Business location - CCEA

Key facts about business location:

Labour: Businesses need to be near skilled workers or areas where employees are willing to travel.

Materials: Locate near raw materials for bulk-reducing products and near markets for bulk-gaining products.

Market: Proximity to customers is crucial for retail and service businesses; less so for online and manufacturing businesses.

Competitors: Some businesses benefit from being far from competitors, while others thrive by being close to them.

The term labour refers to people whom a business employs or would potentially want to employ. For most companies, it is important to be close to high-quality labour or to be located in an area to which employees are willing to travel.

Businesses need to make sure they are located in an area that has people with skills relevant to the job role. In general, for roles with a low requirement for skills, a business would just need to be located near any populated area to ensure it can hire employees. For roles that require a high level of skill, such as a design engineer, computer scientist or solicitor, businesses may need to be located close to big cities, university towns or other areas that attract more highly-skilled people.

For some products, being close to the raw materials is extremely important to save money on transport. For other products, it often makes more sense to be located close to the market and transport the raw materials further.

For bulk-gaining products , where the product is larger than the raw materials used to produce it (eg a bike), it makes sense for a business to be located near its market so that it doesn’t have to transport the finished product very far. In this situation, the raw materials are cheaper to transport than the final finished item.

For bulk-reducing products, where the product is smaller than the raw materials used to produce it (eg bottles of smoothie), it makes sense for a business to be located close to the raw materials. In this situation, transporting bottles of smoothie is more convenient than transporting all of the individual raw materials. Therefore, being located close to its raw materials allows a business using bulk-reducing products to save on transportation costs.

The term market refers to a business’s customers and consumers. For businesses such as takeaways, corner shops, clothes shops, pop-up food businesses and hairdressers, being close to their market is extremely important. If these businesses were not close to their market, they would miss out on sales as they would not be easily accessible to their target market.

For other businesses, such as online design businesses, clothing manufacturers and car manufacturers, being close to their market isn’t such an important factor. This is because online companies and car manufacturers are able to sell their products very widely and they can usually deliver to the customer’s house or local car dealerships.

Many businesses like to be located far away from their competitors so that they have access to more customers without having to fight off competition. For businesses such as petrol stations, corner shops and barber shops, this can work very well. These types of businesses like to be far away from competitors because customers are only likely to visit one of that type of business, often the one closest to their home or in the most convenient location.

For other businesses, being close to their competitors can be important to help them succeed. Examples are car dealerships and clothing shops, which are often found in close proximity to one another. These types of businesses are happy to be located close to their competition because customers are likely to shop around when purchasing a car or item of clothing. Being close to competition means these businesses are more likely to be considered by people making a purchase. Being far away from each other could limit sales for such businesses.

The availability of suitable land for a business is an important consideration. A factory will have different issues than a restaurant, for example.

Retail companies generally want to be located as close to their customers as possible. Retailers sell products directly to customers so are most likely to be located in busy areas and around other retail outlets. The exception to this is where a retail business only sells products through the internet.

Service companies sometimes need to be located near their customers but sometimes they can be located anywhere. Some examples of service companies that need to be near their customers are train operators and taxi companies. Some examples of service companies that can be located anywhere are contact centres and web designers.

Manufacturing companies generally prefer locations with cheaper rent rather than being close to their customers. Many manufacturing companies transport products around the country or even further. Business location for these companies generally is decided by costs, especially for small businesses. If a product is bulk gaining, the manufacturer may consider being located close to its market, depending on cost. If a product is bulk reducing, it usually makes sense for the manufacturer to be located closer to its raw materials.

Infrastructure refers to the facilities that support everyday economic activities, eg roads, phone lines and gas pipes.

An efficient transport network enables staff to get to work easily. It also allows supplies to be brought in from far afield and permits finished products to be moved to market cheaply and quickly.

The impact of location depends on the type of business. For example, it is important for shops and restaurants to be conveniently located for customers. A delivery-only takeaway may prefer to be located in cheap premises on the edge of town, close to good transport links.

Parking

The business will need to have space for its employees, customers and suppliers to park outside or nearby. If it is a service business like a gym or a leisure complex, it will need to have a large space suitable for a lot of cars.

Government support

The government can encourage businesses to locate in a certain area to improve the economy in that area, for example through the creation of job opportunities. The government can offer subsidies, lower taxes, investment in the infrastructure of the area such as road networks or offer advice and guidance to the business.

Communications technology

Some businesses rely on good communications systems such as mobile phone networks and the internet. This allows some businesses to work remotely with employees such as working from home or working globally.

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