0264 · 4.6.1Main factors which influence location decisions

Manufacturer location factors

0:00A factory beside a main road can receive materials quickly. A café on a busy pedestrian street can attract customers throughout the day. Both businesses need a suitable location, but different features make each place attractive. By the end of this video, you will understand how businesses compare locations and support a choice with evidence. A location decision is a choice about where a business operates. Goods are physical products, while services are activities carried out for customers.

0:25A manufacturer makes goods, such as furniture, while a service business might cut hair or provide banking. The right place depends on what the business does and how it reaches customers. Revenue is the income a business receives from selling goods or services. Profit is total revenue minus total costs. Location affects both sides of that calculation because premises create costs and access to customers influences sales. A business therefore needs to compare the overall effects of each site on its operations.

0:53Raw materials are basic inputs a business turns into products. A manufacturer weighs eight location factors: raw materials, the market, labour, transport, power and water, government grants and planning rules, land cost, and climate. Heavy inputs are expensive to transport, so a manufacturer may choose a site near where they are produced. This matters most when the inputs weigh more than the finished product, as when a cement works crushes heavy rock.

1:18Perishable materials also favour short journeys because delays can cause spoilage. A market is where buyers and sellers of a particular product come together. Closeness to the market becomes especially important when finished goods are bulky or fragile. A furniture manufacturer can reduce delivery costs by operating near its customers. Shorter journeys also mean less handling, so fragile goods such as glass windows suffer less damage. A bakery making fresh bread needs to be close to its shops so the products arrive before they go stale.

1:46The availability and cost of labour influence whether a factory can recruit suitable employees. A manufacturer of precision components needs applicants with the right technical skills. Higher wages may be worthwhile if experienced employees produce accurate parts and reduce waste. A cheaper area becomes less attractive when the business must spend heavily on recruitment and training. Transport links connect a site to suppliers and customers through roads, railways, ports and airports.

2:10A factory using imported components may benefit from being near a port. Reliable roads help deliveries arrive on time and keep production running. The useful comparison includes journey time and reliability as well as distance. Power and water supplies must suit the production process. An unreliable electricity supply can stop machinery and delay orders, while food processing may require large quantities of clean water. Government grants are financial assistance that a business does not have to repay.

2:37Governments often offer grants to attract factories to areas with high unemployment, so the business pays less to set up there. Planning rules decide which activities are allowed on each piece of land, so a noisy factory may be refused a site kept for housing. Land cost matters because a factory may need space for machinery, storage and future expansion. A large site outside a town can offer room to grow at a lower price.

2:59Climate affects businesses whose processes depend on particular weather conditions. A producer drying fruit outdoors needs suitable warmth and dry conditions to maintain dependable output.

Service business location factors

3:09Footfall is the number of people passing a particular place during a period. Service businesses consider customers and footfall, competitors, rent, labour, security, parking and public transport, technology, and the owner’s preference. A café near offices can attract customers during lunch breaks. The relevant customers must also want its products and be able to afford them. Closeness to competitors can help when an area already attracts customers seeking a particular service.

3:35Several restaurants together may draw visitors who want a choice of places to eat. Competition also gives those visitors alternative businesses to choose from. An owner must judge whether the extra visitors outweigh the pressure on sales and prices. A pharmacy usually does better far from its rivals, because it can then serve most local customers on its own. Rent is the payment for using premises owned by someone else.

3:57A central site usually needs enough additional sales to cover its higher rental cost. Available labour matters too, because a salon needs employees with suitable practical skills. A location with few qualified applicants may leave appointments unfilled and restrict revenue. Security protects employees, customers, equipment and money held on the premises. A bank may favour a site where secure access and protective measures are practical. Parking helps customers who travel by car, especially when appointments take a long time.

4:24Public transport widens access for customers and employees who depend on buses or trains. Technology changes how closely some services must be located to customers. An online tutoring business can serve learners elsewhere if it has reliable internet access. The owner’s personal preference may influence the choice because a nearby workplace reduces travel time and supports family commitments. Those benefits still need to fit the business’s costs and customer requirements.

4:50Manufacturers and service businesses share several concerns, including labour costs, rent and reliable transport. Their priorities depend on how the operation works. A factory shop selling directly to visitors may value footfall, while a dental clinic needs dependable electricity for its equipment. The strongest answer connects each factor to the particular business.

Choosing a country location

5:09Choosing a country starts with labour and land costs, taxes, market size, and government incentives and rules. Trade barriers, political stability, exchange rates, culture and language, infrastructure and skilled labour also matter. These factors affect the cost and practicality of operating abroad. The business must consider how they work together. A saving in one area can be outweighed by difficulties elsewhere. Lower labour and land costs can reduce the cost of running a factory.

5:36When taxes on profit are lower, the business keeps more of what it earns. A large market offers more potential customers, provided they want the product and can afford it. Government incentives may support investment, while employment and environmental rules affect operating requirements and compliance costs. Trade barriers are restrictions on international trade. Import tariffs are taxes on imported goods, while import quotas are limits on the quantity of goods imported.

6:02Producing inside the destination country may avoid barriers applied to finished imports. A car parts factory built inside a market with high import tariffs can sell there without paying the tariff, so its prices stay competitive. The business must check the rules because imported components may still face restrictions. Political stability helps a business plan because disruption and sudden policy changes create uncertainty. An exchange rate is the price of one currency in terms of another currency.

6:28Currency movements can change the cost of imported materials and the value of revenue earned abroad. A location comparison should therefore consider which currencies the business receives and pays. Culture and language influence communication with customers, suppliers and employees. Understanding local preferences helps a business offer an appropriate service and avoid misunderstandings. Infrastructure is the basic facilities and systems that support economic activity. Dependable roads, ports, electricity and internet access help operations run reliably and reduce delays.

6:59Skilled labour deserves separate attention from wage levels because some operations require particular expertise. A business producing medical equipment needs employees who can meet demanding technical requirements. An area with suitable training institutions may offer a stronger recruitment pool. The business can then maintain dependable production without relying on extensive training before opening. Kestrel Garments makes shirts and is choosing a country for its new factory. One country offers low wages, but power cuts are frequent and few customers there buy its shirts.

7:28The other has higher wages, reliable power, good ports and a large market that places an import tariff on shirts. Building inside that large market avoids the tariff, while steady power keeps the machines running and orders on time. Those benefits can outweigh the extra wage costs.

Worked location decision

7:44Willow Cycles repairs bicycles for local riders. It has six employees and wants to recruit two mechanics as it expands. Its annual premises budget is eighteen thousand dollars, with other operating costs funded separately. The owner wants to attract more regular customers and is comparing two available locations. Station Road costs twelve thousand dollars in annual rent and is two kilometres from the main customer area. It offers customer parking, frequent buses and access to skilled mechanics.

8:09River Estate costs eight thousand dollars annually and is fifteen kilometres from the main customer area. Parking is available there, but buses are limited and applicants need training. Begin with the aim because the location must help the business attract regular customers. Station Road offers a shorter journey from the main customer area and better bus access. Customers can leave their bicycles for repair and continue their journey by bus.

8:32Those features make repeated visits more convenient and support the owner’s growth plans. Check affordability before making the final choice. Eighteen thousand dollars minus twelve thousand dollars gives six thousand dollars remaining after Station Road’s annual rent. For River Estate, eighteen thousand dollars minus eight thousand dollars gives ten thousand dollars remaining. Both rents fit the premises budget, and the cheaper option leaves more money available. The labour information strengthens the case for Station Road.

8:58Willow Cycles needs two additional mechanics, and skilled applicants are available nearby. Recruiting experienced employees allows the business to offer more repair appointments without first training beginners. River Estate’s lower rent must be weighed against the training requirement and its weaker access to customers. In Paper One Short Answer and Data Response, location questions can ask for factors and reasons linked to stimulus material. Paper Two Case Study can require a supported choice using business information.

9:24Explain means set out purposes or reasons, say why and how, supported with relevant evidence, while justify means support a case with evidence or argument. I recommend Station Road because its short distance from customers and frequent buses make repeat visits more convenient. Available skilled mechanics support the planned expansion and allow additional appointments sooner. River Estate offers lower rent, but its longer journey and training requirement weaken its suitability for attracting regular customers.

9:50Station Road leaves six thousand dollars of the premises budget unspent, so it is affordable and should bring more regular customers and more revenue. A strong location answer gives the factor, the relevant case evidence and its effect on the business. For labour, consider skills and availability alongside wages because all three affect recruitment and operating costs. With customer access, judge how people actually reach the premises. When comparing sites, use the same time period for costs and check that each option meets essential requirements.

10:19Location decisions bring together costs, customer access and the practical needs of operations. Manufacturers often give particular weight to materials, deliveries, utilities and suitable space. Service businesses frequently depend on customer convenience, although technology can widen their choices. Country decisions add national rules, currencies, market conditions and the reliability of local systems. The best recommendation comes from the business’s own situation. Establish its aim, compare the most important factors and check affordability.

10:48Then explain why the chosen site offers a stronger overall fit than the best alternative. This approach turns a list of location factors into a reasoned business decision.