Welcome to the "Business Location" Study Guide!

Hello future business leader! Choosing where to put a business is one of the most exciting—and terrifying—decisions an entrepreneur makes. If you choose wrongly, your business might struggle before it even opens its doors.

This chapter, which is part of the "Business in the real world" section, will teach you how different types of businesses (like factories, shops, and call centres) decide on their perfect spot. Don't worry if this seems tricky at first; we will break down the crucial factors one by one. Let's find out how businesses settle down!

Key Learning Outcomes:

  • Understand the importance of location choice.
  • Identify different location factors for manufacturing, retail, and service businesses.
  • Explain the role of infrastructure and site costs in location decisions.

1. Why Location Matters: The Big Decision

The business location is the physical site or area where a business operates. Choosing it is a long-term commitment, often involving huge costs and affecting almost every part of the business operation.

The Trade-Off Dilemma

In business location decisions, there is often a huge trade-off. You can rarely get everything you want.
Example: A location in the city centre might be excellent for getting customers (high visibility) but the rent will be incredibly high (high cost). A location in a rural area might be cheap, but no customers will visit. Businesses have to balance cost against potential benefits.

Quick Review: The Importance of Location
  • It affects Costs (rent, transport).
  • It affects Revenue/Sales (how many customers can reach you).
  • It affects Access to resources (labour, raw materials).
  • It affects Competitiveness against rivals.

2. Factors Affecting Location Decisions by Business Type

Different types of businesses have different priorities. A factory that makes cars needs a huge field, while a small bakery needs customers walking past. We divide businesses into three main categories when discussing location: Manufacturing, Retail, and Services.

2.1. Location for Manufacturing Businesses (Making Physical Goods)

Manufacturing businesses produce goods (e.g., cars, furniture, processed food). They usually need large amounts of space and focus heavily on efficient transport of materials.

A. Factors Relating to Materials and Transport

Manufacturers often look at the cost of moving raw materials and finished products. This is determined by two key concepts:

  • Raw Materials: If the materials are heavy and lose a lot of weight during processing (e.g., turning logs into wood pulp), the factory should locate near the source of the raw materials to save on transport costs.
  • Proximity to Customers (Market): If the final product is heavy, fragile, or bulky (e.g., soft drinks where water is added, or delicate glass), it is better to locate near the final consumers to save on shipping finished goods and prevent damage.
  • Transport Infrastructure: Access to good roads, railways, ports, or airports is vital for moving materials in (inbound logistics) and finished goods out (outbound logistics).
B. Labour and Site Factors
  • Availability of Labour: Factories need workers. They might choose an area where skilled workers are readily available, or alternatively, an area with plenty of unskilled workers if the manufacturing process is automated.
  • Cost of Land: Manufacturing often requires huge plots of land for the factory floor, storage, and parking. They usually locate outside busy city centres where land is much cheaper.
  • Power and Water: Some industries (like chemicals or steel) require enormous amounts of electricity or water. They must locate near reliable sources of power and large water supplies.

Analogy: Imagine making bricks. The clay (raw material) is very heavy. You would locate the brick factory right next to the clay pit, not next to the city where the bricks will eventually be sold.

2.2. Location for Retail Businesses (Shops and Stores)

Retailers sell goods directly to the final consumer. For them, the most important factor is visibility and access to customers.

Focus on the Customer (Footfall)

Retail location decisions are dominated by the idea of footfall—the number of people who walk past the shop in a day. The higher the footfall, the greater the potential sales.

  • Proximity to the Market: Retailers must be where their customers are. This usually means high-street locations, shopping malls, or busy areas near transport hubs.
  • Access and Parking: If the shop sells big items (like furniture) or relies on car travel (like a supermarket), ample, free parking and easy road access are critical.
  • Competitor Location:
    • Sometimes, retailers cluster (locate near rivals), like fast-food chains often do, because customers expect to find those shops together.
    • Sometimes, they avoid competitors to have a monopoly in a specific local area (e.g., a unique boutique store).
  • Site Costs vs. Sales Potential: A shop might pay very high rent in a prime mall location, but the guarantee of high footfall often makes the high cost worthwhile.

Did you know? Major retail companies use sophisticated technology to count footfall, sometimes using mobile phone signals or heat maps, to justify paying high rent!

2.3. Location for Service Businesses (Non-Physical Products)

Service businesses (e.g., banks, lawyers, hairdressers, call centres) provide intangible services. Their location needs vary greatly depending on whether they need to see the customer face-to-face.

A. Customer-Facing Services (e.g., Banks, Hairdressers, Restaurants)

These services need to be treated similarly to retail. They require good footfall, high visibility, and easy access.

B. Non-Customer-Facing Services (e.g., Call Centres, IT Support, Back Offices)

These services do not need customers to visit the premises. Their location factors are focused purely on cost and communication.

  • Availability of Suitable Labour: Call centres need thousands of people who can speak the required language. They often locate in areas with a large, affordable workforce.
  • Telecommunications Infrastructure: Reliable, high-speed internet and telephone lines are non-negotiable.
  • Low Site Costs: Since visibility isn't important, these businesses often locate in cheaper, remote business parks or even completely different countries (known as offshoring) to save money on rent and wages.

3. Universal Location Factors: Infrastructure and Costs

Two factors are absolutely crucial and apply to almost every type of business, whether they are making cars or offering legal advice.

3.1. Infrastructure

Infrastructure refers to the basic physical and organisational structures and facilities (e.g., buildings, roads, power supplies) needed for the operation of a society or enterprise.

Having poor infrastructure is like trying to race a car on a mud track with no petrol station nearby.

What Does Good Infrastructure Include?
  • Transport Links: Well-maintained roads, railways, and proximity to major shipping routes.
  • Utilities: Reliable and affordable electricity, water, and gas supplies.
  • Communications: Fast, dependable broadband internet and mobile networks (essential for modern business).
  • Local Services: Access to banks, postal services, and reliable public transport for employees.

Example: A manufacturer would never choose a location in a remote area if the roads were dirt tracks and the electricity grid frequently failed, even if the land was free!

3.2. Site Costs and Government Incentives

A. Site Costs (Rent and Purchase Price)

The cost of buying or renting land and property is a massive consideration. This is the biggest factor in the cost vs. benefit trade-off.

  • Locations with high footfall (like city centres) usually have very high site costs.
  • Locations in remote business parks or rural areas have much lower site costs.
  • A business must calculate if the extra sales generated by a prime location justify the enormous increase in rent.

Common Mistake to Avoid: Just choosing the cheapest site. A cheap factory site that is 100 miles from the nearest main road will ultimately cost the business more in time and fuel than a slightly more expensive, well-connected site.

B. Government Incentives

Governments sometimes want businesses to locate in specific areas—often areas of high unemployment or economic struggle (known as enterprise zones).

  • To encourage this, governments may offer incentives such as:
    • Reduced taxes or tax breaks for a set period.
    • Grants (free money) to help cover the cost of building or hiring.
    • Subsidised training for local workers.

These incentives can sometimes be powerful enough to swing a location decision toward a region that might otherwise have been deemed less desirable.

Chapter Summary: Location Checklist

To finish, remember that the perfect location depends entirely on the type of business. Use this simplified checklist to remember the core focus for each sector:

Business Type Primary Focus Secondary Focus
Manufacturing Cost of Transport (Raw Materials & Finished Goods) Land Cost & Utilities
Retail High Footfall & Proximity to Customers Access, Parking, and Competitors
Services Labour Skills/Availability & Telecommunications Site Costs (especially for non-customer-facing services)

You have now mastered the complexities of business location! Keep these factors in mind, and you will understand why companies are located where they are. Great work!