Deciding on the best location for any business is often crucial to its success.
Why does it matter?
The factors influencing the location decision can be split into quantitative and qualitative factors.
Why does it matter?
- Fixed costs such as the purchase or rent of land can vary greatly
- Variable costs such as the cost of labour and the transport costs of raw materials can vary greatly
- Revenue earned is usually related to the proximity (how close it is) to the market, especially in service industries
The factors influencing the location decision can be split into quantitative and qualitative factors.
Quantitative factors influencing the location decision.
Business not always choose the cheapest area in terms of land costs, because it may be far away from customers, may be difficult to attract staff.
"Telephone call centres" is most likely to be able to benefit from a move to a cheap, out of the way location.
The business must consider the short-term gains from the incentive vs. the possible long term costs.
Qualitative factors influencing the location decision
These are factors that can't be directly shown as a cost or benefit in £ terms but nevertheless may impact on location decisions.
A business will want to find the optimal location – the one that gives the best combination of quantitative and qualitative factors.
- Site costs. These include the purchase/rent of land as well as the building or fitting out costs.
Business not always choose the cheapest area in terms of land costs, because it may be far away from customers, may be difficult to attract staff.
"Telephone call centres" is most likely to be able to benefit from a move to a cheap, out of the way location.
- Government incentives. Certain regions and countries will offer businesses incentives to locate there, often because they have high unemployment. These incentives could take the form of subsidies, tax breaks (lower profit tax), help with training labour etc.
The business must consider the short-term gains from the incentive vs. the possible long term costs.
- Labour costs. Many businesses have relocated overseas in the search of cheap labour. The business must also consider the productivity of the labour and any ethical considerations.
Qualitative factors influencing the location decision
These are factors that can't be directly shown as a cost or benefit in £ terms but nevertheless may impact on location decisions.
- Environmental considerations.
- Management preferences – could include factors such as climate, proximity to airports, quality of education for children, crime rates
- Clustering – locating close to businesses of a similar type, may find it easier to attract staff
A business will want to find the optimal location – the one that gives the best combination of quantitative and qualitative factors.
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