Location And Scale: Location (Copy)
9.1 Location And Scale
9.1.1 Location
1. Meaning Of Location And Relocation
- Location: The geographical place where a business chooses to operate.
- Relocation: The process of moving an existing business from one site to another.
- Strategic importance: Location can determine access to markets, labour, raw materials, costs, and competitiveness.
- Poor location decisions can increase costs, reduce sales, and affect profitability.
2. Factors Determining Location Decisions
A. Market Proximity
- Being near customers reduces transport costs and increases convenience.
- Important for retail, restaurants, and service businesses.
- Example: Fast-food chains locate in city centres or near schools/universities.
B. Availability Of Labour
- Skilled labour must be available locally.
- Wage levels and training facilities also influence location.
- Example: IT firms locate in Bangalore (India) due to skilled labour availability.
C. Infrastructure
- Transport networks (roads, railways, airports, seaports).
- Utilities (water, electricity, internet).
- Example: Ports are crucial for shipping companies like Maersk.
D. Cost Of Land And Buildings
- Land costs vary by region (higher in city centres).
- Start-ups may locate in cheaper areas.
- Example: Factories locate on outskirts due to cheaper land.
E. Government Influence
- Tax incentives, subsidies, or grants.
- Zoning laws and regulations.
- Example: Tesla Gigafactory in Nevada received tax incentives.
F. Proximity To Raw Materials
- Important for extractive industries.
- Reduces transportation costs.
- Example: Oil refineries near oil fields; steel plants near iron ore mines.
G. Access To Suppliers And Support Services
- Close to suppliers reduces delays and costs.
- Example: Toyota locates suppliers near assembly plants (Just-In-Time).
H. Social Factors
- Local community attitude.
- Quality of life for employees.
- Example: Tech firms in Silicon Valley attract talent due to lifestyle and networks.
I. Competition
- Locate close to competitors (for comparison and shared customers) or far away to avoid rivalry.
- Example: Jewellery shops in Dubai Gold Souk cluster together.
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change A2 Level Business Full Scale Course
3. Differences Between Local, National, And International Location Decisions
| Level | Description | Key Factors | Example |
|---|---|---|---|
| Local | Choosing a site within a town/city or region. | Rent, footfall, access to customers and workers. | Coffee shop in a busy shopping mall. |
| National | Choosing where in a country to operate. | Infrastructure, proximity to resources, labour availability, government incentives. | Car factory near motorways in the UK Midlands. |
| International | Choosing to operate in a foreign country. | Market potential, trade barriers, labour costs, cultural factors, exchange rates. | Apple outsourcing production to China. |
4. Offshoring And Reshoring
A. Offshoring
- Definition: Relocating business activities (production or services) from the home country to another country, often to reduce costs.
Advantages:
- Lower production costs (cheaper labour, materials).
- Access to new markets.
- Specialisation and efficiency.
- Closer to raw materials or suppliers.
Disadvantages:
- Quality control issues.
- Cultural/language barriers.
- Ethical concerns (poor working conditions abroad).
- Risk of supply chain disruption (e.g., pandemics, wars).
Example:
- Nike manufacturing in Vietnam and Indonesia to reduce costs.
- Apple assembling iPhones in China.
B. Reshoring
- Definition: Bringing business operations back to the home country after initially offshoring.
Reasons For Reshoring:
- Rising labour costs abroad (e.g., in China).
- Concerns about quality.
- Desire for better control and flexibility.
- Advances in automation reduce cost advantage of low-wage countries.
- Pressure from customers and governments to support local jobs.
Advantages:
- Improves quality control.
- Enhances brand image (local jobs, CSR).
- Reduces transport and delivery times.
- Protects supply chains from global disruptions.
Disadvantages:
- Higher labour costs at home.
- Limited local resources.
- Requires high capital investment to relocate operations.
Example:
- General Electric reshoring appliance production back to the US.
- Some UK manufacturers bringing operations back from Asia after Brexit.
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Accounting Full Scale Course
5. Impact Of Globalisation On Location And Relocation Decisions
- Access To Global Markets
- Businesses locate in foreign countries to access customers.
- Example: Starbucks expanding across Asia.
- Lower Costs
- Globalisation allows production in low-cost countries.
- Example: Clothing companies in Bangladesh.
- Trade Liberalisation
- Free trade agreements encourage international expansion.
- Example: EU single market allows free movement of goods.
- Competition Pressure
- Local firms face pressure from multinational companies.
- Example: Local retail stores competing with Walmart.
- Political And Economic Risks
- Trade wars, tariffs, currency fluctuations influence location choices.
- Supply Chain Globalisation
- Businesses spread production globally for efficiency.
- Example: Apple sourcing components worldwide.
6. Quick Revision Tables
A. Factors Affecting Location
| Factor | Explanation | Example |
|---|---|---|
| Market Proximity | Being close to customers reduces delivery costs. | Tesco stores in urban areas. |
| Labour | Availability, cost, skills of workforce. | Call centres in India. |
| Infrastructure | Transport and communication facilities. | Airbus factory near airports. |
| Land And Costs | Rent, property prices. | Car factories on city outskirts. |
| Government | Incentives, tax breaks, zoning. | Tesla in Nevada with subsidies. |
| Resources | Proximity to raw materials. | Oil refineries near oil fields. |
| Competition | Locate near or away from competitors. | Fast food chains clustering in city centres. |
B. Offshoring Vs Reshoring
| Aspect | Offshoring | Reshoring |
|---|---|---|
| Definition | Moving operations abroad. | Bringing operations back home. |
| Main Reason | Reduce costs (labour, materials). | Rising foreign costs, need for quality control. |
| Advantages | Lower costs, access to markets, specialisation. | Better quality, local jobs, supply chain security. |
| Disadvantages | Risk of poor quality, ethical concerns, political risk. | Higher costs, capital investment needed. |
| Example | Nike manufacturing in Vietnam. | GE bringing production back to the US. |
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change A2 Level Business Full Scale Course
7. Evaluation Points
- Cost vs Market Access
- Locating abroad reduces costs but may increase supply chain risks.
- Globalisation Pressure
- Firms may need to operate globally to remain competitive.
- CSR Considerations
- Pressure groups may oppose offshoring to low-wage countries.
- Reshoring may improve brand image.
- Technological Change
- Automation reduces need for low-cost labour abroad.
- Flexibility
- Businesses must remain flexible to respond to changing conditions (e.g., trade wars, Brexit, pandemics).
- Long-Term vs Short-Term
- Short-term: cost savings from offshoring.
- Long-term: stability and brand reputation may favour reshoring.
8. Real-World Applications
- Apple
- Offshored manufacturing to China for lower costs and supply chain advantages.
- Ford & GM
- Moved some production to Mexico due to lower labour costs.
- Nissan (UK)
- Located in Sunderland due to government incentives and EU market access.
- H&M & Zara
- Mix of local production in Europe (fast response) and offshoring in Asia (low cost).
- Brexit Impact
- Some firms considering relocating operations from the UK to EU to avoid tariffs.
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change A2 Level Business Full Scale Course
9. Exam Pointers
- Define location and relocation.
- List and explain factors affecting location with examples.
- Explain offshoring and reshoring with pros/cons.
- Show how globalisation and trade blocs influence location decisions.
- Always link to business objectives (cost reduction, growth, competitiveness).
- Include real-world examples like Apple, Toyota, McDonald’s, IKEA, Nissan.
- Evaluate: balance between cost savings and control/quality, short-term vs long-term benefits.