Factors Influencing the Production Location
- Choosing a good production location can have significant impacts on a business. Factors that influence the production location include:
Production locations are affected by multiple factors and if a business chooses the wrong location, it can fail
Proximity to the market
- Refers to the distance between the business location and the target market
- Locating near the market reduces transportation costs and increases its accessibility to potential customers
Proximity to labour
- Refers to the availability of qualified and skilled workers in the area
Businesses often locate in areas with a high concentration of skilled labour to ensure that they have access to the necessary workforce to run their operations efficiently
Proximity to materials
- Refers to the availability of raw materials and supplies needed for the business which will help to minimise transportation costs
Proximity to competitors
- May be desired (or not) to take advantage of a shared customer base or to differentiate themselves by offering unique products or services
The nature of the business activity
- Different types of businesses have different requirements in terms of space, infrastructure, and accessibility
E.g. A manufacturing plant may require a large space for equipment and a loading dock for shipping and receiving goods, while a service business such as a law firm may require less space and more accessible office locations
Infrastructure
- Includes transport and electronic networks that allow for products to be supplied either physically or online
- Online businesses rely on a fast and reliable internet connection
- Good transport links provided by major trunk roads and efficient rail links are particularly important for businesses that require an effective logistics network
- E.g. An online fashion retailer will gain a competitive advantage if it is able to deliver products quickly to customers so the location of its distribution hub is likely to be close to the motorway network
Exam Tip
In many cases businesses remain in the location in which they were originally established
This is likely to be the area in which the founder/owner lives or with which they have a connection
Though there may be logical reasons for a business to relocate, loyalty to the area in which a business was established can override these business decisions