1. Why do businesses locate where they do?
UNIT 3.1
Why do businesses locate where they do?
Unit Why do Businesses Locate where they do?

2. Why is Location important?
Location can affect business success or business failure. A business which locates successfully can achieve:
Higher Sales
Lower Costs
Rising Profits

3. Why must businesses carefully consider where to locate?
Expansion may require new premises (another branch) elsewhere in UK.
New product line might need completely different premises.
May want smaller premises to cut costs.
May want to be near customers (old & new).
Why must businesses carefully consider where to locate?
Redevelopment by local council may require business to move.
Try to locate where they will have no, or little, competition.
May want bigger/better premises.
Unit Why do Businesses Locate where they do?

4. What Key Factors Influence Location?
The Type of Business
Location Criteria important/essential for this type of business
Costs & Benefits of a particular location to the business
Unit Why do Businesses Locate where they do?

5. TYPE OF BUSINESS - Different types of businesses are found in all parts of the country. The smaller a business organisation is, the less likely it is to locate outside its local area.
Sole Trader - Normally they locate in the owner’s local area eg, a newsagent, plumber and garage.
Partnership - tend to be located in the partners’ local area eg, lawyers, accountants and dentists.
Private Limited Company - tend to stay close to the area where started and may have been in business for many years eg, farms, hotels and garden centres.
Public Limited Company - Typically these are large Businesses with
production or retail interests located nationally or even internationally
eg, ICI, Safeway, Shell, Nestle, GEC, Ford.
Unit Why do Businesses Locate where they do?

6. LOCATION CRITERIA DESCRIPTION FACTOR
DISTANCE TO
MARKET
Must be close to customers, for example - newsagent. Some must be close to raw materials to minimise transport costs, for example - Steel works
AVAILABILITY RAW MATERIALS
Businesses want to locate near raw materials that are heavy and bulky to transport
AVAILABILITY OF LAND
Businesses have to consider cost of land and amount of space required
AVAILABILITY OF LABOUR
Does the local workforce have the correct skills required?
TRANSPORT COSTS &
COMMUNICATIONS
How much will it cost to transport raw materials to site or finished goods to market? Is there good access to motorways, train lines, airports which will make it easier to transport goods?
HELTH &
SAFETY
Are there any environmental issues, for example - Nuclear/Chemical plant must be located away from local housing areas
REGIONAL FACTORS
Good local schools, leisure facilities will help keep staff motivated. Good local suppliers will also help cut costs
GOVERNMENT INCENTIVES
Are there any government incentives to a particular area?
COMPETITION
Are there any similar businesses near by?
UTILITIES
Does this area have the 4 standard utilities: gas, electricity, water, drainage?
Unit Why do Businesses Locate where they do?

7. Location costs might include:
COSTS & BENEFITS
Location costs might include:
Premises - cost of renting or purchasing
Rates - local council charges
Wages - different parts of the world have different wage rates
Transport costs - cost of bringing in raw materials and of delivering goods to customers
Unit Why do Businesses Locate where they do?

8. Location benefits might include:
Market - some areas contain more people and businesses than others
Wages - some areas have lower wage rates than others
Rates - some areas charge businesses lower rates
Premises - some areas have lower land prices and/or can provide land for future development
Transport costs - some areas offer access to faster or more convenient transport routes/services
Financial support - the local council or the government may offer companies special grants if they locate in a certain area of the country (often those which have high unemployment rates.)
Unit Why do Businesses Locate where they do?

9. Where does the money come from to Finance a Business?
Businesses must pay for:
Land & Premises
Vehicles
Goods for resale
Rent
Heat & Light
Machinery & Fittings
Raw Materials
Wages
Rates
Insurance
Unit Why do Businesses Locate where they do?

10. Owner investment (Internal Source)
The 2 main ways a business can get the finance needed to get started, pay for running costs, pay off debts and allow growth are:
Owner investment (Internal Source)
Borrowing (External Source)
Unit Why do Businesses Locate where they do?

11. Operating as a sole trader or a partner is a risk
Operating as a sole trader or a partner is a risk. If the business fails the owners (sole trader and partners) can lose everything, including his/her personal possessions.
Sole traders and partnerships can often find it difficult to borrow money since they tend to be small in size.
Their main forms of borrowing are therefore:
loans from friends and family;
business loans or overdrafts from banks;
mortgage on the business property
in the case of a partnership by taking on a new partner.

12. Since a private limited company has limited liability, if it fails, its owners at the worst only lose their original investment and not their personal possessions.
Private limited companies can also find it difficult to borrow money.
Like sole traders and partnerships their main form of borrowing is:
loans from friends and family;
business loans or overdrafts from banks;
mortgage on the business property

13. Public limited companies (plc) - issue two types of shares:
Ordinary shares which do not guarantee a dividend;
Preference shares which have a guaranteed dividend.
The money raised by issuing these types of shares is used to purchase assets (premises, machinery, vehicles, stock)
PLCs are normally large businesses and able to secure a loan more easily than other types of businesses.
Their main form of borrowing is:
A business loan or overdraft from the bank;
A mortgage on property;
Issuing debentures - long-term loans, fixed rate of interest and repayable usually years after date of issue.

14. What are the main types of Internal & External Finance available to Businesses?
If funds are generated Internally the business does not have to pay interest or convince others this is a ‘safe bet’.
The main source of Internal Finance is profit. The amount of profit made depends on:
Efficiency in dealing with
CREDIT transactions
Control of costs
Level of Turnover (sales)
Size of mark-up
An efficient business will ensure profits:
help REDUCE dependence on external borrowing
provide enough cash to ensure DEBTS repaid
Unit Why do Businesses Locate where they do?

15. Main Types of External finance
Externally Generated Finance is available from a wide range of Financial Institutions, e.g., Commercial Banks, Building Societies and Insurance Companies.
Shares: Ordinary & preference
Leasing
Overdrafts
Main Types of External finance
Debentures
Hire Purchase
Factoring
Loan
Mortgage
Small business Loans Guarantee Scheme
Trade Credit
Unit Why do Businesses Locate where they do?

16. Government Assistance
Many Derelict Buildings – Industrial Closures eg Steel, Coal, Shipbuilding
High Unemployment
An Area May Suffer From:
Urban Decay
Few Relevant Occupational Skills
Poor Infrastructure
Since the Government is responsible for the wealth and prosperity of the entire country, it must attempt to encourage business to locate in ‘depressed’ areas as this provides new jobs to the local population.
Unit Why do Businesses Locate where they do?

17. Central Government Support
The main central government policies which provide public funding to aid depressed areas include:
Assisted Areas:
High unemployment
An inadequate infrastructure
Low income per head
A failing economic and social environment
Regional Selective Assistance (RSA):
A minimum grant to persuade a business to undertake a new project to create or keep existing jobs
Project Grants
Training Grants
Enterprise Zones:
Quick planning permission
Exempt from paying business rates
10 year period
Regional Enterprise Grants: (small businesses)
Investment Grant (£15,000 towards capital expenditure)
Innovation Grant (£25,000 towards product development)
Unit Why do Businesses Locate where they do?

18. Central Government Support Local Government Support
The main central government policies which provide public funding to aid depressed areas include:
Urban Development Corporations:
Managing and developing land by providing
Buildings, Roads, Services
Training and Enterprise Councils:
Responsible for the public funding of training and vocational education
Local Government Support
Grants for Starting up a Business or R&D
Free Rent and Rates
Business Advice
Loans with reduced interest charges
Job creation grants
Help with premises
Grants to relocate
Unit Why do Businesses Locate where they do?

19. The European Union
Businesses in the European Union are particularly concerned with 5 specific aspects:
The Single Market
Monetary Union
Inward Investment from non-EU countries
The Social Charter
Regional Policy
Unit Why do Businesses Locate where they do?

20. The European Union Countries in the EU: Austria Belgium Czech Republic
Cyprus
Denmark
Estonia
Finland
France
Germany Greece
Hungary
Ireland
Italy
Latvia
Lithuania
Luxembourg
Malta
Netherlands
Poland
Portugal
Slovakia
Slovenia
Spain
Sweden
United Kingdom
Unit Why do Businesses Locate where they do?

21. The Single Market
Within the European Union there are over 360 million potential customers!
No limit to the quantity of goods or services sold – no quotas
No Customs Duty to pay
Free movement of workers and capital
Lower costs of production
Large choice of suppliers
Large market for capital intensive businesses
European wide protection of patents
Increased competition encourages efficiency
Collaboration between business is possible
Unit Why do Businesses Locate where they do?

22. The Single Market To allow people, goods and services
to move around freely within
the EEC (European Economic Community)
There are some disadvantages!
Possible shortages of skilled labour in one location
Bottlenecks occurring in production – increased demand
Barrières de langue
Distance Difficulties – especially transport
Unit Why do Businesses Locate where they do?

23. Inward Investment
The EU’s single market has seen the growth of inward investment.
The EU imposes common restrictions on all imports coming into Europe. A non-European manufacturer may find that the only way to sell into Europe is to locate a factory within the EU.
Non-EU countries eg Japan and USA have set up within the EU
This avoids external tariffs placed on Non-EU companies
Most investment from capital intensive business – eg microelectronics
Unit Why do Businesses Locate where they do?

24. The Social Charter This has a cost consequence to business:
Higher taxation to meet welfare targets; or
Higher wage bills to meet the minimum wage
Minimum Wage
Equal Pay
Maximum 48 hour working week
Improve living conditions – social benefits
Improve Health & Safety
Collective Bargaining
Vocational Training
Human Rights Protection
INDUSTRIAL RELATIONS
Unit Why do Businesses Locate where they do?

25. Regional Policy
These ‘structured funds’ have assisted with funding:
The Edinburgh by-pass
The Time Capsule
Extensions to the rail network in Strathclyde
Edinburgh Women’s Training Centre
FINANCIAL
ASSISTANCE
European Regional Development Fund (ERDF) – infrastructure and telecommunication projects
European Social Fund (ESF) – improving training and solving labour supply difficulties
European Agricultural Guidance and Guarantee Fund (EAGGF) – providing job opportunities in farming areas
European Investment Bank (EIB) - offers loans at attractive rates to firms locating in depressed areas
Unit Why do Businesses Locate where they do?

26. European Monetary Union
Monetary Union is the use of the EURO throughout the EU.
Benefits of this include:
A saving on the costs of currency conversions
Allowing a free movement of capital across Europe
Easier to compare prices
Creating stable prices and lower interest rates
Give economically poor regions a better chance of catching up
Unit Why do Businesses Locate where they do?

27. HOW IMPORTANT IS GLOBALISATION IN DETERMINING WHERE BUSINESSES LOCATE?
Globalisation is the term used to describe the way in which quicker transportation and faster communications have resulted in most areas of the world becoming part of the one world market.
Globalisation of the market place is possible because of the following:
Developments In Communications
Developments In Transportation
Decline In Barriers To Trade
Developing Markets
The Pacific Economies
The Global Market
Multi-nationals

28. A single world wide market place Multi-national businesses
Globalisation has created
A single world wide market place
which is dominated by
Multi-national businesses
Who operate across national boundaries
through the use of
Containerisation
Inward Investment
Information Technology
Telecommunications