How to Choose Your Business Location (18.1)
- Thiago Casarin Lucenti
- 5 days ago
- 2 min read
Chapter 18 - Location Decisions
Lesson Objective: To understand how businesses pick their location
Location is one of the most important decisions for a business. Full stop!
The right or wrong location decision can either positively or negatively impact:
Costs;
Sales;
Delivery of products and services.
Location is a long-term decision!
What do YOU think are the most important factors to consider when making a location-decision?
There are many things to take into consideration when deciding on location:
1. The most obvious factor is Cost: how much will it add to the business costs to choose a certain location? Here we are discussing the cost of site (e.g. rent, purchase of the place).
2. Labor Costs and Availability: average wage in the area (depends on country, competitors, availability). Is it possible to hire required workers in that location?
3. Transportation Costs: costs of receiving supplies and cost of shipping to customers (retailers, wholesalers, final consumers).
4. Market Potential: sales revenue is highly dependent on location for tertiary businesses (restaurants, shops, hotels) but less important for secondary ones.
5. Government Incentives: local and national governments try to encourage businesses to set-up in their areas and can significantly reduce set-up costs.
6. Size of Site: big enough for current operations but with room for future growth (e.g. Orchlon).
7. Legal Restrictions: locating businesses in certain areas may be restricted (e.g. manufacturing in residential areas).
8. Quality of Local Infrastructure: transport infrastructure, support services (i.e. electricity, water, telecommunications).
9. Ethical Issues & Concerns: relocating can bring ethical issues such as unemployment in some areas and low-wage employment in others - can damage a business reputation, sales revenue, profits.
Companies relocate operations sometimes. Can you guess the main reasons why?
Businesses are always looking for opportunities to grow: when they reach the maturity or decline stage in one market they are likely to relocate to explore new markets opportunities.
Very often businesses choose to relocate to reduce costs of production: labor and material, for example, may be much cheaper in certain countries compared to others.
Finally, businesses may choose to relocate with the intention of being closer to their market (consumers): reducing delivery time and costs as well as 'becoming local'.
To have access to global markets for growth, increased sales, economies of scale, and profitability.
To avoid legal barriers/import tariffs (i.e. import taxes) - these restrictions do not apply to foreign companies that set up operations locally.
To take advantage of government incentives such as subsidies (e.g. tax benefits), land, etc.
Why do governments offer benefits to multinational businesses setting up operations in their countries?
Employment;
Improved workforce skills (including management);
New technology introduction;
Improved products' quality;
More choices of products for consumers;
GDP growth.
To-Do-List
Exam Practice Questions #1
Chapter 18 - Location Decisions
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