The location of a business is where it is situated e.g. in Central London, Silicon Valley, etc. Where to locate a business is a crucial decision because this will have an important impact on profits.Typically businesses will seek locations that maximise revenues and minimise costs.
High revenue - Low cost = High profit.
In the course of time there are a number of push and pull factors drawing firms towards certain locations and away from others.
Push factors include
Rising competition in an area, rising costs, poor communications systems, falling demand.
Pull factors include
Government incentives, low labour costs, good communication systems, developing markets.
Factors influencing the location of industry in this country have changed over time.
- Manufacturing industries often needed to be close to sources of raw materials, transport links and markets.
- Manufacturing industry became increasingly less significant in this country during the twentieth century to be replaced by service industries as the driving force behind the economy. Services to people and businesses typically need to be located near to centres of population - e.g. cinemas, insurance, banking, retailing, etc.
- The development of the Internet since the mid-1990's has meant that business generally is less tied to centres of population. Online banking and insurance for example can be conducted online using web based and telephone communications. Call centres that serve these service industries do not have to be located in urban centres anymore - so that many jobs have been relocated where labour costs are lower e.g. Northern Ireland, Scotland, etc. There has also been a growing trend to outsource service work overseas to countries like India.
In choosing a business location therefore firms need to weigh up the following range of push and pull factors:
1.Closeness to market. This is the case with fresh produce - so that for example, many supermarkets operate their own bakeries.
2.Communications links. Transport is an important factor supporting access to markets. Modern companies also need to locate where they have access to excellent information technology links.
3.Closeness to raw materials. Locating close to the raw material supplies can reduce where raw materials are heavy and large quantities are used up in production costs. This is particularly true for industries like steel, which uses large quantities of iron ore in the production process.
4.Availability of appropriately skilled employees. Some industries rely heavily on a highly skilled workforce. In contrast, other industries that require cheap labour will seek locations where there are a lot of people looking for work that are prepared to accept low wages.
5.Opportunity for waste disposal. Waste is an important side effect of modern industrial processes. Firms that produce a lot of toxic material (e.g. some chemical plants) will seek to locate where there are facilities available for recycling and safe disposal of their products.
6.Availability of power supplies. Energy supplies can typically be found in most parts of the UK - e.g. electricity pylons and cables. Large firms are able to negotiate bulk discounts when they purchase power from energy retailing companies. Being able to negotiate a good deal in a particular location might be influential as a locational factor.
7.Availability of land is increasingly important today. Land is becoming increasingly scarce particularly in urban locations, forcing rental prices up. Property prices are particularly high in major city areas such as Central London and Birmingham. Companies like Land Securities are developing new sites that are suitable for modern businesses to locate to.
8.Government incentives are important in reducing costs of locating in certain areas. These incentives are in effect subsidies provided by European Regional Funds (from the European Union) and by the UK government.
A footloose business - is the term used to describe a business that is not tied down by particular locating factors. It can more or less set up anywhere.
Industrial inertia - describes a situation where a business sets up in a particular location and then the original factors that led it to locate there become no longer significant - but the firm does not move.
Global Factors and Strategy
Businesses are affected by an external environment as much as they are affected by the competitors. Global factors influencing business are legal, political, social, technological and economic. Understanding of these factors is important while developing a business strategy.
a. Social factors - These factors are related to changes in social structures. These factors provide insights into behaviour, tastes, and lifestyles patterns of a population. Buying patterns are greatly influenced by the changes in the structure of the population, and in consumer lifestyles. Age, gender, etc all determine the buying patterns and understanding of such changes is critical for developing strategies which are in line with the market situations. In a global environment it is important that business strategies are designed keeping in mind the social and cultural differences that vary from country to country. Consumer religion, language, lifestyle patterns are all important information for successful business management.
b.Legal factors - These factors that influence business strategies are related to changes in government laws and regulations. For a successful business operation it is important that the businesses consider the legal issues involved in a particular situation and should have the capability to anticipate ways in which changes in laws will affect the way they must behave. Laws keep changing over a period of time. From the point of view of business it is important that they are aware of these changes in the areas of consumer protection legislation, environmental legislation, health & safety and employment law, etc.
c.Economic factors - These factors involve changes in the global economy. A rise in living standards would ultimately imply an increase in demand for products thereby, providing greater opportunities for businesses to make profits. An economy witnesses fluctuations in economic activities. This would imply that in case of a rise in economic activity the demand of the product will increase and hence the price will increase. In case of reduction in demand the prices will go down. Business strategies should be developed keeping in mind these fluctuations. Other economic changes that affect business include changes in the interest rate, wage rates, and the rate of inflation. Incase of low interest rates and increase in demand Businesses will be encouraged to expand and take risks. Therefore, business strategies should have room for such fluctuations.
d.Political factors - This refers to the changes in government and government policies. Political factors greatly influence the operation of business. This has gained significant importance off late. For example: companies operating in the European Union have to adopt directives and regulations created by the EU. The political arena has a huge influence upon the regulation of businesses, and the spending power of consumers and other businesses. Business must consider the stability of the political environment, government’s policy on the economy etc
e.Technological factors - These factors greatly influence business strategies as they provide opportunities for businesses to adopt new innovations, and inventions. This helps the business to reduce costs and develop new products. With the advent of modern communication technologies, technological factors have gained great impetus in the business arena. . Huge volumes of information can be securely shared by means of databases thereby enabling vast cost reductions, and improvements in service. Organisations need to consider the latest relevant technological advancements for their business and to stay competitive. Technology helps business to gain competitive advantage, and is a major driver of globalization. While designing the business strategies firms must consider if use of technology will allow the firm to manufacture products and services at a lower cost. Firms can select new modes of distributions with the help of technology. It has become easier for companies to communicate with their customer in any part of the world.
Source: Essay UK - http://www.essay.uk.com/free-essays/business/global-factors-strategy.php
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