This article introduces what influences business location decisions and how businesses can choose the right location for their operations.
‘The three most important things in retailing are – location, location and location.’
One of the most important decisions a business organization needs to make is where it will locate or relocate.
It is a strategic issue affecting long-term business performance. The decision is so important that it is classified as a long-term strategic goal and made the highest levels of management (entrepreneurs and the senior leadership team).
Due to the fact that the decision about business location is so crucial as it affects both sales revenue, costs and ultimately the profit, it should be taken very carefully.
The reversal of the decision might be too disruptive and very expensive to reverse, if ever possible.
What is business location?
Business location refers to the geographical position of a business organization, i.e. where it is situated.
The truth is that all businesses need to be located somewhere. Business location can be divided into:
- National location. This refers to a tangible brick-and-mortar space where a business operates. It can be a retail store, restaurant, office, warehouse, or any other physical establishment.
- International location. Businesses can achieve an international presence through various strategies that transcend the confines of their geographical location such as importing and exporting goods, Foreign Direct Investments (FDIs) or online presence.
- Virtual location. A virtual location refers to a business that operates primarily online and does not have a physical storefront. This could include E-Commerce businesses, online service providers, and even some educational institutions offering online courses.
In general, location will depend on many different factors such as the nature of the business, the nature of the product, the nature of human resources, etc.
In fact, the success of any business organization is often determined by its location. Here are some factors that determine the final business location:
- Proximity to markets. This is about having access to identified markets.
- Proximity to suppliers. The availability of natural resources, raw materials, components, etc. as well as the proximity to energy and transport
- Proximity to competitors. This is about the location of related industries.
Briefly, location is the key to the success of a company at various stages of development (i.e. initial, expansion, relocation) with many factors to consider when making the final decision.
Why making a decision about business location?
A business organization will need to make a decision about where to locate under the following circumstances:
- Setting up a new business. New businesses will need to carefully consider where to locate their initial premises.
- Expansion (business growth). Existing businesses may need to expand, but may be unable to do so on their present sites.
- Modernization. The modernization of a business may involve moving to more up to date premises.
- Restructuring. A business aiming to cut its costs might achieve this by relocating.
- Becoming a multinational. Multinational companies aiming to set up a new plant in another country for the first time may evaluate a variety of possible locations worldwide.
In summary, location strategy is one of the most important decisions a firm makes.
There are many factors to consider when making a choice on the location of a business. The objective is to maximize the benefit of location to the firm. In fact, this decision is becoming increasingly global in nature. It will also have long-term impact because once the decision is made, they are difficult to change or reverse due to cost considerations.
