Location
Decisions
Factors influencing where businesses locate, manufacturing vs service business priorities, country choice, legal controls on location, and the costs and benefits of relocation.
📖 Click any section to open it and start revising.
The choice of where to site a business’s premises — factory, office, shop, warehouse or other facility. It is a critical long-term strategic decision that affects costs, revenue and competitiveness.
Location affects almost every aspect of business performance: the cost of inputs (labour, land, materials), the ease of reaching customers, and the ability to compete. A poor location decision is difficult and expensive to reverse — which is why it requires careful analysis.
Businesses must consider both the location of individual premises AND, for multinational businesses, the country in which to base operations. The factors that matter most depend on the type of business.
Key Ways Location Affects Business Performance
- Costs: Rent, labour, transport and energy all vary significantly by location — affecting profit margins
- Revenue: Proximity to customers affects footfall, sales volume and market share
- Competitiveness: Being near raw materials or in a skilled labour pool creates competitive advantages
- Legal compliance: Zoning laws, planning permission and environmental regulations restrict where businesses CAN locate
- Long-term commitment: Moving is expensive — lease obligations, equipment installation and disruption make relocation very costly
Quick Check — Manufacturing or Service Priority?
Click each factor to reveal whether it is most important for manufacturing or service businesses.
Key exam rule: Always identify the type of business first — manufacturing and service businesses have very different location priorities. Applying the wrong factors to the wrong type of business is a common exam mistake.
Manufacturing businesses prioritise input costs, logistics and production capacity. Click each factor to see why it matters and an example.
For manufacturing exam questions: The most important factors are usually raw materials, labour cost, transport links and land availability. Match the factor to the specific industry — a food processor prioritises raw materials; a car plant prioritises transport links and land.
Service businesses prioritise customer access, visibility and revenue potential. Click each factor to see why it matters and an example.
🎯 Activity — Identify the Most Important Location Factor
Read each scenario and choose the single most important location factor.
For multinational companies (MNCs) or businesses considering foreign direct investment (FDI), the choice of country is a major strategic decision. Click each factor to see how it influences the decision.
For country choice exam questions: The most commonly tested factors are labour costs, government incentives, market size, trade barriers and political stability. Always apply the factor to the specific business context in the question.
Governments use a range of legal tools to RESTRICT where businesses can locate (to protect communities and the environment) and to ENCOURAGE businesses to locate in specific areas (to promote economic development).
💡 Click Each Legal Control to Explore It
Businesses must apply to local authorities for permission to build, convert or change the use of premises. Applications can be refused or have conditions attached.
Restrictions include: height, size and design requirements; cannot build a factory in a residential area; time-consuming and costly to obtain.
Land is designated for specific uses: industrial, commercial, residential, agricultural or green belt. Businesses must locate in the appropriate zone.
Industrial zones for factories; commercial zones for shops and offices; green belt land restricts development entirely.
Environmental protection laws may prohibit location near protected habitats, national parks, rivers or coastlines. An Environmental Impact Assessment (EIA) is required for major developments.
Cannot pollute local waterways or air. Fines for breaching environmental law. EIA required before planning permission is granted.
Premises must meet minimum standards for space per worker, ventilation, fire exits, lighting and sanitation. Non-compliant premises cannot legally operate.
Influences what types of premises are viable — a cramped basement may not meet fire safety standards for a business with staff.
Governments designate special economic areas where businesses receive tax reductions, simplified planning rules and grants to encourage investment in deprived areas.
Reduced business rates; fast-track planning permission; capital allowances; grants for start-ups and relocating businesses.
Financial grants are offered to attract businesses to economically deprived areas — reducing unemployment and stimulating local economies. The government pays part of the business’s relocation or set-up costs.
Special economic areas where normal trade tariffs and some taxes are suspended to attract export-oriented businesses and multinational companies.
Import and export goods without paying standard import duties. Reduced or zero corporation tax in the zone. Simplified customs procedures.
Exam distinction: Legal controls both RESTRICT (planning permission, zoning, environmental regs, H&S) and ENCOURAGE (enterprise zones, regional grants, FTZs) location decisions. Make sure you know which is which.
Moving a business’s operations from one location to another. Relocation is costly and disruptive but may be necessary if the current location no longer meets the business’s needs.
- Lower costs in new location — cheaper rent, labour or land
- Current premises too small — business has grown and needs more space
- Closer to new markets or customers as business expands
- Better transport infrastructure in the new location
- Government incentives make new location financially attractive
- Current area has declined — lower footfall, increased crime
- Cheaper labour costs available in another region or country
- High costs: removal, new fit-out, legal fees, equipment installation
- Disruption to production during the move — lost revenue
- Losing existing customers attached to the current location
- Staff may refuse to move — losing experienced employees
- New area may be unfamiliar — loss of local knowledge and contacts
- Takes time to settle and rebuild customer base in new location
📝 Worked Examples — Recommend and Justify
Recommendation: Out-of-town retail park
- Land cost: Cheaper and larger plots available out of town — space for a large store, warehousing and car parking. City centre land is very expensive and limited.
- Customer access: Most supermarket customers drive and need convenient parking. Out-of-town sites offer large free car parks.
- Transport links: Retail parks are near major roads and motorways — easier for supplier deliveries and customer access.
- Counter-argument: A city centre site would capture higher pedestrian footfall — but for a supermarket, driving access and parking are more important than passing foot traffic.
Recommendation: Relocate to Vietnam
- Labour costs: Vietnam’s minimum wage is significantly lower than the UK’s — critical for a labour-intensive clothing industry.
- Labour supply: Vietnam has a large, young workforce skilled in garment manufacture with many existing supplier factories.
- Government incentives: Vietnam offers tax incentives and free trade zones for export-oriented manufacturers.
- Risks: Quality control is harder to manage at a distance; lead times increase; reputational risk if poor working conditions are reported; exchange rate fluctuations.
- Conclusion: For a cost-focused manufacturer, Vietnam offers significant cost advantages — but management must invest in quality oversight and ethical supply chain practices.
Relocation exam technique: Relocation is expensive and disruptive — always consider both the benefits AND the costs/risks of moving. An evaluation answer should acknowledge that lower costs may be outweighed by disruption, staff loss and rebuilding the customer base.
| Topic | Key Point |
|---|---|
| Location Decision | Critical long-term choice — affects costs, revenue and competitiveness |
| Manufacturing factors | Raw materials, labour cost, transport, land availability, energy supply, proximity to market |
| Service factors | Proximity to customers, footfall, labour skills, rent, parking, competition |
| Country choice | Labour cost, government incentives, market size, trade barriers, infrastructure, political stability |
| Planning Permission | Must be obtained from local authority — can be refused (RESTRICTS location) |
| Zoning Laws | Land designated for specific uses — factories cannot be in residential areas |
| Environmental Regs | Prevent location near protected areas; EIA required for large developments |
| Enterprise Zones | Government areas with tax breaks and grants to ENCOURAGE business location |
| Regional Grants | Financial incentives to attract businesses to deprived areas |
| Free Trade Zones | Tariff-free areas to attract export-oriented businesses and MNCs |
| Relocation | Moving business — benefits include lower costs; risks include disruption and staff loss |
| Recommending location | Match to business type → use relevant factors → justify with context → acknowledge trade-offs |
Always identify business type first. Manufacturing = raw materials, land, energy, transport. Service = customers, footfall, rent.
RESTRICT: planning permission, zoning, environmental regs, H&S. ENCOURAGE: enterprise zones, regional grants, FTZs.
Labour costs + government incentives + market size + trade barriers + infrastructure + political stability.
Government-designated areas with tax breaks and simplified planning to attract businesses to deprived regions.
Lower costs vs disruption, staff loss and customer loss. Always evaluate both sides — never just list benefits.
Business type → most relevant factors → justify with context → acknowledge trade-offs. Never give a generic list.
Top 5 Exam Tips: (1) Always identify business type before applying factors. (2) Legal controls both restrict AND encourage — know which is which. (3) For country choice: labour costs, incentives, market size and trade barriers are most frequently tested. (4) Relocation has costs AND benefits — always evaluate both. (5) When recommending a location, use 2–3 specific factors with justification and acknowledge counter-arguments.
RapidPrint Ltd is a print manufacturing company. It is choosing between two sites: Site A is in a city centre (high rent, good transport links, near customers); Site B is on an industrial estate outside the city (low rent, large plot, near a motorway junction).
- Lower rent + large plot: Manufacturing needs space for machinery, loading bays and storage — city-centre sites cannot provide this affordably ✓
- Transport links: Motorway access essential for receiving raw materials and distributing finished goods efficiently ✓
- Fixed costs: High city-centre rent would add significantly to overheads without the footfall benefit a retailer would gain ✓
FastThreads Ltd is a UK-based clothing manufacturer. Its directors are considering relocating production to Vietnam, where labour costs are 80% lower. The UK factory employs 200 workers who would lose their jobs.
- Benefit — Labour costs: 80% reduction in labour costs is very significant for a labour-intensive clothing manufacturer — would substantially improve profit margins and competitiveness on price ✓
- Benefit — Labour supply: Vietnam has a large skilled garment workforce with established infrastructure — production can scale quickly ✓
- Cost — Disruption: Moving production will disrupt output during transition — orders may be delayed, damaging customer relationships and revenue ✓
- Cost — Quality control: Managing quality from a distance is harder — risk of product defects reaching customers, damaging brand reputation ✓
- Risk — Ethical/reputational: 200 UK job losses may attract negative publicity; if poor working conditions emerge in Vietnam, brand reputation could suffer significantly ✓
- Evaluation: Relocation is financially compelling given the 80% labour cost saving, which would transform competitiveness. However, FastThreads must invest in quality management, ethical supply chain standards and plan for transition disruption. If it can manage these risks, relocation is likely the correct long-term strategic decision ✓
Topic Complete!
🚀 Keep Revising
More resources — always freeEverything is always free.
No sign-up. No paywall. Just past papers, notes and resources — organised by topic.
We’re proud to provide valuable educational resources at no cost to you. By allowing ads on our site, you help us keep this platform free and accessible for everyone.
Thank you for your support—it truly makes a difference!