Business Location and Relocation Factors

Learning Objectives

• Understand the factors that influence the location and relocation of businesses.
• Proximity of market, labour, materials, and competitors.
• Nature of the business activity.
• The impact of the internet on location decisions; e-commerce and/or fixed premises.
• Legal control and trade blocks.

Factors Influencing Location and Relocation

• Historically, manufacturers were near sources of power and raw materials. They were close to their resources.
• Today, gas and electricity can be supplied to most places, so manufacturers do not need to be located close to power sources.

Proximity to the Market

• Businesses that make large or heavy products want to be close to their customers to keep transportation costs down.
• Many service providers have to locate their premises close to their markets because services are directly sold to customers.
• Examples: restaurants, salons, cafes in towns and cities where the majority of customers are.

Proximity to Labour

• Businesses that need large amounts of labour must consider wage costs and labour skills.
• Wage rates vary in different regions and countries. Businesses may want to be situated where labour is very cheap to pay workers lower wages.
• Labour skills are not evenly distributed throughout a country. If a business needs a particular skilled labour force, certain areas will be better than others.
• Examples: USA and Europe have relocated production operations to Mexico and the Far East as labour is relatively cheap.

Proximity to Materials

• Businesses may choose to be close to their materials as it may be difficult to transport them. They want to be close to their sources.
• They will be interested in areas where cheap energy resources are available.
• Some businesses (e.g., supermarkets) need large amounts of land to locate buildings, staff car parks, and other facilities, so they look to minimise property costs. They may set up where:
  • Premises are cheap
  • Business rates are low
  • Where land has been allocated for business development, such as brownfield and greenfield sites

Proximity to Competitors

• Most businesses prefer to locate their businesses away from their competitors.
• Some businesses will, however, locate them close to their competitors. This is important in industries where comparison shopping is important.
• May also catch excess demand from existing businesses, particularly in restaurants and entertainment areas.

Factors for Locating a Nuclear Power Station

• Government influence: Nuclear plants cannot be built without a lengthy consultation process involving the authorities, local communities, and the power companies. There are legal controls over their location.
• Nuclear plants need stable ground and plenty of space.
• Most plants need access to a water source, such as a lake or river.
• Access to a large workforce. The construction of nuclear plants may need around 2000 people and around 500 more to help operate them.
• Many nuclear plants around the world are built just outside small or mid-size towns and on the coast.

Changing Business Environment and Service Providers

• The changing business environment may affect the location decisions made by some businesses. In recent years, retailing has changed significantly.
• Many thousands of businesses providing services now operate online.
• Some high-profile examples include Amazon, Alibaba, Facebook, and Twitter.
• Online businesses may operate as retailers, consultants, bloggers, tutors, web designers, information providers, and teachers, for example.
• The one thing they all have in common is that they use the Internet to trade.
• One of the main advantages of these businesses is that they can be located anywhere.
• Most traders online can locate their base anywhere in the world provided they have access to the Internet.

Nature of Business Activity

• Services
• Office-based businesses
• Manufacturing and processes
• Agriculture

Services

• Businesses will take into account ease of access and parking facilities.
• Traffic congestion is an issue, and many people will try and locate where this is not an issue - less time delays.
• Drive-thrus have been developed to deal with the parking issue.
• Some service providers locate in specialist shopping areas. They are designed for easy access and contain large numbers of people. They attract many thousands of visitors a day.

Office-Based Business

• If businesses employ large amounts of employees, offices need to ensure there are sufficient facilities (restaurants, cafes & hotels nearby).
• Head offices are based in large popular cities; lots of amenities and other facilities also help to improve the image of the business.
• Some office-based businesses will prefer to locate where costs are cheaper why?

Manufacturing and Processing

• Chosen locations vary; different manufacturers have different needs.
• Labour-intensive manufacturing will locate near a plentiful labour supply skilled and relatively cheap (where they can get access to skilled people easily).
• Coal-powered power stations are likely to be located close to coal mines or access to coal imports.
• Oil refineries are often located on the coast oil transferred straight from ships to the refineries.
• Manufacturers that need access to a large amount of land may choose locations where land is relatively cheap and lots of space (edge of towns).

Agriculture

• Most farmers require a large amount of land, but not all land is suitable for all types of farming.
• Dairy farmers need land where grass can be grown, whereas vegetable growers need fertile land, and cereal growers need slightly less fertile land.
• Fruit growers need land that is sandy and well-drained, and tropical fruit can only be grown in tropical conditions.
• Fishing industry businesses will locate on the coast. Different types of fisherman need different conditions oyster fisherman need to locate close to an oyster reef; these are found where rivers meet the sea.

Restaurant Locations Factors

• Service providers may have different location requirements to those of manufacturers. In this case, Abdullah is choosing a location for his seafood restaurant in Manama, Bahrain.
• For many service providers, proximity to their market is crucial. This is because many services are sold direct to consumers. For example, restaurants, cafes, shops, hair salons, taxis and dry cleaners have to be located in towns and cities. This is where customers live and shop. In this case Abdullah wants to target business customers working in the financial quarter of the city so this would presumably influence his search for a location.
• For customers, suppliers and employees, easy access and parking is becoming a serious issue. Traffic congestion is a growing problem in many parts of the world. Businesses need to choose locations where there is less chance of traffic congestion. It is particularly important for customers since they will quickly look for alternatives if they cannot park conveniently. Some service businesses, particularly fast-food providers, are developing 'drive-through' facilities to avoid parking problems. In this case, Abdullah's potential customers, office workers for example, may be within walking distance from his restaurant. This would be an advantage but he might also be keen to find a location where customers can park easily when arriving for a meal or a night out.

Deliberately Locating Close to Competitors

• Abdullah is currently considering a location close to where a number of other restaurants operate. Premises occupied by a recently failed restaurant have become available but he is concerned about the competition in the area - many entrepreneurs would share this fear. However, in contrast some businesses deliberately choose locations where there is a concentration of similar businesses. This might be important in industries where comparison shopping is popular. It might also be possible to catch the excess demand from existing businesses, particularly if premises are located in a restaurant and entertainment area. Consequently, for these reasons, Abdullah may eventually decide to locate is seafood restaurant close to potential rivals.

Impact of the Internet on Location Decisions

• E-commerce has led to more flexibility in choosing business locations.
• Retailers can serve national markets and be far away from their customers.
• Businesses do not need to have fixed premises run from anywhere as long as they have internet connections.
• Businesses will need greater network speeds and capacity to operate effectively many businesses operate in the global market; access to continual communication systems is vital.
• Some businesses have better connections and faster electronic communication links than others.

Influence of Legal Controls and Trade Blocs on Location

• Local and national governments may try to influence location decisions for several reasons:
  • To avoid congestion
  • Minimise the effect of businesses on the local community
  • To encourage manufacturers to locate in areas of high unemployment
  • Use of financial incentives low rates, tax breaks, and low rents
  • To attract foreign manufacturers into the country creates employment and work for domestic suppliers
• The easiest way is to operate strict planning controls need permission to locate a business in a location. Some businesses require lengthy consultation periods and viability studies for planning is given leads to delays for the business.

Trade Blocs

• Countries use trade barriers to reduce the amount of imports coming into a country.
• These trade barriers will have an impact on location decisions.
• To avoid trade barriers, businesses might then decide to locate inside a trade bloc.
• A trade bloc is a group of countries situated in the same region and enjoy trade-free barriers.