The Importance of Location (OCR GCSE Business)

Factors Affecting Business Location

• A range of factors commonly impact on the location decisions of businesses
   

Proximity to the market

• The distance between the business 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 specialised 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

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

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

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

• In some locations, national or regional governments may offer incentives, such as subsidies for businesses to set up or expand their operations

  • E.g. Investment zones in the UK include Teeside, West Yorkshire and the West Midlands, which have access to interventions such as tax relief and grant funding

Benefits of a Good 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