5.4 - Location

Location of a business can affect its costs, demand, image, and ability to attract employees to work for it
Right locations for a business may affect:
- Costs of production
- Tax rates paid
- Availability of employees and skills available
- Demand for the products
- Ease of accessing markets
- Ease of accessing supplies
- Access to natural resources

Benefits of Optimal Location

Deciding where to Locate

Qualitative Factors Affecting Location

Initial decision of where to set-up the business
Occurs at a time where money is tight and the firm will be heavily constrained by what it can afford
Key decision is desired capacity level
Once a firm is established it may consider relocating at some point in its development
- May be necessary bc the initial reasons for choosing a place are now gone or bc the firm has outgrown its premises
Relocating may bring problems:
- Staff who don’t want to move
- Be a period of lost production time during the move
- Costs of notifying customers and suppliers and administrative consts like changing the firm’s literature to include the new address

Globalization happens when countries become more open to trade and the movement of money, people, goods, and services across borders
Globalization has increased bc of things like:
- Better communications
- Lower transport costs
- Fewer trade barriers

Outsourcing

Occurs when a business uses other producers to undertake some of its operations
May outsource some aspects of its operations which it doesn’t see as critical to what it does/where it may benefit from the experties and scale of others
- Might outsource catering and security
May outsource its customer enquiry helplines to specialist call centres
May be times when a business outsources key parts of its process to help expand its capacity and ability to deal w/ customer orders
Outsourcing may enable a business to:
- Use the specialist services of another business
- Benefit from lower costs
- Increase its capacity
When outsourcing, a business should consider:
- Overall impact on costs
- Impact on quality
- Reliability of delivery
- Response of the existing workforce
- Any ethical issues

Offshoring

Happens when a business moves production out of its own country and to another
A business will offshore to make use of the resources elsewhere, and benefit from lower costs
Differences in wage levels mean that businesses that are labour-intensive look to locate production in low-wage economies
Producers may use offshoring to benefit from:
- Less strict health and safety, environmental protection, and employee rights regulations
- Government incentives like tax advantages
- Being closer to markets where products are sold
- More skilled workforce
All operations may be offshored, or only some of them
Can increase the competitiveness and profiatbility of a business, but moving production overseas can raise ethical issues
Problems include:
- Greater risk of delay w/ products having further to travel
- May be more difficult to manage operations overseas
- May be an exchange rate at risk if there’s a diff currency in the overseas location
- May be a risk of political change in overseas country

Reshoring

Happens when a business brings back production into the country from an overseas location bc:
- Cost advantage of overseas location has been reduced
- Domestic government provides incentives to businesses that bring back production
- May have been quality problems and the business thinks it’ll be easier to monitor and control quality if production is nearby
- Changes in the region overseas making it less attractive, like political instability

Insourcing

Refers to when a business retains or brings back a particular task in the business instead of outsourcing it
May be bc it’s cheaper and easier to undertake the task in the organization instead of paying someone else outside to provide it
May also be bc of a worry ab quality and wanting to keep these tasks in the organization so it can keep close control over them