The location of a business

• When a business is formed, a new branch is being opened or the current site because unsatisfactory for some reason a business has to consider the location question
• Location refers to the physical site upon which a business is located
• A business’s objectives are in constant flux so even a business that is currently operational might also consider changing its location to better reflect its goals
• Various factors affect where a business is located or chooses to located
• These factors include:
  1. Raw materials and/or components
  2. The Market
  3. External Economies of scale
  4. Labour
  5. Government influence, laws and policy
  6. Transport and communications
  7. Technology
  8. Power and water supply
  9. Climate
  10. The personal beliefs and influences of the owners
  11. Production methods

Raw materials/Components

• Strategic raw materials can induce a business to locate in a country where the raw materials are found
• This is especially true of minerals for example Zimplats’s has a mine located in Ngezi where the platinum deposits are found
•  Where the raw materials are bulky especially compared to the final product most businesses will choose to locate near the raw materials in order to reduce transport costs
• For example sugarcane is bulky thus Tongaat Hullets Sugar is located in the Lowveld near the fields
• A lot of the weight is lost during processing resulting in sugar which is less bulky
•  Also if a business uses certain components and the component makers are located near each other then it makes sense for the business to locate near its component makers

The Market

• Locating near the market makes sense when the product is bulky and difficult to transport
• An example is ZISCO steel plant which is located near Red Cliff
• Most businesses such as grocery stores, supermarkets, banks etc are also located near the customers for convenience
• Perishable products such as milk and vegetables can also cause a business to locate near the market for example dairy and horticulture farms near Harare
• Service businesses such as Hotels and taxis are located in urban areas, near tourist attractions or airports

External Economies of Scale

• Also known as externalizes
• These are the benefits arising from a business locating in a certain area that arise as a result of actions external to the business
• For example a business locating in an area whose population is highly skilled in technology
• An example is Silicon Valley in the United States where most technology graduates relocate
• As a result most venture capitalists are found in this area
• A technology business which sets up in Silicon valley will therefore have easy access to capital and skilled labour

Labour

• The availability of cheap labour sees some businesses relocating their manufacturing there for example Apple relocated its manufacturing business to China
• The lack of skilled labour might see a business going to a place where it is available

Government influence, laws and regulations

• Governments laws and policies have a great impact on where businesses choose to locate
• Businesses cannot locate in areas where they are banned for example heavy industries cannot locate in the CBD
• The government of Zimbabwe also gives incentives to businesses that are located on Growth Points which might induce a business to locate on a growth point
• The controversial Indiginisation and Empowerment Act saw a lot of business relocating from Zimbabwe
• A chaotic fiscal and monetary policy has seen other businesses locating to countries with less burdensome laws
• Local government bylaws also affect where a business can locate its operations

Transport and communications

• The availability or unavailability of well developed transport networks will affect where a business is located
• Some businesses especially those with bulky goods are located along major transport networks
• Also since most customers are found on transport nodes (towns) businesses tend to locate there as well

Power and water supply

• Business that require a lot of power or reliable power will choose their location accordingly
• For example data centers require reliable cheap power and few are found in Zimbabwe/Africa
• Some businesses such as farms are located near water sources such as dams and lakes as water is required for operations

Climate

• For some operations climate is a critical ingredient for example on farms
• Some crops and operations are not possible in certain climates forcing the business to locate where climate is more conducive

To access more topics go to the O Level Business Notes