Notesale: Turn your study into money

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Chapter 14: Operational Strategies: Location
The main factors influencing business location
Technology
- Has allowed businesses to be more flexible, operating from a much wider choice of locations
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- When considering international location, it is vital to consider how advanced the technology is in
that country
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- In the case of wages, it is the labour costs per unit that are most important
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- As a consequence, more businesses are relocating their manufacturing to emerging economies
such as Russia and China
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- Large businesses will need to be aware of the quality of the infrastructure when considering
relocation
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- The owner may wish to relocate the business close to his or her own home, or in a place that has
good local facilities, such as cinemas, gyms or a picturesque location
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- Heavy industries e
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iron and steel usually locate in close proximity to their raw materials supplies
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- For some industries such as brewing and soft drinks, the accessibility of water means that the final
product is bulkier to transport than the raw materials
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- The location of suppliers is still a key factor influencing business location
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The market
- For retailers and other service industries, the market is the most important influence on location
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- Organisations save transport costs if they locate close to their market
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Government intervention
- Members of the EU must regulate their regional policy within the guidelines established by the
European Commission
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This government pays for a
certain percentage of the cost of capital investment, with higher percentage grants available to
smaller firms
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Industrial inertia
- Another factor that can influence location
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One reason for this is that established firms can benefit from external economies of
scale
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- suppliers and customers based locally
- the reputation of the area, which may help to sell the product or allow the firm to change a
premium price
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These are known as external diseconomies of scale
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This encourages firms to remain in their original location
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- Other factors that will be considered by a firm if it already has a base and is considering relocation
elsewhere are:
- loss of skills developed in the existing workforce
- lower morale and productivity prior to relocation, as a result of some staff probably losing their
jobs
- the break-up of working groups
- finding new suppliers and customers
- finding new suppliers and customers
- the cost of relocation
- redundancy payments
- transitional difficulties while adjusting to the new location and processes
- potential damage to the firm’s image caused by these changes
- These problems need to be set against the benefits gained from the new location
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- However, a business should not rely solely on quantitative factors when deciding on a business
location
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- Providing a unique selling point
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- Increasing flexibility
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- Government legislation on employment may also influence location
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Global markets
- With 61 million potential customers, firms in the UK can produce on a large scale, achieving high
economies of scale
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-For individual multinational firms, the size of a market is a major factor in deciding on location
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- Despite its population, China is still economically and financially a much smaller market than US
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- In particular, Western economies can benefit from much lower wage and land costs by
relocating to countries in Eastern Europe or Asian countries
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This improves its global competitiveness
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- The most common forms of protection are:
- quotas (a limit on the number of imports allowed)
- tariffs (taxes) on imports from other countries, to make imports more expensive
- subsidies on domestic products, allowing these firms to keep their prices low
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- Quotas achieve this by physically preventing more than a certain quantity of imports
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