1 3.1 WHY DO BUSINESSES LOCATE WHERE THEY DO? FOUNDATION LEVEL b Where businesses locate b Where the money comes from - owners, borrowing

2 3.1 WHY DO BUSINESSES LOCATE WHERE THEY DO? GENERAL LEVEL b Sources of finance b Factors influencing location - market, resources, infrastructure

3 3.1 WHY DO BUSINESSES LOCATE WHERE THEY DO? CREDIT LEVEL b Types of government assistance b Importance of European Union b Globalisation

4 Location decisions depend on:  Availability and location of raw materials  Costs – eg land, rent, tax  Nearness to market – bulk in/decreasing  Competition  Availability of skilled labour  Suitable, available land  Infrastructure – road, rail links  Central and local Government assistance  EU funding

5 Sources of Finance - to start a new business  Owners - savings, shares  Loan from family or friends  Bank - loan, overdraft (Interest!)  Credit from suppliers  Hire Purchase (don’t own)  Grants from enterprise bodies

6 Sources of Finance - for an existing business INTERNAL Owners - savings, shares Owners - savings, shares Retained profits Retained profits Sale and leaseback scheme – large businesses Sale and leaseback scheme – large businesses

7 Sources of Finance - for an existing business EXTERNAL – short and medium term  Bank overdraft  Trade Credit  Factoring (sell debt)  Credit card

8 Sources of Finance - for an existing business EXTERNAL – long term  Bank loan (I _ _ _ _ _ _ _ )  Mortgage  Debentures – large plcs  Leasing and hire purchase  Grants – Princes Trust, Enterprise bodies bodies  Small Business Loan Guarantee

9 GOVERNMENT ASSISTANCE Governments try to influence location decisions in order: 1. 1.to encourage businesses to set up and expand in areas of high unemployment – development areas to discourage firms from locating in overcrowded areas or on sites which are noted for their natural beauty.

10 GOVERNMENT ASSISTANCE  Central Government – if set up in area of high unemployment: N N Regional Selective Assistance – Investment + Innovation Grants (encourage creation of jobs) N N Scottish Enterprise, Scottish Development International N N Assisted Areas – extra funding

11 GOVERNMENT ASSISTANCE  Local Government eg Stirling Council N N Business advice + information N N Free/reduced rent + rates N N Reduced rate loans

12 GOVERNMENT ASSISTANCE European Union: The European Social Fund provides financial aid for projects which will improve training and job prospects The European Regional Development Fund provides financial aid for businesses involved in infrastructure and telecommunication projects The European Agricultural Guidance & Guarantee Fund provides job opportunities in rural areas.

13 EUROPEAN UNION – Single Market   The Single Market - makes trade between member countries as easy as trade within a country.   Building one internal market was intended to launch Europe as an economic superpower.   Companies would benefit from new economies of scale as obstacles to trade were removed.   More cross-border competition would wipe out inefficient firms.

14 EUROPEAN UNION – Single Market Who Benefits? Consumers: Lower prices, greater choice of goods and services, work within EU. Businesses: fair competition, economies of scale, expand to global markets

15 EUROPEAN UNION – The Euro One single common currency used throughout the 25 EU states introduced in January Only 12 have joined the single currency. Removes barriers to free movement of capital. European Central Bank - fixes interest rates Cheaper exchange/transaction costs. Transparency of pricing allows easier comparisons to be made.

16 EUROPEAN UNION Advantages Disadvantages b Language barriers b Countries not allowed to subsidise own industry b Cultural differences – what one market likes, another may not b Increased competition b Protects own industry against cheap imports, but this may mean higher than necessary prices for consumers b b No quotas between member countries b b Free movement of workers and capital b b Large choice of suppliers b b Fewer restrictions, eg mo customs duties, less paperwork b b Large unrestricted market b b Protects own industry against imports from non-EU countries

17 Globalisation Companies grow by supplying national and then international markets. As foreign markets increase, some businesses find it advantageous to switch some production to foreign countries. A multinational company operates in at least 2 countries, usually both selling and producing in these countries.

18 Globalisation Firms become multinational organisations: 1. 1.to extract raw materials, eg oil 2. 2.to produce goods in countries with low costs 3. 3.to produce goods nearer the market to reduce transport costs 4. 4.to avoid barriers to trade put up by 5. 5.countries to reduce imports 6. 6.to expand into different market areas to spread risk.

19 Globalisation Advantages of multinationals to a country: N N New investment N N More exports N N Fewer Imports N N Jobs created N N More competition N N Taxes paid to the government Disdvantages of multinationals to a country: ç Existing firms at risk ç Profits flow out of country ç Often only unskilled jobs created ç Influence the government and economy ç Use of scarce resources ç Can withdraw and set up elsewhere ç Less able to protect own industry

20 Globalisation Advantages operating on a global scale: N NUse of same brand name in all countries keeps costs down. N NUse same advertising in all countries N NTake advantage of government incentives to locate anywhere in the world. N NLocate where costs are lowest N NGreater choice for consumer

21 Globalisation Problems with operating on a global scale: N NCommunication problems because of language, culture, time zones, technological failure N NDifferent tax laws in different countries N NDifferent consumer regulations and standards N NCurrency differences N NIncreased competition

22 Globalisation - Importance of ICT N N ICT Information transmitted and received quickly between branches in different countries N N Market increased by selling via WWW N N Different time zones become less important N N More flexible workforce - able to work in any part of the world - trained in software etc.