Factors to Consider When Choosing a Business Location

Business Plans PDF

Choosing the right location for your business is essential for your business venture to succeed. You have to plan and research before you select the location of your business. This article highlights some of the key considerations for selecting a business location.

Core Business Objectives

The primary aim of the business will determine where it is located. For example, banks are in the city in order to access the corporate types whereas farms are in rural areas in order to access arable land. Sometimes the entrepreneur will change location and go against the norm because they want to make a statement of intent or to avoid certain difficulties. A case in point is the relocation of supermarkets from the suburbs into outer city wastelands in order to escape a hostile community reception to planning applications.

Local, National and Regional Rules

Certain businesses are controlled as part of public policy and also to enhance public safety. For example, clinical waste disposal sites must be far away from residential areas. At other times there is an overarching policy that is geared towards concentrating certain businesses within certain localities in order to better provide support and supervision. The business may have an option to change the location but that will come at a significant cost in terms of the loss of the incentives that are associated with a given business hub.

Behavior of Partners and Competitors

All businesses operate within a given context. That context is part of a value chain of suppliers, buyers and transporters. Generally, the perceived threats or benefits associated other parties will influence the location of the business. For example, if a competitor specializes in identical products to a given company; the likelihood is that the two parties will try to keep away from one another. However, if the two companies are in a symbiotic partnership, a big distance will necessarily increase their transportation costs. Some partnerships call for specific locations in order to facilitate cooperation.

Profile of the Locals

The people who live in the area where you want to open up a business have an important role to play in determining your location. Most businesses try to be as close as possible to their customers but a negative response from those customers might mean an alternative location. A case in point is how supermarkets in Europe and North America were forced to move outside the cities and away from the suburbs, partly due to local anger about their building activities. Another consideration is whether the local population is wealthy enough to support the business and whether they are in need of the merchandise/service being offered.

Government and State Policies

Some governments have created economic hubs with specific incentives for businesses that are located within them. Unless you are already a well-established brand that is capable of independent survival, it makes sense to defer to government policy on business. For example, the Silicon Valley has become an iconic location for the tech industry. The mere fact that your business is located there brings significant government and local incentives. In particular, you should consider assistance with acquiring land, capital and technical expertise when joining a government-sanctioned business hub.

Ease of Relocating and Locating

Some regions and countries have become complex for businesses because of the increased costs of relocation. These cost can arise in a number of ways including premiums for buying land, excessively restrictive planning requirements, a hostile neighborhood and other practical barriers to entry such as a lack of parking. It is for this reason that there are areas which strive to improve the perception of their receptiveness to new businesses. The businesses will often make judgements as to whether the costs of relocating can be covered by the anticipated local demand for their products and services.

Traffic Patterns

High levels of foot traffic are considered to be a bonus as long as the business is not aiming for exclusivity. For example, an architect does not need people running in and out of their offices because that is not the kind of traffic that tends to order the services of an architect. On the other hand, a fruit seller or ice cream van cannot do without traffic because their merchandise is perishable and must ideally be consumed within the day. In general terms areas that have seen a big negative migration pattern are not suitable for businesses whereas areas with dense mixed populations are great for business.

Access to Appropriate Labor

One of the important trends happening in the commercial world today is the shift of manufacturing units away from the old developed economies towards the developing world. This is driven by a perception and empirical evidence to the effect that the costs of employing labor in developed countries is significantly higher than that in developing countries. Even then; the developing countries may lose out if the type of labor they have is inappropriate for the business needs at the time. In particular, a poor or inappropriate education can render the labor insufficient for the needs of a specialized industry.

Purchasing Power of the Market

This remains one of the critical and early considerations for a business when selecting location. It is not enough for a market to have a high population. The population must also have sufficient incomes and the willingness to purchase the products that are being sold. A case in point is the use of demographical data to distinguish between services that are needed by older adults and those for a more youthful market. It is what explains the concentration of retirement homes in areas that were previously dominated by baby boomers or people who become youths in the 1960s.

Pull or Push of a Parent Company

The policies of a parent company are a key determinant of location. In some instances, it may suit the purposes of the parent company to keep its subsidiaries as close as possible. For example, this decision may reflect a need for closer supervision or even cooperation on strategic projects. At other times the parent company may decide that its business purposes are best served if its subsidiaries are as far away as possible. For example, its marketing strategy may be based on geographical acquisitions which call for the widest distribution possible.

Access and Planning Rules

The advent of the personal car means that you must have adequate and convenient parking for clients. Research has shown that metered car parks in shopping centers or narrow slots have a negative impact on sales. Ideally you should be located in an area that allows you to build according to your needs. That means having a friendly zoning profile which allows for businesses without significant fines or restrictions. You might need to scout the local planning authorities in order to understand what you can and cannot do in a given area.

Political, Economic and Social Stability

Typically, businesses tend to prefer locations that are predictable and bound to maintain the highest value of corporate assets over time. That means that any indicators of instability or uncertainty will cause businesses to move away while stability will conversely attract entrepreneurship. However, there are other businesses which rely on instability in order to provide services to the traumatized locals as well as the power brokers within that context. A case in point is the location of post-war charities and arms traders. The overriding concern is always the success of the business.

Cultural Norms and Practices

Modern businesses invest a lot of time and money in accumulating business intelligence. Some of this information relates to the cultural norms and practices within a given setting. There are countries where businesses are located by tribe and nationality . A successful business may not be able to change these deep-seated societal dynamics but it could find a way of negotiating them in order to avoid offending local sensibilities.

Level of Infrastructural Development

Businesses require a certain amount of infrastructural development in order to work. Those that are directly involved in creating infrastructure may be able to tolerate relative backwaters because they are the source of their business in the first place. However; the location must have a good baseline including energy, transportation, communication and processing. The reasoning behind this is that the better the infrastructure, the lower the costs of doing business will be.

Ultimately, the location of a business is driven by the interests of its stakeholders. These include the entrepreneurs, owners, managers, workers, customers and regulators as well as the community at large.



Join our mailing list to receive the latest posts and updates from our website.

You have Successfully Subscribed!