What Is a Location for a Business?
Key factors to consider when making location decisions:
- Nature of the business: The type of business and its operations (e.g., retail, manufacturing, online).
- Nature of the product: The product’s characteristics (e.g., perishable, heavy, high-tech).
- Proximity to customers: The location’s accessibility to target customers.
- Availability of resources: Access to labor, materials, and infrastructure.
- Costs: Land costs, operating costs, and potential relocation costs.
- Government incentives: Tax breaks or subsidies offered by local authorities.
Types of location decisions:
- New business location: Choosing the initial location for a new business.
- Expansion: Selecting locations for new branches or operations.
- Relocation: Moving to a new location due to changing circumstances.
The importance of location:
- Irreversibility: Location decisions are often difficult to reverse.
- High costs: Relocation can be expensive and may involve sunk costs.
- Long-term impact: Location can significantly affect a business’s profitability and survival.
Quantitative Reasons for a Location
Key Quantitative Factors:
- Land: Cost, availability, and suitability for the business’s needs.
- Labor: Availability, quality, and cost of labor.
- Market proximity: Distance and accessibility to customers.
- Raw materials: Proximity and availability of raw materials.
- Government incentives: Tax breaks, grants, and subsidies.
- E-commerce feasibility: The potential to use online sales to reduce location dependence.
Land:
- Cost: Land in city centers is generally more expensive due to high demand and limited supply.
- Suitability: Land must be suitable for the business’s needs (e.g., agricultural, industrial).
Labor:
- Availability: The supply of qualified labor in the area.
- Cost: Wage levels and labor costs compared to other locations.
Market proximity:
- Customer accessibility: The ease of reaching customers.
- Just-in-time (JIT) production: Proximity to suppliers for JIT systems.
Raw materials:
- Proximity: Location near sources of raw materials, especially for bulk-reducing industries.
Government incentives and regulations:
- Incentives: Tax breaks, grants, and subsidies offered by governments.
- Regulations: Zoning laws, environmental regulations, and licensing requirements.
E-commerce:
- Feasibility: The ability to sell products online can reduce the importance of physical location.
- Limitations: Some businesses still require a physical presence (e.g., retail, manufacturing).
Qualitative Reasons for a Location
Key qualitative factors:
- Management preferences: Personal preferences, familiarity, and emotional attachments.
- Local knowledge: Understanding the local culture and market.
- Infrastructure: Transportation, communication, and support networks.
- Political stability: The stability of the political environment.
- Government regulations: Administrative procedures and regulations.
- Ethical issues: Environmental impact, job losses, and social responsibility.
- Clustering: Locating near similar businesses to benefit from shared customers.
Infrastructure:
- Transportation: Access to roads, railways, ports, and airports.
- Communication: Availability of telephone lines, internet, and postal services.
- Support services: Utilities, maintenance, and other essential services.
Political Stability:
- Economic stability: Low inflation, stable currency, and predictable economic policies.
- Corruption: A low level of corruption and transparent government.
Government Regulations:
- Ease of doing business: The complexity and efficiency of administrative procedures.
- Tax rates: The level of corporate taxation.
Ethical Issues:
- Environmental impact: The business’s impact on the environment.
- Social responsibility: The impact on local communities and job creation.
Clustering:
- Shared customers: Benefits from attracting customers to the area.
- Complementary products: Offering complementary goods and services.
Ways of Reorganizing Production
Outsourcing:
- Definition: Transferring internal business activities to external organizations.
- Benefits: Reduced costs, increased efficiency, access to expertise.
- Commonly outsourced activities: Recruitment, cleaning, accounting, property management, call centers, IT.
- Challenges: Quality control, communication, ethical concerns.
Offshoring:
- Definition: Relocating business functions overseas.
- Types: Production offshoring (manufacturing), services offshoring (call centers, R&D).
- Benefits: Lower costs, access to skilled labor, avoidance of trade barriers.
- Challenges: Quality control, cultural differences, political instability.
Insourcing:
- Definition: Bringing back previously outsourced functions in-house.
- Reasons: Dissatisfaction with quality, cost savings, improved control.
- Challenges: Increased costs, potential relocation challenges.
Reshoring:
- Definition: Transferring business operations back to the home country.
- Reasons: Quality concerns, rising costs, supply chain disruptions, government support.
- Challenges: Increased costs, logistical challenges.
Factors influencing outsourcing decisions:
- Costs: Labor costs, infrastructure costs, and transportation costs.
- Quality: The ability to maintain quality standards.
- Expertise: Access to specialized skills and knowledge.
Risk: Political instability, ethical concerns, and supply chain disruptions.
