Decisions on Business location

Proximity to Labor Proximity to Competitors

Factors that influences the

location and relocation of a
business

Proximity to Customers Proximity to Raw material

PROXIMITY (CLOSENESS) TO THE MARKET

 Business that make large or heavy

products may be located close to their
customers to keep transport costs down.
 Many service providers have to locate their
premises close to their markets. This is
because many services are sold direct to
consumers.

PROXIMITY TO LABOUR

 Businesses needing large number of workers have to

consider wage costs and labor skills. Wage rates may

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Hashan Siriwardane
BA(Hons) International Business and Finance
 vary in different regions and large companies may also consider locating in countries
where labor is very cheap.

PROXIMITY TO MATERIALS
 Businesses that use large amounts of raw materials
that ae difficult to transport may choose to locate
their premises very close to their sources. For
example , some type of business activity use up large
quantities of water and therefore might choose to
locate close to rivers, lakes or the coast. Here energy
prices have been falling owing mainly to an increase
in supply of oil and gas resulting from fracking. They
look to minimize land and property costs.

 Premises are cheap-perhaps in a business park or on an industrial estate; these are

often located away from expensive residential areas.

 Business rates (a tax paid by business to the local authorities) are low

 Land has been allocated for business development such as brownfield sites or
greenfield sites.

PROXIMITY TO COMPETITORS

 Most service providers will prefer to locate where

competition is minimized for example , an
entrepreneur opening a hair and beauty salon may
avoid locations where such businesses already exist.
However, in contrast, some business deliberately
choose locations where competitors are closely
concentrated.

SERVICES

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Hashan Siriwardane
BA(Hons) International Business and Finance
Increasingly, when choosing a suitable location, business have to take into account the ease
of the access and parking facilities. Traffic congestion is a growing problem in many parts of
the world and businesses need to choose locations where there is less chance of delays.

OFFICE BASED BUSINESSES

In some fields of business, such as creative

marketing, consultancy, financial services and
customer service provision, business activity is
office based. If large number of people have to
be employed in offices, businesses may need to
ensure that there are sufficient facilities such as
restaurants, cafes and hotels nearby.

MANUFACTURING AND PROCESSING

The location chosen by the manufacturing may

vary. This is because different types of
manufacturing have different needs. For
example, manufacturing has different needs. For
example, manufacturing that is labor intensive
will need to locate where there is a good supply
of skilled and relatively cheap labor.

AGRICULTURE

Most farmers require large areas of land for their business. However, not all land is the
same and some farming activity needs a particular type of land. For example, dairy farmers
need land where grass can grow effectively so that cows can get access to a good food
source. In the fishing industry, business will tend to be located on the coast.

LEGAL CONTROLS

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Hashan Siriwardane
BA(Hons) International Business and Finance
 Governments, both local and national, may try to influence location decisions for
several reasons.

 To avoid congestion where is already enough or too much development. This will
reduce the strain on existing infrastructure such as roads , schools and hospitals.
 Minimize the impact businesses might have on local communities. For example,
most people would object if a business opened a noisy night club in a highly
residential area or if a large petrochemical company established a refinery in a
national park.
 To encourage manufactures to locate where unemployment is high. This will help to
improve the distribution of jobs around a country.
 Government often use financial incentives to influence business choice of location.
For example, the government can offer low rates, tax breaks and low rents if they
locate in areas preferred by the government (assisted areas).
 To attract foreign manufactures into the country. Many countries rely inward
investment to help create employment and work for domestic suppliers.

TRADE BLOCS

Many countries use trade barriers to

control the level of imports inti their
country. There are a number of
reasons for this, which are discussed in
chapter 13. To avoid trade barriers,
such as tariffs (a tax on imports which
makes them more expensive) a
business might decide to locate inside
a trade bloc. A trade bloc is a group of
countries situated in the same region that join together and enjoy trade free of
barriers. An example would be African union, a trade bloc that include almost every
African nation outside north Africa.

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Hashan Siriwardane
BA(Hons) International Business and Finance