A2 Location of the Business
Unit 7: Business Decision Making
The location of the business could be local, national or international. Local businesses sell in a smaller region such as one town or city. National businesses may sell in multiple outlets across a country and international businesses sell in more than one country. When expanding into other regions or countries a business may decide to use intermediaries such as other retailers, form joint ventures or franchises.
Proximity to Target Market
Businesses need to consider how close they are to their potential customers. They will consider how far customers are willing to travel for their goods and services as convenience is one of the primary customer needs. A location that can be reached by most customers in 20 minutes would generally be seen as appropriate but convenient locations tend to be more expensive. Firms offering more unique or specialist products may find their customers willing to travel further. It is essential that firms carry out appropriate market research to understand their customers.
Availability and Cost of Labor
Businesses need to consider how close they need to be to their potential workforce. Between 30 - 45 minutes is generally viewed as a reasonable amount of time to commute to work.Therefore businesses need to ensure that appropriate numbers of qualified people are available within this distance at an affordable wage rate. Major cities have large numbers of people with good transport networks but they tend to have more expensive rents.
Proximity to Materials and Suppliers
Businesses need to consider how close they are to their suppliers of raw materials. Being closer to suppliers can reduce transportation costs which can be especially important for heavy, bulky and delicate items. Firms may also need to be closer to their suppliers if their deliveries are time-critical, e.g. if they use just-in-time production, they may need a short lead time between placing orders and deliveries arriving.
Property Prices
Costs related to property such as rent, purchase prices, taxes and insurance can vary greatly by location. When deciding on a location, businesses will need to weigh up the property costs in comparison to the benefits of the area such as proximity to customers and suppliers. City centre locations tend to have higher rents than out of town locations but they offer greater proximity to higher numbers of customers.
Infrastructure
Infrastructure refers to the physical structures of a country that support the operations of organisations and the lifestyles of people living there. This includes transportation systems (railways, airports etc), utility supplies (electricity, water etc) and communication networks (5G etc). Businesses need to consider the quality of the infrastructure when deciding their location as it will affect how easily their customers, suppliers and employees can access them.
Competition
Businesses need to consider the location of their competitors when deciding on the location of their business. Locating near competitors could either be beneficial or damaging depending on the business and the market. Some businesses may decide to locate in a different location to their competitors to reduce local rivalry. However, clustering near to competitors can often attract more customers to an area.