Location (Cambridge (CIE) A Level Business): Revision Note

Factors determining location and relocation

• Choosing a good production location can have significant impacts on a business.

• A range of factors influence the location a business chooses for production or where it chooses to relocate

Factors affecting business location

Proximity to the market

• This refers to how close the business is to its target customers

• Being near the market can reduce transport costs and make it easier for customers to access the business

Proximity to labour

• This means being located near areas where skilled and qualified workers are available

• Businesses often choose locations with a strong local workforce to make it easier to recruit the right people and run operations efficiently

Proximity to materials

• This refers to how close a business is to the raw materials or supplies it needs

• Being near materials helps reduce transportation costs and ensures a steady supply

Proximity to competitors

• Some businesses choose to locate near competitors to attract the same customer base or to offer something different

• Others may avoid locating near competitors to reduce direct competition

The nature of the business activity

• Different types of businesses have different location needs based on what they do

• For example, a manufacturing plant may need large space and delivery access, while a law firm may need a smaller, more central office

  • E.g. A factory needs room for machinery and deliveries, while a law office needs a professional, easy-to-access location

Infrastructure

• This includes transport links and electronic networks like internet connections

• Good transport is essential for businesses that deliver physical goods

• Fast and reliable internet access is key for online businesses

• E.g. An online fashion retailer needs a location close to the motorway for quick delivery and fast service, helping it compete in the market

Local, national and international location decisions

• When a business chooses where to locate, the scale of that decision can be local, national or international

1. Local location decisions

• Local location decisions involve choosing where in a particular town or city to place the business, such as in the city centre, on an industrial estate or near transport links

  • E.g. A hair salon might choose a busy high street over a quiet side road to attract walk-in customers

Key factors affecting local location decisions

• Access to customers

  • Retail shops often choose high footfall areas like shopping centres to attract more sales

    • Major Turkish retail brands, for example, locate their flagship stores on İstiklal Caddesi, a busy shopping street in Istanbul.

• Availability of workers

  • Businesses benefit from locating near skilled or affordable labour

    • Hi-tech firms choose business parks around MIT in the USA to access a strong pool of computing graduates

• Costs

  • Rent and business rates can vary widely even within one town or city

    • Retail space on Berlin’s Kurfürstendamm is expensive, but nearby Prenzlauer Berg offers more affordable options

• Competition

  • Locating near rivals can create a customer hub but may also reduce market share

    • Hatton Garden in London is home to many high-end jewellery and gold businesses, attracting specialist customers.

• Transport and suppliers

  • Good transport links are essential for service and delivery-based businesses

    • Logistics firms favour northern Calais due to its excellent road, rail and ferry connections.

2. National location decisions

• National location decisions involve choosing which part of a country to set up or expand a business

  • E.g. A call centre might choose a city in the north of the UK to benefit from lower wages and government support.

Key factors affecting national location decisions

• Regional incentives

  • Governments may offer grants or tax breaks to attract businesses to poorer areas, aiming to reduce unemployment and support local economies

    • E.g. The Welsh Government has funded companies locating in places like Cardiff and Swansea

• Labour costs and availability

  • Wages and skills vary by region

  • Cities may offer highly skilled workers at higher wages, while rural areas may be cheaper but with fewer qualified employees

    • E.g. In India, major cities like Bangalore and Delhi have more skilled workers than rural regions

• Proximity to target markets

  • Locating near areas with high demand helps reduce delivery costs and respond better to local preferences

    • E.g. Mexican food firms often base themselves near large cities like Mexico City or Guadalajara to reach more consumers

• Transport links

  • Good access to roads, ports, railways or airports helps cut delivery times and transport costs, especially for goods-based businesses

    • E.g. The Netherlands attracts many distribution centres due to Rotterdam port and a strong road and rail network

3. International location decisions

• International location decisions relate to a business considering moving or expanding to another country

  • E.g. A European clothing brand might open a factory in Vietnam to reduce production costs and sell to Asian markets

Key factors affecting international location decisions

• Labour costs

  • Businesses may locate in countries where wages are lower to reduce production costs, especially in labour-intensive sectors like textiles or electronics

  • However, they must weigh up lower wages against possible lower skill levels, productivity and working conditions

    • E.g. Zara and H&M outsource production to countries like Bangladesh and Vietnam, where labour is much cheaper than in Europe or North America

• New markets

  • Expanding abroad helps businesses access new customers, particularly in growing economies

  • This boosts sales and market share, especially if the home market is saturated

  • Being based locally also helps firms better understand customer behaviour and respond quickly to demand

    • E.g. McDonald’s has entered Asian and African markets to tap into rising incomes and growing demand for Western food

• Regulations and taxes

  • Some countries offer lower tax rates and simpler business laws, making them attractive for international firms

  • These benefits can raise profits but must be balanced with maintaining ethical standards

    • E.g. Ireland’s low corporate tax and EU access have attracted major tech firms like Google and Facebook

• Trade barriers

  • Locating within a country can help businesses avoid tariffs, quotas or other trade restrictions

  • This is vital for exporters and also improves delivery times and local relationships

    • E.g. Toyota has built factories in the US and UK to avoid import tariffs and better serve local markets

The impact of offshoring and reshoring

Offshoring

• Offshoring occurs when a business sets up operations in another country to carry out certain business processes so as to:

  • Take advantage of lower labour costs

  • Gain access to specialised skills

  • Expand into new markets

• Common examples of offshoring practices include call centres in foreign countries, software development teams or manufacturing plants established in countries with cheaper labour

Evaluating offshoring

Reshoring

• Reshoring occurs when a business brings back its production activities to its home country from abroad

• It involves reversing the previous decision to offshore or outsource those activities to another country

• There are several reasons why a company may choose to reshore its operations

Reasons to reshore

1. Cost considerations

   • The initial cost advantages of offshoring may reduce due to rising labour or transportation costs in the foreign country

2. Quality control

   • By reshoring, companies can have better control over the manufacturing processes and ensure higher quality standards, which may lead to improved customer satisfaction

3. Intellectual property protection

   • By bringing manufacturing back to their home country, they can reduce the risk of intellectual property theft

4. Supply chain resilience

   • The COVID-19 pandemic highlighted the vulnerabilities of global supply chains

   • Disruptions to transportation, logistics and international trade led to delays and shortages of critical goods

   • Reshoring reduces dependence on foreign suppliers

5. Market proximity

   • Can allow companies to be closer to their target markets, which can lead to faster delivery times, reduced transportation costs and improved responsiveness to customer demands

Globalisation and location

• Globalisation is the growing integration of economies, markets, and people across the world

  • It allows businesses to operate more freely across borders and has a strong influence on where they choose to locate

How globalisation impacts business location