Presentation Transcript

1. Location is a very important aspect for any business. Small businesses will operate out of peoples houses while others operate in many different companies. (an old saying is that the three most important things for a business are: location, location, location) Location has many factors: Nature of the business (retail vs farming) Nature of product (tourism vs manufacturing) What kind of workers are needed (skilled or unskilled) New or expanding firms will consider all of these factors when deciding on a location for their business. Location is a strategic business decision because if a business needs to be relocated later it can be very costly.
2. Quantitative factors are the money decisions that effect the decisions on where to locate a business. They include Availability, suitability and cost of land Rent is a huge factor when it comes to most businesses. Land in a business neighborhood is much more expensive than land in a less busy place. Cheap land is cheap for a reason. Either the location itself is not good or the building or land can be lacking. Land in a city center is expensive because of a large demand because many businesses want to be located there as well as there is a very limited supply available for all the business that want it.
3. Suitability has to do with how well land can be used for a purpose. (A business can not grow crops in a desert) Manufacturing tends to be located outside of central business places because they use so much land. One factor with this is that they still need large numbers of workers. Many businesses have moved much of their manufacturing overseas to help cut costs.
4. Availability quality and cost of labor Some businesses need highly skilled workers while others will need many low skilled workers. Because of globalization many businesses can located where ever the supply of workers they need is located. Supplies of workers will vary within countries and there are extreme differences country to country. Local schools, cost of living and local unemployment rates will help determine the supply of labor. Proximity and access to raw materials – this can be very important for businesses that use lots of a resource they may locate themselves close to the raw material they use so that they can cut costs on transportation. (this is known as Bulk– reducing businesses)
5. Proximity to the market Bulk increasing Some businesses that assemble things get heavier after manufacturing – (soft drinks) these are called bulk-increasing industries. For these products many businesses will be located very close to the market they intend to serve. Tertiary sector needs to be convenient for the customers. Most people want their hotels, restaurants and salons easy to access. Higher the population in an area the higher the cost of the land (as a general rule when compared to the country)
6. Government incentives and policies A basic fear of a government is that if a multinational company moves into an area it can reduce the effectiveness of local business. With this in mind many governments will give incentives to businesses that locate in areas of high unemployment. These incentives include low interest loans or tax breaks for the business. These areas are known as assisted areas. Deregulation in many countries have made it easier for some businesses to enter new markets that seemed impenetrable before. Businesses also need to be careful because of the restrictions some countries place on businesses. Corporate taxes are different in different countries as well as some businesses will charge more for permits for foreign companies. Ecommerce while a great tool for some businesses is not always possible for others.
7. Qualitative factors that affect location decisions These are the emotional and psychological aspects of a location decision. Management preferences – Some businesses are located simply because the management likes an area. Local knowledge – it is much easier to expand into a market that is familiar with the management. (right now it is easier for you to open a restaurant in Beijing than Russia because of local knowledge) Infrastructure (transportation, communication and support networks) Local governments are responsible for maintaining these networks. Businesses will try to be located in places that have good access to what they need. A manufacturing plant will need to be by roads, rail and possibly a port. Also good infrastructure is important to make sure employees can get to and from work without to much hassle. Political and economic factors – Businesses have to consider how stable a government is as well as how well the economy is predicted to do in the future before entering into a new country. (inflation and interest rates are a concern). Ethical issues – businesses will need to consider how much noise and air pollution they generate before deciding on a populated area as well as negative aspects of job loss if they decided to relocate. Businesses that don’t consider these factors risk negative feedback from consumers.
8. Comparative shopping (clustering) is when businesses will locate themselves by similar industries. (Zhong Guan Cun). This lets consumers do easy comparison shopping for their products. Location vs Relocation – some businesses need to consider how effectively they are operating in their current location. If rents rise or if better opportunities present themselves it can be better to relocate to a better location. Many factors will make a move less likely for a business. Acquired advantages refers to is about the benefits businesses get from being in one location for an extended period of time rather than moving around. Also some areas allow a business to take advantage of external economies of scale. (good infrastructure, skilled work force)
9. Deciding on relocation depends on Fixed costs of land in different locations Variable costs – labor, raw materials and distribution costs Revenue – income of customers and elasticity of price in different locations Because of the internet more businesses can be flexible in their location throughout the world. Footlose organizations are businesses that can be located anywhere because they do not need a set location. Limitations of relocation Moving costs Lower morale and high anxiety Loss of suppliers and customers Links with community Damage to corporate image Redundancy (layoff) payments to employees who can’t leave Transition can mean less wok being done
10. Location and Business strategy Location is one of the hardest and most important decision for a business to make. Cost benefit analysis about different options is common place. Investment appraisal and break-even analysis are often used to see how well a business will perform financially but qualitative factors need to be considered. Ethical factors need to be considered when operating oversees. If companies are viewed as operating fairly then they will loose public image. Many more people are able to work from their home (teleworking) so location for some businesses is less of a factor than it was in the past.