Business LocationA2 Business Studies

Aims and ObjectivesAim:• Understand the demand and supply factors

influencing location decisions.Objectives:• Explain demand and supply factors • Analyse how demand and supply factors influence

business location• Evaluate what the success of location decisions

may depend on.

Starter

Why is a businesses location important?

Why Location Matters• Choice of location has a direct effect on

operational costs.

• Location also potentially affects ability to generate sales and deliver customer service.

• A poor choice of location is costly to change.

Three Key Location Factors

Costs of The Operation

Desired Customer

Service Level

Potential Revenues

Supply Factors These are mainly concerned with the operating costs of the location.

Demand Factors These factors mainly affect customer service and revenues.

Supply Factors• In groups brainstorm supply factors of

location.

• Remember they will be mainly concerned with the operating costs of the location!

Location Supply Factors

Labour Costs

Land and Building Costs

Energy CostsTransport Costs

Community Factors

Labour Costs• Often a major factors especially between the decision to

locate in the UK or overseas.• Minimum Wage Rates Globally:UK Minimum WA US Minimum

WagePolish Minimum

WageChinese

Minimum Wage£6.19 £4.51 £2.51 £1.04

http://www.bbc.co.uk/news/magazine-17543356

Land and Building Costs• Usually premises are rented.

• Rentals vary enormously depending on location.

• Government grants reduce the land costs of locating in poorer regions.

Energy Costs• http://

www.bbc.co.uk/news/business-19924010

• What do energy providers blame their price rises on?

• Businesses are more concerned with security of supply, unless reliant on electricity.

Transport Costs • Costs of getting inputs to

the business.• Location needs to be close

to the source of supply if the cost of transporting raw materials is high or difficult.

• E.g. food processing carried out close to farms.

Community Factors• Costs of a location can be influenced by:– Surrounding schools– Language and political stability– Government attitude towards enterprise

• For each of the above factors how may location costs be affected?

Demand Factors• In groups brainstorm demand factors of

location.

• Remember they will mainly affect customer service and revenues.

Location Demand FactorsCustomer

Convenience

Labour Skills

Site SuitabilityImage

Expansion Potential

Customer Convenience• Many business need to locate where their

customers find it quick, easy and cheap to access the service being provided.

• Footfall is very important to retail businesses.

527 Oxford Street• 4.5m sq ft of

shopping• 5.95m weekly footfall• 10% footfall growth • http://www.527oxfor

dstreet.com/experience/EnlargedVideo/

Labour Skills• Firms sometimes need to locate near areas of

specialist labour.

• E.g. technology firms locating themselves in Sillicon Valley

• http://www.youtube.com/watch?v=RlMFkSt9rAU

Site Suitability• A site may need to have

particular characteristics to maximise revenues.

• E.g. a luxury restaurant or hotel needs to be located in a central area near tourist attractions.

• E.g. Witchery/Secret Garden located near Edinburgh Castle.

Image• Some customers prefer to buy from a

particular location.

• E.g. a walking equipment business in Peak District may do better than one in Milton Keynes.

Expansion Potential• Businesses must consider future production

capacity.

• Needs to be scope for potential expansion.

• Location needs not to restrict output and therefore revenues.

Toyota & Location• Highlight the demand and supply factors in

the article.• Which factors were important in Toyota’s

decision to locate in Derby?• What was more significant? Demand or

Supply factors?• What may the long run success of Toyota

decision to locate in Derby depend on?