Business Location

This section explains business location. Business location is a critical decision for any company, as it impacts costs, efficiency, and customer reach. When deciding where to set up a business, several factors must be considered, including proximity to the market, labour, materials, competitors, infrastructure, and the influence of the internet.

Proximity to the Market

Definition: Refers to how close a business is to its target customers or consumers.

Why it matters:

Convenience for customers: Businesses in retail or service industries benefit from being close to their target market, as it makes it easier for customers to access products or services.

Reduced delivery costs: Being near the market can reduce transportation costs for goods and services.

Customer loyalty: For businesses with a physical presence, proximity can improve customer retention and brand loyalty.

Example: Supermarkets, convenience stores, and restaurants tend to be located in residential areas or busy shopping districts to maximise footfall.

Proximity to Labour

Definition: Refers to the availability of workers with the right skills and qualifications in the local area.

Why it matters:

Access to skilled workers: A business needs to be in a location where it can attract skilled workers. For example, tech companies might be situated near universities or cities with a high concentration of qualified professionals.

Cost of labour: The cost of employing workers can vary depending on location. Urban areas may have higher labour costs due to higher living expenses.

Employee retention: Businesses should consider areas where workers are more likely to stay for longer periods.

Example: Manufacturing businesses may locate near towns with a skilled workforce in engineering or technical fields.

Proximity to Materials

Definition: Refers to the availability of raw materials or supplies that a business needs to produce its goods or services.

Why it matters:

Reduced transportation costs: Being close to sources of raw materials can lower the cost of transport and ensure a reliable supply chain.

Efficiency: Businesses in industries such as construction or manufacturing may need quick access to raw materials to avoid production delays.

Example: Car manufacturers often set up near steel producers or parts suppliers to reduce production delays and transportation costs.

Proximity to Competitors

Definition: Refers to how close a business is to other companies offering similar products or services.

Why it matters:

Competitive advantage: Being close to competitors can encourage innovation and attract customers, as consumers often compare different brands in the same location.

Benefits of clustering: Some businesses benefit from being near others in the same industry. For example, fashion retailers may benefit from being in the same area, as customers expect to find a variety of stores in one location.

Threat of competition: On the other hand, too much competition may make it harder for a business to stand out, especially in oversaturated markets.

Example: High streets or shopping malls often host clusters of fashion stores, while tech companies may choose business parks to cluster together.

Nature of the Business Activity

The type of business activity can greatly influence location decisions.

Retail: Retail businesses typically need to be located in areas with high foot traffic, such as city centres, malls, or busy high streets. This allows them to attract customers easily.

Service: Service businesses, such as banks, hairdressers, and restaurants, need to be in accessible areas where customers are likely to come frequently. Proximity to offices, residential areas, or shopping districts is often ideal.

Manufacturing: Manufacturing businesses often require larger spaces, access to raw materials, and transport links. They are usually located in industrial zones or outskirts of cities to save on costs and have room for factories and warehouses.

Example: A law firm might choose to locate in a city centre to be closer to clients, while a car manufacturing plant would likely be in an industrial area with good transport links.

The Importance of Infrastructure

Definition: Refers to the physical and organisational structures needed for the operation of a business, such as roads, utilities, and communication networks.

Why it matters:

Efficient logistics: Good transport infrastructure (e.g., roads, railways, ports) is essential for businesses that rely on the delivery of goods or the movement of people.

Access to utilities: Access to reliable water, electricity, and internet services is critical for the day-to-day running of most businesses.

Technology: For businesses in industries such as IT, good broadband and telecommunications infrastructure is essential.

Example: Logistics businesses and online retailers often locate near major motorways or distribution hubs to facilitate fast and efficient delivery.

The Impact of the Internet on Location Decisions

The internet has made location less important for some businesses, especially in sectors like e-commerce.

Benefits:

Global reach: Businesses can sell to customers worldwide without needing a physical store. The location of the business becomes less important as long as there is reliable shipping and access to suppliers.

Cost savings: E-commerce businesses may choose locations with lower operational costs, such as rural areas, to save on rent and wages.

Example: An online clothing retailer can operate from a small warehouse in a remote location and still sell globally, as long as they have efficient logistics.

E-Commerce and Fixed Premises

E-Commerce: Online businesses that operate without physical stores have more flexibility in their choice of location. E-commerce companies often focus on reducing costs, such as rent, and may set up in cheaper areas or work from home.

Fixed Premises: Businesses that rely on physical premises, such as retail stores or restaurants, must consider customer traffic, local demographics, and competition when choosing a location.

Example: A local bakery may need a shop front in a busy area, while an online business selling gadgets may operate from a small office or warehouse in a less expensive area.

Conclusion

The decision about where to locate a business is influenced by a variety of factors, including the nature of the business, costs, market proximity, and available infrastructure. While the internet has given rise to e-commerce, making location less important for some businesses, for others, physical location remains crucial for attracting customers, securing labour, and reducing operational costs. Understanding these factors can help businesses make the best decisions for their long-term success.