An introduction to the factors that a business considers as it decides on a business location.

1. Business Location Decisions

2. Factors influencing the choice of business Location

3. The most-used location cliché Lord Sieff Ex Boss of M&S “ The three most important things in retailing are – location, location and location”

5. The 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

6. Main supply factors

7. Supply factors (1) Labour costs Often a major factor, particularly if the decision is to locate in the UK, or overseas. The biggest difference is between the UK and low labour cost countries overseas. Land & building costs Usually business buildings and facilities are rented. Rentals can vary enormously depending on the location and the facilities provided. Government grants and other incentives reduce the land costs of locating in poorer regions. Energy costs Some businesses use substantial amounts of energy (e.g. gas, electricity); security of supply likely to be more important than price

8. Supply factors (2) Transport costs Includes the cost of getting inputs into the business (e.g. raw materials for the production line) and getting products delivered to customers. 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 is often carried out close to the farms). For many businesses the cost of distributing to customers is not a significant issue. Delivery firms might carry out the transportation (for which the customer pays). In many cases the customer comes to the business – e.g. in a hotel Community factors The costs of a business location can be influenced by many non-financial factors, but which can still be significant when making the choice. These include: Local amenities & services (e.g. schools, professional services) Local government attitude to supporting business (including financial assistance) Language & political stability

9. Main demand factors

10. Demand factors (1) Customer convenience Probably the most important factor. Many businesses need to be located where customers find it quick, easy and cheap to access the service being provided. E.g. a fast-food outlet needs to be somewhere close to a strong customer footfall, not hidden away out of sight Labour skills Where specialist skills are required, this can be a big issue. E.g. technology firms tend to locate themselves in areas where there is well-established expertise Site suitability A site may need to have some particular characteristics to maximise customer satisfaction and revenues. E.g. a luxury restaurant or hotel needs to be located somewhere that customers find attractive – not in the middle of a trading estate.

11. Demand factors (2) Image This is more intangible, but often important. Some customers associate a product with a certain area and prefer to buy from there (e.g. walking equipment – a business based in the Lake District might enjoy a better perceived reputation Expansion potential Future production capacity often has to be taken into account. A location might tick many other boxes, but if it provides limited scope for expansion then it might be rejected. If a location restricts output, then revenues are potentially damaged.

12. Decisions are based on both quantitative and qualitative factors Based on data Suitable for investment appraisal Harder to identify Based on opinions

16. Industrial inertia Where a business, once established, decides to stay in its original location even if other factors suggest a new location would be beneficial

19. Multi-site location

20. Multi-site: where a business operates from more than one location

21. Classic examples of multi-site

25. Examples of multi-site growth

26. Examples of multi-site retrenchment

27. International location

29. Some issues of overseas locations Issue Key Points Exchange rates Operating in another country almost certainly exposes a business to the effects of fluctuating exchange rates Trade barriers Protectionism varies around the world, but locating a business to avoid trade barriers is certainly important for businesses looking to compete effectively. Common types of trade barrier include quotas, tariffs on imported goods and government subsidies for domestic industries. Political stability Most developed economies enjoy relative political stability – i.e. there are no sudden or dramatic changes in the political landscape which impact on businesses. Other territories are less predictable.

30. Offshoring or outsourcing? Off-shoring Outsourcing The work is done overseas Someone else does the work for us

31. Some examples to illustrate the difference Operations Decision Offshoring? Outsourcing? A UK business sets up its own call-centre in Bangalore (India) to serve UK customers Yes No A toy manufacturer contracts with overseas suppliers to produce certain components which it imports into the UK Yes Yes A UK-based firm hands over its payroll and IT transaction processing activities to a specialist supplier in the UK No Yes A UK supermarket retailer opens its first stores in the USA managed by a team based in the USA Yes No

32. Offshoring – the classic example Plastic from Taiwan Hair from Japan Assembled in China & Indonesia Clothing from China Designed in the USA

33. Offshoring example - Reuters Covers Wall Street news With 15,000 journalists in Bangalore http://news.bbc.co.uk/1/hi/business/6289521.stm

34. Some risks of offshoring Customer service Combination of poor training, cultural differences and local management sometimes lead to worse customer satisfaction Higher than expected costs Low-wage economies like India and China might seem attractive, but there are many hidden costs associated with offshoring and some firms find that lower productivity from the overseas location actually means higher unit costs Public and employee relations A decision to “move jobs” from the UK to a low-wage economy is a sensitive one. Handled poorly, the damage to public and employee goodwill can be significant Protection of intellectual property The legal protections for business information, processes and brands are not as strong in many countries as they are in the UK. A risk of offshoring is that intellectual property (know-how, trade secrets) is lost and that a potentially stronger future competitor is born.

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