1.5 Location

Factors affecting business location:

1.     The cost of land/premises

Businesses need large areas of land to set up factories, stores, etc. Therefore they choose locations in such areas where:

·         cost of premises is cheaper. E.g. industrial estates situating in remote areas from expensive residential areas.

·         lands are embarked for business development such as:

v  brownfield sites (land used for industrial purpose in urban area)

v  greenfield sites (land used for agriculture purpose in rural area)

2.     Cost and availability of labour

Companies tend to locate their factories where:

·         supply of labour is greater in number.

·         labours are working at lower wage rate.

E.g. China is manufacturing almost every items of Japanese brands.

3.     Transport

·         Companies relying on imports and exports of commodities are mainly located near ports.

·         Companies catering domestic market choose locations close to a good motorway or road links.

4.     Proximity to the market

·         Bulky or cumbersome product manufactures locate close to their customers to cut down transport cost.

·         Since services are sold directly to consumers so restaurants, cafes, schools, hospitals, etc are located in city centers.

5.     Government constraints and opportunities

Government try to influence location decision for the following reasons:

·         To encourage businesses to locate in areas where unemployment rate is high

·         To avoid congestion in areas where there is too much development

·         To attract investment from overseas and MNCs

·         To help develop “run-down” areas sometimes governments use regional policy like investment grants, tax rebate, etc.

Factors affecting international business location:

1.     Avoiding trade barriers

To protect domestic businesses from foreign businesses some nations impose trade barriers like tariffs, quotas, etc. To avoid paying high tariffs, MNCs set up factories in own countries.

2.     Financial incentives

Businesses may be attracted to specific nations if financial incentives are offered. Eg. Regional aid like government offering cash as “sweetener” to businesses if they locate in their countries.

3.     Cost of labour

Many MNCs have located plants and offices in countries such as India, Bangladesh where labour is cheaper.

4.     Proximity to markets or suppliers

MNCs locate near their markets/suppliers to enjoy competitive advantage i.e. minimizing transportation cost.

5.     Political stability

Political instability hinders MNCs to locate in countries like of African states.

6.     Language barriers

Language is one of the prime factors in location decision. Different languages and cultures make difficulties in communication.

N.B.  “Choosing right location is one of the key factors of a successful business”