Business Location
Business: Cambridge International GCSE (2027 Exams), topic 4.4.1
Business Location
A firm must choose a location that provides it with the best environment for it to produce and sell products most effectively. There are 5 main factors that influence where a business will choose to locate:
The availability of raw materials
- How much this matters to a firm depends on what type of industry the firm operates in.
- For manufacturing firms, like the London Brick Co., being close to raw materials like clay deposits (used to make bricks) can cut the cost of transporting raw materials.
- Some firms are less affected by their proximity and availability of raw materials. Access to clay deposits doesn't really matter for Facebook.
Labour nationally
- Location affects wage rate and the level of labour skill.
- Certain areas are more heavily focused on manufacturing and so the local workforce is skilled in manufacturing. Historically, Manchester was very strong in manufacturing and London has a large pool of software development labour.
- In big cities, the wage rate is usually higher than in rural towns.
Labour internationally
- Labour costs vary (are different) from country to country. In countries such as Sweden and Norway the minimum wage is very high compared to countries like China and India.
- This is one reason why lots of companies (e.g. Primark and Nike) set up production plants in developing countries like Bangladesh.
Competition
- Being near to competitors means that it is easier to find skilled workers because there are already local suppliers and there is already demand for this type of labour.
- This partly explains why we see lots of similar businesses very close together in cities or on the edge of a busy town.
- In Canary Wharf, there are lots of banks (Barclays, Goldman Sachs and JP Morgan) and on the edge of towns there are often lots of garages or car spare parts firms.
Rent
- Rent also varies a lot between different places. Renting floor space on a main high street in London will be very expensive relative to renting floor space in a smaller town like Keswick (in the Lake District).
Location of the market
- How important it is to be located close to the market depends on the type of business that is running.
- A high street fashion store like Topshop will be more willing to spend extra money to be located in a shopping mall owned by Intu (relatively expensive) in the city centre of a city like Nottingham.
- This is because accessing a lot of customers who may want to buy Topshop clothes is important.
Test yourself on Business Location
Why do many businesses use labour in developing countries to make products?
What factors influence a business' chosen location?
Why might Topshop pay more to be located in a shopping mall in the centre of a city rather than pay less and be in a business park on the outskirts?
Which country has the higher minimum wage?
A bakery wants to reduce the cost of transporting raw ingredients like flour and sugar. Which location factor should it prioritise?