5 FACTORS INFLUENCE THE LOCATION DECISION

The location of a business is usually considered either when the business is first
setting up or when it is present location proves unsatisfactory for some reason.
Location has a major impact on the overall risk and profit of the company. Factors
affecting where a manufacturing business chooses to locate will usually be different
from those factors affecting where a retailing business will set up. There a few factors
influence the location decision. The first one is proximity to markets. Locating near
customers is extremely important. Particularly, services organizations such as
drugstore, restaurant or post offices find that demographics and proximity to market
are the primary location factors. Manufacturing firms find that locating a factory near
to the market is useful when transporting finished goods is expensive.

Other than that, availability or productivity of labour are one of the factors
influence the location decision. When deciding on location, management may be
tempted by area’s low wage rates. Near location to the market is very useful for the
management to recruit employees as in that area where people with relevant skills
live. For the company to recruit if particular skilled labour is needed, it may be easier
and cheaper to recruit these employees.

Next, cost also affect the location decision. Management must consider cost
before deciding the location. We can divide location cost into two categories, which is
tangible and intangible cost. Tangible cost are those costs that are readily identifiable
and precisely measured. They include utilities, labour, taxes, depreciation and other
costs. Intangible cost included public transportation facilities, quality of education and
attitude towards the industry and company.

However, proximity to suppliers are one of the factors influence location

decision. Companies dependent on inputs of heavy or bulky raw materials face
expensive inbound transportation costs. Cost transportation become a major factor.
With a warehouse nearby, many firms can hold inventory closer to customer, thus
reducing delivery time and promoting sales.

Last but not least, Proximity to competitors affects the location decision. Both
manufacturing and services organizations also like to locate, somewhat surprisingly
near competitors. One complication in estimating the sales potential at different
location is the impact of competitors. Management must not only consider the current
location of competitors but also try to anticipate their reaction to the firm’s new location.
Avoiding areas where competitors are already well established often pays. However,
in some industries, such as new-car sales showrooms and fast- food chains, locating
near competitors is actually advantageous.