Factors Affecting the Location of a Business – questions and answers
1. The least cost site is the location of the business which allows a firm to minimise its units costs, greater than any other location which could of been chosen.
2.Explain the significance of the term ‘weight losing’ with reference to the location of the industry?
When a firm is in a weight losing industry it is vitally important for the business to location next to raw materials. A weight losing industry is when the final product weighs much less than the inputs that have gone in to create it. Therefore it is cheaper to distribute the finished product to the market than it is to move the raw materials to the place of manufacture.
3. What is the meaning of the term ‘Assisted Area’?
Assisted areas are the parts of the UK that have relatively low levels of economic activity and high, persistent unemployment. The assistance provided is financial normally in the form of grants from the government.
4. Examine 2 issues that components manufacturer might consider when relocating a business. Which would not be considered when a business decides on its first location?
The first factor that would be considered is the location of the current customer base. If the firm was to locate near to its market there would be reduced costs and increased flexibility. The firm could respond to changes easily, and get orders to customers in a quicker time. This improves customer satisfaction and is more likely to incur repeat sales increasing the revenue of the business gains. Also there would be reduced costs as transport costs would be less, a reduced amount of money spent on petrol could be used to expand the business or used in research and development. Also the company would spend less time in transport, increasing efficiency and maximising profit margins.
The second factor to consider is the location of suppliers for their components. When a components business has been established for a number of years it is likely to have relationships with a number of suppliers. This relationship due to repeat sales may incur a number of benefits such as reduced prices and increased flexibility. If it was to locate to a different area it may be too far to keep their original supplier, and increases costs. This would reduce profit margins of the business and decrease competitiveness. Alternatively research should be done to look into cost of suppliers, to ensure that suitable suppliers are nearby. This would be essential when looking for the least cost site.
5. Analyse three factors that might influence the international location of a frozen food producer? (9)
The first factor that would need to be considered is the population of country of which you are located. If the country has a large population the company is likely to have more sales than if it was selling in a small country. This means the business can achieve high economies of scale. This in turn means supplies can be bought for cheaper, increasing profit margins and gives the potential to improve competitiveness by reducing price. Additionally a frozen food producer in a large country like China would have a competitive advantage over companies in smaller countries such as Holland. Another factor that needs to be considered is the least cost location. A frozen food producer can benefit from lower wage and land costs by relocating to places such as eastern Europe. Frozen food may need a large labour force so wage costs will be a large consideration when choosing the location. If the labour costs are low, competitiveness would be improved compared to competitors in countries where the wage costs are high.
The last factor that would need to be considered are trade barriers. This would be vital in the frozen food industry, many of the produce will need to be transferred to countries across the globe. Some areas have protectionism employed this means there are quotas and tariffs. These shield domestic produces from competition from other countries, it limits and taxes any imports. There are also sometimes subsidies on domestic product allowing firms to keep their prices low and increase competiveness, this might be vital for success when competition against imports from large countries such as china whom have lower costs. This in turns means companies will try to locate in countries where protectionism is in use. On the other hand as a frozen food producer they may wish to trade to other countries easily and efficiently. They may locate in a area of ‘free trade’ such as members of the EU and NAFTA. This reduces costs by the removal of tariffs and quotas, however there is still protectionism with members outside the group.
6 What is industrial inertia?
This is the tendency for firms to remain where they are, even though the original reasons for location no longer still apply.
7. Explain the difference between internal economies of scale and external economies of scale?
Economies of scale occurs when there is an increase in output as cost decreases. This means, as a company will have a better chance to decrease its costs. There are two ways of achieving this, internal and external economies of scale. Internal economies of scale occurs due to the change in size of an individual firm and are not dependant on the industry as a whole, for example expansion of a business by employing a larger labour force. External economies of scale occurs due to a growth in the industry as a whole. The individual firms need not grow, however the entire industry around them does. A example of this when suppliers and customers are based locally.
8. How do trade barriers influence international location decisions?
Trade barriers effect location decisions in many ways. Firstly some areas have protectionism employed this means there are quotas and tariffs. These shield domestic produces from competition from other countries, it limits and taxes any imports. There are also sometimes subsidies on domestic product allowing firms to keep their prices low and increase competiveness, this might be vital for success when competition against imports from large countries such as china whom have lower costs. This in turns means companies will try to locate in countries where protectionism is in use. On the other hand companies may wish to trade to other countries easily and efficiently. They may locate in a area of ‘free trade’ such as members of the EU and NAFTA. This reduces costs by the removal of tariffs and quotas, however there is still protectionism with members outside the group.
9. Identify 5 factors that might be seen as qualitative influences on a decision about where to locate?
The first factor might be the opportunity to make a difference to a local community. Secondly convenience of access to other places which may be essential for a business. Thirdly accessibility to good transport links, meaning people can escape to perhaps a better area. Fourthly the qaulity of life of the area, making it better for employees and lastly the geographical attractiveness, such as coastal location or access to natural landscape.