Different Location Needs for Manufacturing and Service Businesses (Cambridge International IGCSE Business)

Location Decisions

Spec point — • Factors relevant to the location decision of manufacturing businesses and service businesses

• Location is the site from which a business decides to operate

• A business may look for a new location if it is setting up for the first time or the existing location no longer meets its needs

  • A new site may become available that is more attractive to the business, e.g., it has a larger staff car park or room for further expansion

• The business may look to locate sites in their home country or abroad

  • Large companies such as Apple or Nike have chosen to locate their factories where labour and material costs are low

• Choosing a good location can generate positive impacts for the business

The impact of a good location

Irrespective of the size of the business, a good location (online or physical) reduces costs and increases sales

• Many businesses have failed due to having established themselves in a poor location

  • A good location can reduce costs, whereas a poor location will increase them
  • A good location provides excellent access to sufficient customers, whereas a poor location limits customer interactions
  • A good location provides access to a skilled workforce, whereas a poor location limits access to the required human skills

Factors Affecting the Location of a Manufacturing Business

• The ideal business location depends upon the type of business and what it produces/sells

  • Manufacturing business are likely to have different location priorities than service sector businesses
  • B2B businesses are unlikely to need to locate close to passing trade, whilst B2C businesses may choose a location with high footfall

Manufacturing locations often require access to very specific resources, such as raw materials or labour

Explaining the factors

Proximity to key supplies

• Businesses that need to process fresh raw materials quickly may be better located close to their source, e.g. seafood processing
• Those that adopt lean production techniques may locate close to key suppliers to reduce lead times

Proximity to main customers

• Businesses selling perishable goods may locate close to the target market to ensure products are at their peak
• Manufacturers of heavy or difficult-to-transport goods may locate close to their end market to reduce transportation costs

Availability of workers

• Businesses that require skilled labour choose locations where workers with those skills are readily available
• Hi-tech businesses may locate in areas where competitors operate to take advantage of the concentration of skilled workers
• Research-focused businesses may locate close to universities

Financial incentives

• Governments sometimes provide grants or low-cost loans to firms that set up in areas with high-unemployment
• Low business rates may encourage manufacturers to expand in particular regions

Transport

• Good transport links provided by major roads and efficient rail links are particularly important for businesses that require an effective logistics network

Power/water supply

• A reliable and steady supply of water and power are required by factories

Factors Affecting the Location of a Service Business

• Businesses in the service sector also consider further factors when determining a suitable location

  • Proximity to customers is very important for retail businesses

    • Premises must be accessible and convenient so a location with a car park or close to transport links is likely to be a key influence
    • Locating in areas with high footfall, such as on a high street or in a shopping mall, is a popular choice for retailers

  • In some cases, a location may be chosen to take advantage of a shared customer base or a particular reputation

    • Examples include bookshops on London's Charing Cross Road and luxury fashion brands on New York's Fifth Avenue

  • Climate and geographical factors can be a key factor for some specialist service providers

    • E.g. Businesses offering ski instruction will locate in mountainous areas with high annual snowfall

  • Services businesses that do not rely on passing trade may locate in out-of-town premises

    • Rent and business rates tend to be lower
    • Incentives for job creation such as grants may be available from local authorities

  • In addition, businesses are likely to avoid locating in areas with high levels of anti-social behaviour and crime, as this could impact insurance costs