Business Location

INTRODUCTION

• For businesses, whether big or small, location is crucially important. Business location not only affects a company's costs and revenue as well as its ability to serve the customer. Getting the wrong location can have serious consequences for the business.

MEANING

• Business location is defined as a place or structure occupied by a firm to run its operations. This includes any structure or establishment used in conducting a business.
• Location of industry is the geographical spread of economic activity within an economy. However, multitude of factors influence the location decisions of firms and industries, including proximity to raw material supplies, availability of labour, good communications and nearness to markets.

EXAMPLE OF INDUSTRIAL LOCATION

• The 8 major industrial locations in India include Mumbai-Pune, Bangalore- Tamil Nadu, Visakhapatnam- Guntur belt, Hugli region, Ahmedabad-Baroda region, Chotanagpur industrial belt, Gurgaon- Delhi Meerut region and Kollam-Thiruvananthapuram

WHY LOCATION MATTERS?

• A good business location aims to provide an advantage to your business by creating a balance among:
• Operational costs (the daily costs incurred to run your business),
• Potential revenue
• Target customers.

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FACTORS AFFECTING THE BUSINESS LOCATION

• 1. Availability of raw materials: In determining the location of an industry, nearness to sources of raw material is of vital importance. Nearness to the sources of raw materials would reduce the cost of production of the industry. For most of the major industries, the cost of raw materials forms the bulk of the total cost. Therefore, most of the agro-based and forest-based industries are located in the vicinity of the sources of raw material supply.
• 2. Availability of Labour: Adequate supply of cheap and skilled labor is necessary for the industry. The attraction of industry towards labor centers depends on the ratio of labor cost to the total cost of production which Weber calls Labour cost of Index. The availability of skilled workers in the interior parts of the Bombay region was one of the factors responsible for the initial concentration of the cotton textile industry in the region.
• 3. Proximity to Markets: Access to markets is one of the important factors affecting location of industries that the entrepreneur must take into consideration. Industries producing perishable or bulky commodities which cannot be transported over long distances are generally located in close proximity to markets.

FACTORS AFFECTING THE BUSINESS LOCATION

• 4. Transport Facilities: Transport facilities, generally, influence the location of industry. Transportation with its three modes, i.e., water, road, and rail collectively play an important role. So the junction points of waterways, roadways, and railways become humming centers of industrial activity.��Further, the modes and rates of transport and transport policy of the Government considerably affect the location of industrial units. The heavy concentration of the cotton textile industry in Bombay has been due to the cheap and excellent transportation network both in regard to raw materials and markets.
• 5. Power: Another factor influencing the location of an industry is the availability of cheap power. Water, wind, coal, gas, oil, and electricity are the chief sources of power. Both water and wind power were widely sought as sources of power supply before the invention of the steam engine.

FACTORS AFFECTING THE BUSINESS LOCATION

• 6. Site and Services: The existence of public utility services, the cheapness of the value of the site, amenities attached to a particular site like the level of the ground, the nature of vegetation, and the location of allied activities influence the location of an industry to a certain extent.��The government has classified some areas as backward areas where the entrepreneurs would be granted various incentives like subsidies, or provision of finance at a concessional rate, or supply of power at cheaper rates, and provision of education and training facilities. Some entrepreneurs induced by such incentives may come forward to locate their units in such areas.
• 7. Finance: Finance is required for the setting up of industry, for its running, and also at the time of its expansion. The availability of capital at cheap rates of interest and inadequate amounts is a dominating factor influencing industrial location.

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FACTORS AFFECTING THE BUSINESS LOCATION

• 8. Natural and Climatic Considerations: Natural and climatic considerations include the level of the ground, the topography of a region, water facilities, drainage facilities, disposal of waste products, etc. These factors sometimes influence the location of industries.
• 9. External Economies: External economies also exert considerable influence on the location of industries. External economies arise due to the growth of specialized subsidiary activities when a particular industry is mainly localized at a particular center with port and shipping facilities.��External economies could also be enjoyed when a large number of industrial units in the same industry were located in close proximity to one another.

�Importance of business location

Choosing the right business location is vital to business operations and success. Here are some key benefits of a good business location:

• Attract and retain workers with the required skills and talent.
• Provide a balance between business costs and business revenues.
• Offer the necessary infrastructure for business growth. These infrastructures include a good transport system, gas pipes, and road networks.
• Position business to fully benefit from government policies, grants, or loans.
• Ensure the smooth running of  business operations.

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• Provide an ideal location to get enough traffic for business or to keep the business confidential.

Weber’s model of industrial location

Weber’s model of industrial location

• Alfred Weber developed an industrial location model in 1909. He explained why industries choose specific locations for production. Weber studied factors shaping an industry's optimal place. He said transport costs and agglomeration forces mainly decide factory locations.
• Transport costs depend on how far raw materials and markets lie from factories. If far, transport costs rise. So industries locate near input and market sources to cut costs. Agglomeration refers to industry clusters. Being near suppliers, labor pools, and other firms benefits businesses. They share resources, workers, and knowledge. This makes production cheaper.

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Weber’s model of industrial location assumptions

• He assumes the area is even in many ways. It's physically similar everywhere, with the same technology and culture. Politically there are no differences.
• He also assumes we know where the raw materials and customers are located.
• Transportation costs increase with how heavy and far stuff has to travel. That's the only thing that affects costs, according to Weber.
• The workers are stuck where they are. Weber doesn't consider that people might move for a job.
• There's also perfect competition between companies. Prices are set only by supply and demand.
• These assumptions make it easier for Weber to focus on the two main reasons industries locate somewhere: transport costs and how being near other businesses helps. In real life, lots of other things matter, too, for where factories go. But the simple picture gives us a base to understand location basics.

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• According to Weber’s model of industrial location, the location of industries depends on the type of raw materials they use.
• If raw materials lose a lot of weight during production or are impure, the industry should locate near the raw material source. This is true for industries like sugar, steel, and jute.
• If raw materials gain weight or are pure during production, the best location is between the raw material source and the market. This balances transport costs.
• If raw materials are widely available, the industry should locate near the market to minimize transporting finished products.
• Weber used location triangle models for industries using multiple raw materials.
• According to the triangle models, industries fall into two types: weight-gaining and weight-losing.
• Weight-losing industries like iron/steel and cement locate near raw material sources. A lot of weight is lost during production.
• Weber argued that the optimal location for an industry depends on whether its raw materials gain or lose weight during production and how widely available they are.
• Industries using weight-losing or impure raw materials benefit most from locating near material sources, while those with weight-gaining or pure inputs do best between input and market locations.

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• According to Weber's "least labor cost" theory, if labor costs are significantly lower in a particular region, industries may relocate there even if transportation costs increase.
• As long as the savings in labor expenses are greater than the additional transport costs, it makes economic sense for the industry to shift locations.
• This theory explains the development of industries like the cotton textile mills in Alabama, USA, and the readymade garment industry in many Indian cities.
• Labor was significantly cheaper in these locations, outweighing any increases in transportation costs due to distance from markets. The lower labor expenses more than offset, the higher transport costs of shipping finished goods elsewhere.
• As a result, industries relocated production to where labor was cheapest, in accordance with Weber's theory. The substantial savings on labor costs justified bearing some additional transportation expenses.
• Weber argued that if labor costs are low enough in a region, it may be economically logical for industries to shift locations - even if transportation costs rise slightly.
• As long as labor cost savings exceed additional transport expenses, industries should relocate to where labor is cheapest, according to Weber. This explains the growth of industries in lower labor costs locations like parts of the US and India.

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Key limitations of Weber’s model of industrial location:

• It ignores demand - Weber focuses only on supply factors like transport costs and labor. He neglects how demand patterns also influence where industries locate.
• It assumes a uniform region - In reality, no region is physically, politically, culturally, and technologically identical. Weber simplifies unrealistically.
• It treats labor as static - Workers often migrate for jobs, but Weber considers labor fixed. He ignores how mobility affects location.
• It neglects political factors - Weber overlooks how government policies, regulations, and incentives shape industry locations.
• It overemphasizes transport costs - Though important, transport costs are just one of many location determinants.
• It assumes perfect competition - In reality, firms do not always behave rationally or competitively. Weber's assumption is unrealistic.

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