In order to make a business as effective as possible, it is vital that the business
chooses a suitable location that will have the most positive impact on the business. In
this video we'll cover the factors that impact where the business decides to
locate and the effect this has on the success of the business.
There are three key influences on where a business decides to locate. These are
proximity, how close does the business need to be to the market, labour, materials
and competitors. Which one of these is most important to the business? The next
is the nature of the business activity. What does the business do? is it in retail, a
service or manufacturing? We will look at why these would impact the decision of
where to locate next. The final influence is the Internet. How does the Internet
impact on where a business decides to locate? do they even need a physical
location at all? Let's have a look at each one of these
factors in detail and how they influence location decisions.
The first influence a business needs to consider is proximity. Proximity means
how close something is to something else. Getting proximity right can have an
impact on both sales and the image of the business. One factor a business needs
to consider is its proximity to the market, basically how close does the
business need to be to its customers? The importance of this will depend on the
type of business being run for example a fish-and-chip shop will want to be
located close to its customers as they are required to visit the premises to
purchase the product and will therefore need to choose a location where their
target market is able to purchase the product the most conveniently. This means
they tend to locate themselves near local residence or by the seaside, where
the customers and the demand is. Whereas a graphic designer
does not need direct access to their customers and therefore proximity to the
market has less of an influence on where this type of business will decide to
locate. Another factor is the business's proximity to labour. How close are suitably
skilled employees to the business's location. This is an important factor for
most companies as they want to be located closer to people with the right
skills to employ within their business. It is important to be close to high
quality labour or to be located in an area where potential employees can
easily travel to. This is one reason why tech companies
such as Google locate their headquarters in Silicon Valley California, as this is
where coders and designers are educated and trained by some of the best
universities. Therefore making this a desirable place for tech companies to
locate. Google doesn't need to be close to their customers however they do need
some of the best employees for the success of the business. Proximity to
materials. It's important for some businesses to be located close to raw
materials as this will save them vast amounts of money in transportation and
storage costs. This makes logical sense for manufacturers
however has little influence on businesses such as Starbucks as they do
not need to be close to where their coffee beans are grown. It's much more
influential to be close to their customers. Proximity to competitors the
initial reaction is to think that businesses need to be located as far
away as possible from competitors so customers will have less alternatives to
choose from, however for some businesses due to the nature of needing to be close
to their target market it's unlikely they can avoid their competition. As both
businesses are looking for the most profitable locations. Again Starbucks
will have little option to locate themselves away from their competition
as other coffee shops will also find the same locations appealing. When
considering proximity as a factor depends heavily on which factor is most
important slash valuable to the business. Usually the type of business activity
will impact what the business requires from its location. The nature of the
business activity is what the business does, for example if the business
activity is retail then it will most likely want to be located close to
customers. When looking at Starbucks they are located in busy areas, in city
centres or in places where there are a lot of commuters such as railways or
airports in an attempt to make as much profit as possible. As covered previously
the issue with this approach to location is that these are also attractive
locations to competitors and will mean competitors are close by. If the nature
of your business is a service and the decision made regarding location will
also mean that you would potentially want to be close to customers, however
the type of service will determine how close you need to be located to your
market. It's important for window cleaners and hairdressers to be located
closer to their market whereas some services may not even need to be in the
same country as their customers such as graphic designers or call centres.
Therefore the business may choose to locate themselves out of town or where
they have access to cheap labour, which in turn saves the business money.
Manufacturing. Being a manufacturer generally means that being close to
customers is less of a priority, meaning they will consider other factors such
as proximity to raw materials and labour when making location decisions.
Manufacturers are usually located out of town on industrial estates where rents
are cheaper and infrastructure is better for transporting and receiving goods. An
effective transport network enables staff to get to work more easily it also
allows supplies to be delivered and finished products to be moved to market
cheaply and quickly. Undoubtedly the Internet has had an impact on most
aspects of business. One of which is where a business decides to locate. The
Internet's impact on location is that a physical premises may not be required at
all. E- commerce is making a physical location less important as operating
online without a physical premises has certain benefits such as; low operating
costs, access to a larger market so you can sell goods around the world, the
ability to operate 24/7 and also flexible working hours. This is fast
becoming the option of choice for new businesses. The impact of this is that no
physical location may be required at all, however some businesses may decide to
have both an online presence and a physical location in order to reap the
benefits of both. This approach is known as bricks and clicks. Nike are a prime
example of taking a bricks and clicks approach.
As they have decided that an online and physical presence will be most
beneficial for them. Thanks for listening! I hope you now understand the factors
that influence a business's decision of where to locate and how the right
location can make the business more effective. If you want to have a go at
applying this knowledge then download the task sheet in the description and
don't forget to give the video a thumbs up and subscribe for more weekly
Business Studies videos. See you next time.