9.1.1 Location
Location decisions are strategic: they commit large sums for many years and are expensive to reverse. A good location lowers costs, reaches customers and attracts skilled workers; a poor one can handicap a business permanently.
The factors that determine location and relocation
| Quantitative factors (can be measured in money) | Qualitative factors (cannot easily be measured) |
|---|
| Cost of land and buildings — rent or purchase price | Infrastructure — quality of roads, ports, power, internet |
| Labour costs — local wage levels | Availability of skilled labour |
| Transport costs — of raw materials in and finished goods out | Proximity to markets and suppliers (also affects costs) |
| Utility costs — power, water | Government policy — planning permission, regulations, political stability |
| Government grants, tax incentives, subsidies (e.g. special economic zones) | Quality of life for managers and staff; safety |
| Expected revenue at the site (especially for retail and services) | Room for future expansion; environmental and ethical considerations |
Businesses often use quantitative techniques — comparing costs and forecast revenues, break-even analysis and investment appraisal (Topic 10.3) for each site — combined with a weighted scoring of qualitative factors.
Worked calculation
A manufacturer compares two sites. Each factor is weighted by importance (weights add to 1) and scored out of 10.
Labour costs (0.30): Pune 6, Chennai 8 → 1.80 vs 2.40
Transport links (0.25): Pune 8, Chennai 9 → 2.00 vs 2.25
Skilled labour availability (0.20): Pune 9, Chennai 7 → 1.80 vs 1.40
Government incentives (0.15): Pune 7, Chennai 6 → 1.05 vs 0.90
Land cost (0.10): Pune 5, Chennai 7 → 0.50 vs 0.70
Weighted totals: Pune 7.15, Chennai 7.65 — on these weightings, Chennai is preferred.
Note: if skilled labour were weighted more heavily, Pune might win — the result depends on subjective weights and scores.
Local, national and international location decisions
| Level | Typical decision | Key considerations |
|---|
| Local | Which part of a city or region? (e.g. a new shop or warehouse) | Footfall, rent, parking, competitors nearby, planning rules |
| National | Which region or city of the country? | Regional wage and land costs, government incentives, access to national markets and suppliers, labour skills |
| International | Which country? | Labour and production costs, tariffs and trade agreements, exchange rates, political stability, legal systems, culture and language, access to foreign markets |
The reasons for and impact of offshoring and reshoring
Definition Offshoring is relocating business activities — such as manufacturing or customer services — from one country to another, usually to reduce costs.
Reshoring is bringing business activities back to the home country after they had been offshored.
| Reasons for offshoring | Reasons for reshoring |
|---|
| Lower labour and production costs abroad | Rising wages in former low-cost countries reduce the cost advantage |
| Access to skilled labour (e.g. IT services in India) | Long, fragile supply chains exposed by pandemics, conflicts and shipping disruption |
| Closer to fast-growing foreign markets | Quality-control and communication problems at a distance |
| Avoiding tariffs by producing inside a market | Government incentives and tariffs encourage domestic production |
| 24-hour operations across time zones | 'Made at home' branding; reputational concerns over overseas labour conditions; automation reduces the importance of labour costs |
| Impact of offshoring on the business | Possible problems |
|---|
| Lower unit costs; more competitive prices | Quality problems and loss of control |
| Access to new markets and talent | Cultural, language and time-zone barriers |
| Job losses at home — damage to morale and reputation; exposure to exchange-rate and political risk |
Example Many UK and US banks offshored customer service and IT to India, building the industries of Infosys, TCS and Wipro. More recently, companies such as Apple have moved some production from China to India and Vietnam ('China plus one'), partly to reduce reliance on one country — and US and European governments have offered incentives to reshore semiconductor manufacturing.
The impact of globalisation on location and relocation
- lower trade barriers and cheaper transport make it easier to locate production wherever costs are lowest
- global supply chains: different stages of production may be located in different countries
- competition between countries to attract investment through incentives
- businesses can serve global markets from a few regional hubs
- but global risks — trade disputes, pandemics, conflicts — have encouraged diversification of locations and some reshoring ('friend-shoring' to allied countries)