Business Location

A2 Business Studies

Aims and Objectives

Aim:• Understand the quantitative and qualitative

location factorsObjectives:• Explain quantitative and qualitative location factors• Analyse why some industries decide not to move

to more optimal locations.• Evaluate what the success of location decisions

may depend on.

Starter

Explain the difference between quantitative and

qualitative location factors.

Which is more important?

Multi Site Locations

Multi-Site: where a business operates from more than one location.

Examples of Multi-Site Businesses

Examples of Multi-Site Growth

• Retailer expands by launching the same format in other locations nearby and then across the UK.

• Manufacturer establishes regional distribution centres.

• Franchisor expands by selling geographical territories to franchisees.

• UK bank opens a call centre operation overseas.

Multi-Site Locations

In groups brainstorm the possible advantages and disadvantages of having

multi-site locations.

Multi-Site Locations Advantages

• Business closer to customers.• Greater potential to develop brand name and

reputation.• Recruitment may be easier• Economies of scale – costs can be spread out over

many units• Better understanding of local market cultures and

conditions.• More revenue and distribution channels.

Multi-Site Locations Disadvantages

• Potential duplication of activities (diseconomies of scale).

• Harder to manage and control.

• Communication across the business is more challenging.

• Increased risk – the risk that the business does not understand the local markets in which it is operating.

Examples of Multi-Site Growth

Examples of Multi-Site Retrenchment

International Location

International Location

Why might a business operate overseas?

International Location Reasons

• Cross-border mergers and acquisitions

• Organic growth overseas (e.g. Tesco opening stores in eastern Europe & Thailand.

• Benefit more from economies of scale.

• Increasing use of offshoring.

Dyson Shifts Production to Malaysia

• Dyson, the UK company which pioneered the "bagless" vacuum cleaner, is set to move its manufacturing to the Far East with the loss of about 800 jobs.

• The chance of much lower manufacturing costs in the Far East is clinching it - as well as the prospect of being much closer both to suppliers and new markets have influenced the decision. (2002)

• 2004 – doubled its’ pre tax profits.

International Location Issues

• Exchange Rates:– Exposes business to fluctuating exchange rates

• Trade Barriers:– Locating a business to avoid trade barriers (quotas,

tariffs).– E.g. Argentina & Blackberrys

• Political Stability– Not desirable to locate in countries in political turmoil.

• Not understanding customer needs in new market

Tesco and Fresh ‘n Easy• The small-format stores, opened in

California, Nevada and Arizona, lost $208m during the year ending in February.

• Many product prices at Fresh & Easy are 15 per cent cheaper than those of its competitors, which should be helping in a recession - but isn't.

• American consumers seem baffled by what kind of store Fresh & Easy is. While many of the outlets - which are much smaller than most American supermarkets - have been opened in upper working-class areas, products and marketing seem to be aimed at more affluent shoppers.

Offshoring or Outsourcing?

Offshoring Example

Offshoring or Outsourcing?

Operations Decision Offshoring? Outsourcing?

A UK business sets up its own call centre in Bangalore (India) to serve its UK customers.

A toy manufacturer contracts with overseas suppliers to produce certain components which it imports into the UK/

A UK-based firm hands over its payroll and IT transaction processing activities to a specialist supplier in the UK.

A UK supermarket retailer opens its first stores in the USA managed by a team based in the USA.

Offshoring or Outsourcing?

Operations Decision Offshoring? Outsourcing?

A UK business sets up its own call centre in Bangalore (India) to serve its UK customers.

Yes No

A toy manufacturer contracts with overseas suppliers to produce certain components which it imports into the UK/

Yes Yes

A UK-based firm hands over its payroll and IT transaction processing activities to a specialist supplier in the UK.

No Yes

A UK supermarket retailer opens its first stores in the USA managed by a team based in the USA.

Yes No

Offshoring Example

Risks of OffshoringCustomer Service Combination of poor training, cultural differences

and local management can lead to poorer customer service.

Higher Than Expected Costs

Low wages seem attractive in economies like India and China, however lower productivity may lead to higher unit costs and diseconomies of scale.

Public and Employee Relations

Moving abroad and can do significant damage in home nation to brand name and reputation.

Protection of Intellectual Property

Intellectual property laws are not as strong in other countries, and competitive adv. could be eroded away more easily.

Depends on….

• What does the success of locating internationally depend on?