Although you wouldn't always think it, where to locate a business is a defining feature which managers have to make. It can have an impact on many different departments of a business and, therefore, on the profitability and chances of success for the whole firm. It is also important to remember that location decisions are:
Strategic, moving location is a long term decision and must be planned.
Not easily reversed as the costs of relocation are high
Taken at the highest management level they are not delegated to subordinates, this can cause problems with staff.
When are location decisions necessary?
There are a great number of situations and reason why a business might need to relocate or find a location. A few example situations are listed below:
Newly formed businesses will have to consider where to set up their first premises. This is often close to the owner's area of residence because the owner normally knows the area well and feels most comfortable there because of the proximity to home, a good example of this is the body shop.
Expanding firms may need a new site to allow for growth or to set up a branch in a different location. McDonalds is a good example of this.
Firms faced with uncompetitive costs may have to find a cheaper location.
Businesses expanding abroad to become multinationals must select appropriate countries and locations within them.
Factors of location
When choosing a location the business must take into account the costs of moving or establishing their business in the location. Such things they have to consider are;
Labor Costs
Site and capital costs
Transport
Proximity to suppliers
Workforce disruption
Language factors
Exchange rates
Labor Cost relates to which country your in as places like India will accept lower pay for the same amount as work, although this may give the brand a bad image, unemployment is also a factor, in a high unemployment area you are likely to pick up the labor number you need as well as the ability to replace workers who leave. If the location has low unemployment the reverse will inevitably occur.
Site and capital costs are the costs that price the land will cost the amount of rent per Xyear's or the costs of building from scratch. Capital costs come into play if the production methods the firm uses are transferable or not, if not the costs will increase in order to buy new capital equipment.
Transport is crucial for all businesses especially businesses that have perishable goods, if it takes you 5 days to get to the market place and the vegetables goes bad after 2 days is it smart to be that far away?
Proximity to suppliers is not always essential as you can always change suppliers but if the business has a trusted supplier and they run on Just-In-Time then the closer the better.
If the company has to move to a location that is not accessible to its current work force there is likely to be a great deal of upset in the workplace and the costs of making those people redundant need to be taken into account.
If a business decides to move abroad to a new country with a different currency they will need to know if in this new area if their currency better i.e. is the currency worth more then before or if its worth less (prices are more expensive in the new location).
Language doesn't only refer to just French, Spanish, English, but to accents as well, some people are unable to under stand some accents because there not use to them and this can cause problems with communication.
Learning Note
Location is not normally the full basis of an essay but it is useful to note down the key points form the above article and apply it to case studies you have, although it might not be a full essay it is a useful area to know and apply to all types of questions, questioning the location of the firm in case studies is useful, especially if they do not state a real location, this way you can explore possibilities and adapt it to what you think whilst showing off your knowledge, for example, if it says the firms suffering from high labor turn over maybe its in a very low unemployment location so businesses are competing for labor with higher wages or perks.
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