Location decisions are mainly concerned with the price, quality and availability of inputs such as land and labor.
These decisions need to be considered when the business is first setting up, when present location is no longer suitable (the firm needs relocation), when new factories or branches are being opened, etc.
In factor, there are many factors that may influence the location of a new business or the relocation of an existing business. For example, the nature of the business (e.g. retail outlet or oil extraction), the nature of the product (e.g. agricultural products or tourism) and the nature of human resources (e.g. unskilled or skilled).
Choosing location for different types of business organizations
Factors affecting location decision depends on the nature of the business. Let’s take a look at a few examples:
- Manufacturing businesses. For factories, proximity to markets and raw materials is crucial. Access to reliable infrastructure like power, water, and transportation (including sea, air, and rail) is critical for transporting goods and supporting production. Additionally, a skilled workforce is often a non-negotiable factor
- Service-based businesses. For service providers, the primary concern is customer proximity. They also consider factors like labor availability, rent costs, accessibility for deliveries and customers, and security. Additionally, factors like demographics, competition, and the overall image of the surrounding area can influence decision-making.
- Retail businesses. Retailers like supermarkets prioritize customer base, transport links, parking availability, and competition in the area. They also consider factors like available land, labor pool, and suitability of the location for attracting employees and customers.
- Government offices. Unlike profit-driven businesses, government offices often prioritize factors like regional development and job creation when choosing locations. For example, the Scottish Executive’s relocation of government agencies aimed to create job opportunities across Scotland, showcasing a focus beyond just maximizing profits.
These factors for choosing a location for a new business or relocating an existing business can be divided into quantitative factors and qualitative factors. The ideal business location is the one that gives the best combination of quantitative and qualitative factors
The Factor-Rating Method for choosing suitable location
In general, a business will look to locate its activities where the costs of production are minimized. One of the methods of choosing the suitable location is The Factor-Rating Method.
This method is popular because a wide variety of factors can be included in the analysis. The following six steps in this method include: developing a list of relevant factors called critical success factors, assigning a weight to each factor, developing a scale for each factor, scoring each location for each factor, multiplying score by weights for each factor for each location, recommending the location with the highest point score.
The nature of the business will heavily influence location decisions regarding type and nature of market, type of business (production of goods, provision of services, retailing, wholesale, etc.) as well as sector of the economy in which the business operates in (e.g. primary, secondary, tertiary, quaternary, quinary).
