Location Analysis Location analysis is a dynamic process where entrepreneur analyses and compares the appropriateness or otherwise of alternative sites with the aim of selecting the best site for a given enterprise. It consists the following: 1. Demographic Analysis: It involves study of population in the area in terms of total population (in no.), age composition, per capita income, educational level, occupational structure etc. 2. Competitive Analysis: It helps to judge the nature, location, size and quality of competition in a given trade area. 3. Traffic analysis: To have a rough idea about the number of potential customers passing by the proposed site during the working hours of the shop, the traffic analysis aims at judging the alternative sites in terms of pedestrian and vehicular traffic passing a site. 4. Site economics: Alternative sites are evaluated in terms of establishment costs and operational costs under this. Costs of establishment is basically cost incurred for permanent physical facilities but operational costs are incurred for running business on day to day basis, they are also called as running costs. Two sites A and B are evaluated in terms of above mentioned two costs as follows: The above cost statement indicates that site B is preferable to site A keeping in mind economic considerations only although in some respects site A has lower costs. By applying the definition of ideal location which is the place of maximum net advantage or which gives lowest unit cost of production and distribution, site B would be preferred. Selection Criteria • Natural or climatic conditions • Availability and nearness to the sources of raw material. • Access to market: small businesses in retail or wholesale or services should be located within the vicinity of densely populated areas. • Availability of Infrastructural facilities • Availability of skilled and non-skilled labour and technically qualified and trained managers. • Banking and financial institutions are located nearby • Strategic considerations of safety and security should be given due importance • Residence of small business entrepreneurs want to set up nearby their

1. tutor2u™
GCSE Business Studies
Revision Presentations 2004
Business Location

2. tutor2u™ GCSE Business Studies
Introduction
Choosing where to locate a business is an important decision
Much depends on what the business is producing
 E.g. Service businesses such as website design or management consultancy
can be located almost anywhere in the country
 E.g. a large manufacturing business that requires substantial deliveries of
expensive raw materials may choose to locate close to the source of raw
materials to lower transport costs
Some businesses need to be very close to their customers
 E.g. Service businesses like high street retailing – where the right location in
the heart of a shopping area is crucial for success

3. tutor2u™ GCSE Business Studies
Main Factors Affecting Location
Cost of site
Availability of labour
Proximity of raw materials
Proximity to market
Infrastructure
Government incentives

4. tutor2u™ GCSE Business Studies
Cost of Site
Land
 Cost of land varies greatly across regions and countries
 E.g. a site in the South East of England is significantly more expensive than a
similar site in the North East
 Kind of land may also be important (e.g. avoiding areas of possible mining
subsidence)
Ability to expand and to build new premises may be important. This
would require the support of the local authorities for planning permission.

5. tutor2u™ GCSE Business Studies
Availability of Labour
Business needs labour as a vital resource
It needs access to either:
 Cheap labour (an incentive to move to areas of high unemployment, or
 Highly skilled labour
These people need to be within reasonable travelling distance
(commuting) of business.

6. tutor2u™ GCSE Business Studies
Proximity to Raw Materials
Businesses that use substantial quantities of raw materials may find it
cheaper to locate near to the source of those inputs as this will reduce
transport costs
Such businesses are often called “bulk-reducing” as the weight or size of
the finished product is less than the combined raw materials that went
into making it
Good examples include:
 Steel-producers
 Sawmills
 Sugar factories
 Oil refineries

7. tutor2u™ GCSE Business Studies
Proximity to Market
Businesses that assemble components (“bulk-increasing”) often choose
to locate closer to where the customer markets are
This is because the cost of transporting the bulkier or heavier finished
product is greater than the cost of transporting the raw materials or
components
Good examples include:
 Breweries
 Car manufacturers
 Bakeries
In some cases moving the final product is not possible, (e.g. services like
restaurants). In these cases the businesses will locate at the market
itself.

8. tutor2u™ GCSE Business Studies
Infrastructure
Infrastructure covers the modes of transport for people, materials and
information
Businesses need to ensure there is adequate infrastructure provision or costs can
rise, such as extra transport costs
The Government is largely responsible for providing and maintaining local
infrastructure
The key infrastructure considerations are:
 Road/rail/sea and air links. The most appropriate mode will depend on the type of
business and product, but road is used by over 80% of business.
 Communications network. For example is there mobile phone coverage and suitable
telephone lines (e.g. availability of broadband internet access).
 Access to basic facilities such as water and electricity (and enough power).

9. tutor2u™ GCSE Business Studies
Factors to consider before changing location
Access to and nearness to markets
Availability of labour
Infrastructure
Sources of raw materials
Government policy
Cost of relocation

10. tutor2u™ GCSE Business Studies
Government Incentives
Governments often offer incentives to start new businesses, or relocate
existing ones, in areas that need economic development (“regeneration”)
Certain areas in the UK are called Enterprise Zones or Assisted Areas
where firms are offered grants or low interest loans if they relocate there
Regional Development Agencies: aims
 Encourage economic development and regeneration
 Promote business efficiency, investment and competitiveness
 Promote employment
 Provide training to the labour force to assist in growing employment
Both the UK Government and the European Commission offer financial
support to businesses willing to move to areas of high unemployment