Factors Influencing Business Location (AQA GCSE Business)
Revision Note
Written by: Lisa Eades
Reviewed by: Steve Vorster
An Introduction to Business Location
Choosing a good location can have significant impacts on a business, such as attracting customers, reducing costs, accessing skilled labour, remaining competitive, and enhancing its reputation
A range of factors commonly impact on the location decisions of businesses
Diagram: Factors Affecting Business Location
Business locations are affected by multiple factors and if a business chooses the wrong location, it can fail
Proximity to the Market
The distance between a businesses location and its target market is particularly important to some businesses
Businesses offering a service, such as restaurants, grocers and hairdressers, often need to be located close to their customers
A business offering delivery services to its customers can minimise its transportation costs if it is located close to where they live or work
Businesses that rely on passing trade are best located in places where interested customers are likely to visit regularly, such as close to their homes
Businesses that offer specialist or unique services, such as luxury spas and theme parks, do not necessarily need to be located close to customers, as they are often willing to travel significant distances to enjoy them
E.g. The Eden Project, located in the far south-west of Cornwall, attracts more than 650,000 visitors each year
Availability of Materials
Businesses often locate near their suppliers if the delivery of raw materials is time critical
E.g. A fruit juice manufacturer may locate its factory near to soft fruit growers in areas, such as Gloucestershire or Kent, to ensure raw materials arrive fresh and unblemished
If materials are expensive or difficult to transport, a business may choose to locate close to their source
E.g. Manufacturers of building products such as bricks and concrete often locate close to key quarrying areas to reduce transportation costs
Sometimes businesses locate close to the natural source of key raw materials
E.g. Several brewing companies locate alongside the gypsum-rich River Trent in Burton, as this key ingredient gives their products a distinctive taste
Availability of Labour
Businesses often establish their operations close to areas with a skilled pool of labour
E.g. Many hi-tech companies choose to locate near universities or within the M4 Corridor whilst call centre businesses are attracted to areas such as the North East where there is a concentration of workers with customer service skills
Some businesses move their operations overseas to countries with lower average wage costs
E.g. Durable goods manufacturer Hotpoint has moved much of its manufacturing to Poland, where average wage costs are around half of the UK level
The availability of reliable transport links can impact on location decisions
Reliable, low-cost public transport options or a fast road network can allow workers to commute relatively long distances to work
Proximity to Competition
Some businesses locate in an area where rivals are concentrated, as it acts as a draw to customers
E.g. Second-hand booksellers are drawn to Hay on Wye in South Wales as it is well-known for its concentration of bookshops and hosts a popular annual literary festival
Other businesses look for locations where few rivals exist, so that they can capture a significant market share and avoid the need to compete on price
E.g. A beauty salon may choose a location where there are no rivals offering similar services and can be the sole business offering these services
Location Costs
Some small business owners choose to run their business from home, operate from shared office spaces or require employees to work remotely to minimise operating costs
The cost of renting or buying property can have a significant impact on the choice of location
The cost must be weighed against other factors, particularly proximity to customers and level of passing trade
E.g. The cost of renting a retail unit within the popular Bluewater Shopping Centre is around eight times greater than in the town centre of nearby Dartford
Location costs are higher in London and the south-east of England than in all other parts of the UK
Globally, the most expensive locations to locate businesses include Hong Kong, Zurich and San Francisco
Examiner Tips and Tricks
Consider the nature of the business when weighing up factors affecting location. Different types of businesses have different needs in terms of space, infrastructure and accessibility.
E.g. A manufacturing factory may require a large space for equipment and a loading area for shipping and receiving goods, while a service business such as a law firm may require less space in an accessible office location.
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