regulation is insufficient