Factors Influencing Location Decisions (Cambridge (CIE) IGCSE Business): Revision Note

Manufacturing business locations

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

• A business will consider location if it is setting up for the first time or its existing location no longer meets its needs

  • A new site may become available that is more attractive to the business

    • For example, it has a larger staff car park or room for further expansion

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

• A range of factors influence the location a business chooses for production

Factors affecting manufacturing 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 hire 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

• For example, 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 is key for online businesses

• For example, an online fashion retailer needs a location close to the motorway for quick delivery and fast service, helping it compete in the market

Service businesses locations

• Businesses in the service sector 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 attractive

  • 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

  • For example. businesses that offer ski instruction are located 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

Factors to consider when choosing a country to produce in

• When a business chooses which country to locate operations in, such as manufacturing, customer support or regional headquarters, it must consider a range of factors

Recommending an appropriate business location

• When a business is choosing between possible locations, it must recommend one option and then justify (explain why) that choice using evidence

Steps in the process

1. Identify the options – e.g., two different sites or two different countries

2. Weigh up the advantages and disadvantages of each option

3. Consider the type of business – e.g., manufacturer vs. service provider

4. Think about long-term success – costs, customer access, and growth potential

5. Make a clear recommendation – state which option is better

6. Justify with reasoning – link back to the case study data (e.g. “This site is closer to customers, which is more important than slightly higher rent, because it increases sales”).

What to include in a justification

• Costs: Which option keeps costs lower in the long run?

• Revenue: Which location gives better access to customers or markets?

• Suppliers: Is one location closer to raw materials or supply chains?

• Labour: Are skilled workers available?

• Competition: Is one site less competitive, or does clustering with rivals increase customers?

• Government: Are there incentives (e.g. tax breaks, grants)?

• Risk & future growth: Which location offers better potential to expand or adapt?