Locating Operations

Regional Location

Businesses need to choose which regional locations are best for their operations.There are a number of factors that impact regional location. Location is based on a combination of quantitative (measurable) and qualitative factors

Cost

• Cost of land varies between locations
• Costs of labour and services also vary
• The choice of business location therefore affects profitability

Resources

• The availability of resource can influence location
• These may be natural resources or could be technological resources
• Businesses often cluster together in areas where there is particular expertise e.g. hi-tech organisations are centred on the M4 corridor in the UK

Infrastructure

• Infrastructure refers to energy and transport facilities
• These factors influence the ease, speed and costs of production
• The impact of infrastructure on firms is dependent on the type of business and their needs

Market

• Location of the market may influence location choice
• For some businesses it is important to be close to the market
• If businesses don’t need to be close to their market they may need to have good access to the market

Government Intervention

• Government grants are offered in certain areas these make the area more attractive to businesses

Qualitative Factors

Businesses may also consider qualitative factors including:

• Quality of life
• Image
• Ethical issues

Analysis of Factors

Businesses will use a number of methods to analyse the best location:

Break even analysis

• They will calculate costs and revenues to see how many units they need to break even.
• If fixed costs e.g. rent are lower in one location than another this will reduce break even output
• If variable costs e.g. wages are lower in one location than another this will reduce break even output
• The greater the margin of safety at a particular location the lower the risk

Investment Appraisal Techniques

• Businesses can use investment appraisal techniques such as payback, ARR and NPV to see which location is best
• Businesses usually select the option with the quickest payback, the highest ARR and the highest NPV

Types of Location Decision

Organisations have a number of different location decisions:

• Where to locate their business
• When they start up
• Relocation
• Expansion

International Location

Multinational businesses locate in more than one country. If you locate overseas you need to consider additional factors

Why locate overseas?

Businesses often locate overseas to:

• Exploit lower costs
• Benefit from less regulation
• Benefit from cheaper labour
• Use minerals / resources in a country
• Exploit market opportunities overseas
• To be closer to overseas customers
• To overcome protectionist trade barriers
• To decrease trade union power
• To decrease exchange rate problems