Finally we are closing on to the end of our business lectures and this is about to be our 2nd last lecture. So let’s get to ‘business’, whenever we build a house, a shop, or any building for that matter, we do it after some planning and decision making, not randomly. For example, if you want to build your own house, the first thing you will consider is the location, the factors affecting your choice of location are numerous such as the types of facilities nearby and/or the kind of environment. All these factors come into your mind, similarly when it comes to business, owner is motivated by different factors. In fact different types of businesses i.e. primary, secondary or tertiary are motivated by different factors; obviously due to their different natures.
So let’s first discuss manufacturing businesses,
- Production Methods and Location designs:
If a business uses job production, it is most probably the case that it receive not many orders at one time and the frequency of order placement is not that high, therefore such businesses don’t need to locate themselves close to the raw material source, unlike the businesses whose products are in greater demand and who are using raw materials consistently, such businesses must be placed near the raw material source; otherwise they will become inefficient.
The distance from the market also influences businesses while building. Most businesses try to keep as little a distance between themselves and the market as possible. This is to reduce transportation costs and avoid the danger of perish ability in the case of food items.
- Raw Materials:
Every business tries to situate itself as close to the raw material source a possible because that way it becomes it becomes more efficient and the supply of raw materials is not delayed or post- poned due to distance.
- Availability of Labour
Many multinationals have their factories in countries like China, Thailand, Indonesia and other developing countries. Why is this so? Because this way their labor costs would be low. A man working for 8 hours a day in a factory in America would only accept to work if he was paid 70$ per day, whereas a man in Asia would be more than glad to work for such wages if 70$ were give to him for a week. No wonder all leading car companies are now operating their factories in developing or under-developed countries.
- Transport and infrastructure
No business would like to situate its plant in a place where there is neither electricity, nor is there any communication structure. No business would be able to work properly without these two basic needs. Hence, they serve as important factors in influencing a business to situate in a particular place.
Let’s talk about, retailing businesses.
For retailers there are other factors that cause them to build their shop in a particular area.
- Shoppers: The numbers of shoppers in an area and the consumer class is a major factor in location of a business. Of course, no business would want to establish itself in an area where there are hardly any shoppers at all.
- Nearby Shops: The kind of shops near you are also important in deciding where to locate. E.g if you locate in an area where there are places people visit frequently like a café, or a post office, they will pass by your shop several times and chances that they might buy something increase similarly.
- Rents: Places that have high rents are usually chosen by large scale shops that are able to afford such rents, but new businesses like to open at places where fixed costs are not high.
- Government laws:
Govt. also presents a formidable influence as it passes laws that ban businesses from building in an environmentally crucial area or a residential colony.
So now that we have covered the major factors of a retailing business lets come to Service Sector businesses.
Businesses such as beauty parlors and housing services need to be built in an area where the customers are living. This is to ensure the personal touch between the customers and the business.
2.Technology: Businesses like calling centres are located at great distances from their regular customers as technology has enabled them to stay at a moment’s distance. Hence, they can choose whatever place suits them.
3.Availability Of labour: Once again the availability of labour influences businesses to locate at a place. In India where most European call centers are established there is a profusion of workers at cheap rates.
- Near to other businesses: Some firms provide services to other businesses like consultants and office servicing, these businesses locate in close proximity to business hubs so that they can be at a short distance when they are needed.
Ok, so I hope that you have understood all that I have said and now there remain only one thing to be said and that s the factors affecting a business to locate abroad.
Factors affecting a business to relocate either at home or abroad
There are several important aspects that make a business locate at home or abroad.
- Present capacity
If a business grows steadily and feels it necessary to open up a new factory to cope up with demand and finds out that the current site is ot large enough and as a result it would have to move or expand abroad.
Raw material source runs out: If a business finds out that the raw materials have been finished/used up, it will have to relocate in order to continue its operation.
Social situation: If the social situation in a country turns adverse with the problems of crime, money laundering and terrorism growing then the business might have to go abroad in order to function safely
So this is the end if this lecture, and as always we have some FAQs left.
Q:1 Why do businesses need to locate decisively?
Ans. Businesses need to locate in order to save labour costs. If a business is close to the raw material source and is located at a place where cheap labour is available, there will be a drastic cut in its labor costs.
Businesses need to maintain their sales, if a service sector business opens an outlet where there are a lot of shoppers and there are competitors as well, then its sales will increase if not remain constant if it keeps the same or low pricing.
Hence a business needs to locate decisively, because location seriously affects its costs and functioning.