Choosing the right location for a business depends entirely on the type of business. This could be based on the following factors:
- Nearness to the market: The most important factor in considering the location of a firm is to consider its nearness to the market. Every business wants to be near to its customers. This is especially true for retail businesses.
- Nearness to Raw materials: For manufacturing firms, it is more economical to locate near to the source of raw materials which would help in reducing transport cost of raw materials.
- Supply of Labour: Businesses would always situate themselves in areas where the supply of labour is high so that they can get skilled labourers and if possible get them at a cheaper rate.
- Availability of Land: Businesses that need large land mass would always consider where they can get a large site for their productive needs. Manufacturing firms are always in need of large land mass to accommodate all of their departments.
- Government Influence: Firms would like to situate their businesses in areas where the government would be willing to give them selective taxes or subsidies to boost their productive potential.
- Infrastructure: Amenities such as electricity and good roads are important to businesses as it will enable them to have assess to their suppliers. Presence of good road will ensure prompt delivery of goods, while electricity can reduce the cost of production as against using solar or generators to keep the business running.
- Safety requirements: Some products may be hazardous for the community and thus need to be located away from high density population. For example, civil explosive sites, Chemical plants.
Reasons to relocate abroad
- New markets overseas – Locate near customers in another country (Reduce transport costs)
- Cheaper materials – Raw materials may be cheaper in another country
- Unstable/expensive labour – A business (especially factories) may want to relocate to another country with cheaper labour
- Rents and tax may be cheaper in another country
- Government grants for foreign businesses – The government may give businesses grants(money) and reduce tax because they want the business to relocate to their country
- Overcome trade and tariff barriers – Some countries may charge tax on imported goods and businesses can overcome them by relocating their factory to that country instead.