IGCSE Business Studies - 4.6.1 Main factors which influence location decisions

Objective

Recommend and justify an appropriate location for a business in a given situation.

Main Factors Influencing Location Decisions

Businesses carefully consider various factors when deciding where to locate their operations. These factors can significantly impact a business's success, profitability, and competitiveness. The key factors are:

• Proximity to Customers: Being close to the target market can reduce transportation costs and improve customer service.
• Proximity to Suppliers: Locating near suppliers can lower input costs and ensure a reliable supply chain.
• Availability of Labour: Access to a skilled and affordable workforce is crucial.
• Infrastructure: Adequate infrastructure (transport, communication, utilities) is essential for smooth operations.
• Government Policies and Incentives: Tax breaks, grants, and other government support can make a location more attractive.
• Cost of Land and Buildings: The price of land and buildings can vary significantly between locations.
• Competition: The level of competition in a location needs to be considered.
• Quality of Life: Attracting and retaining employees often requires a location with a good quality of life.
• Access to Markets: Ease of access to both domestic and international markets is important.

Detailed Explanation of Key Factors

Let's delve deeper into some of these factors:

1. Proximity to Customers

Justification: Reduces transportation costs (fuel, vehicle maintenance), improves delivery times, and allows for better customer interaction and responsiveness. Especially important for businesses selling bulky or perishable goods.

2. Proximity to Suppliers

Justification: Lowers the cost of raw materials and components, ensures a consistent supply, and reduces the risk of delays. Important for manufacturers and businesses with high input requirements.

3. Availability of Labour

Justification: Access to a skilled and affordable workforce is vital. Consider the local skill base, wage rates, and potential for training. A location with a strong local workforce can improve productivity and reduce recruitment costs.

4. Infrastructure

Justification: Reliable transportation (roads, railways, ports, airports), communication networks (internet, phone), and utilities (electricity, water, gas) are essential for efficient operations. Poor infrastructure can lead to delays, increased costs, and operational difficulties.

5. Government Policies and Incentives

Justification: Government incentives (tax breaks, grants, subsidies) can significantly reduce start-up costs and improve profitability. Policies related to planning, environment, and labour can also influence location decisions.

6. Cost of Land and Buildings

Justification: Land and building costs can vary dramatically between locations. Businesses need to consider the initial investment and ongoing costs associated with property.

7. Quality of Life

Justification: A good quality of life (schools, healthcare, leisure facilities) can attract and retain employees. This reduces staff turnover and improves morale.

Making a Location Recommendation

To recommend a location, a business needs to analyze its specific needs and priorities. This involves weighing the advantages and disadvantages of different locations based on the factors outlined above. A SWOT analysis can be a useful tool for this purpose.

Factor	Location A	Location B	Analysis
Proximity to Customers	High	Low	Location A is better for businesses needing quick delivery.
Proximity to Suppliers	Low	High	Location B is better for businesses requiring frequent deliveries.
Availability of Labour	Medium	High	Location B has a larger pool of skilled workers.
Infrastructure	Good	Average	Location A has better transport links.
Cost of Land and Buildings	High	Low	Location B is more cost-effective.

Example Scenario: A manufacturing company producing high-tech electronics needs to decide between London and Manchester.

Recommendation: Manchester is the more appropriate location.

Justification: While London offers excellent access to customers and skilled labour, Manchester provides a lower cost of land and buildings, a strong pool of engineering graduates, and good transport links. The lower operating costs in Manchester outweigh the potential benefits of being in London.

Conclusion

Choosing the right location is a critical decision for any business. By carefully considering the factors outlined above and conducting thorough research, businesses can make informed choices that support their long-term success.