factors which influence the location decisions of a manufacturing business

4.6.1 Factors Influencing the Location Decision of a Manufacturing Business

Objective

Identify, explain and evaluate the factors that influence where a manufacturing business chooses to locate its plant(s). Apply these factors to a realistic decision‑making scenario and demonstrate an exam‑style approach.

1. Core Local Factors (Syllabus Requirement 4.4 – Manufacturing)

These are the ten factors listed word‑for‑word in the Cambridge syllabus. Each factor is defined and the main impact on cost, efficiency or risk is highlighted.

• Proximity to Markets – Shortens delivery times, reduces distribution costs and improves customer service.
• Proximity to Raw Materials – Lowers freight charges for bulky/heavy inputs and reduces the risk of supply disruption.
• Transport Facilities – Access to roads, railways, ports and airports for inbound and outbound logistics.
• Labour Supply – Availability of skilled and unskilled workers, prevailing wage rates, trade‑union strength and the general labour‑relations climate.
• Utilities & Services – Cost and reliability of:
  • Electricity
  • Water
  • Gas
  • Telecommunications (internet & phone)
  • Waste‑disposal and treatment services
• Government Policies & Incentives – Tax reliefs, grants, subsidies, free‑trade zones, planning concessions and import‑export duties.
• Land & Building Costs – Purchase or rental price of land, construction expenses and the physical suitability of the site.
• Infrastructure – Quality of local roads, drainage, sewage, broadband and other public services that support production.
• Environmental & Legal Controls
  • Environmental legislation (pollution limits, waste‑management rules)
  • Planning permission and zoning regulations
  • Health & safety requirements
  • Community opposition or “Not‑In‑My‑Back‑Yard” (NIMBY) pressures
• Future Expansion Potential – Availability of adjacent land, favourable zoning changes and the possibility of scaling up production.

2. Country‑Level Considerations (Syllabus Requirement 4.4)

• Political Stability & Security – Reduces the risk of disruption from unrest, terrorism or sudden policy shifts.
• Exchange‑Rate Risk – A change in the value of the local currency alters the cost of imported inputs and the competitiveness of exports.
  Example: If the local currency depreciates by 10 %, the price of imported fabric rises by 10 % (in local terms) while the factory’s export price becomes 10 % cheaper for foreign buyers, potentially boosting sales abroad.
• Trade Barriers & Tariffs – Import duties on raw materials and export duties on finished goods affect unit costs and market price.
• Tax Regime – Corporate tax rates, value‑added tax (VAT), and any special tax holidays for foreign investors.
• Incentives for Foreign Direct Investment (FDI) – Grants, subsidised land, training programmes, reduced customs duties or other financial incentives aimed at attracting overseas manufacturers.

3. Contrast with Service‑Sector Location Decisions (Syllabus 4.4 – Brief requirement)

Manufacturing location decisions are driven mainly by raw‑material logistics and distribution efficiency, whereas service‑sector decisions focus on:

• Proximity to customers (e.g., retail, banking, hospitality).
• Availability of a highly skilled labour force (e.g., IT, finance, professional services).
• High‑speed ICT infrastructure and reliable telecommunications.
• Image, prestige and accessibility of the location (city centre, business park, tourist area).

4. Weighting the Factors – Sample Decision‑Making Table

Assign a weight to each factor according to the firm’s strategic priorities, score each potential site (1 = poor, 5 = excellent) and calculate the weighted score.

5. Applying the Factors – Example Scenario

Company: Mid‑size clothing manufacturer.

Potential Sites:

• Site A – Industrial park on the outskirts of a major city. Excellent road & rail links, higher land cost, abundant skilled labour.
• Site B – Rural area close to a large textile mill. Cheap land, lower wages, limited transport infrastructure.

Steps taken by the management team:

1. Identify strategic priorities (fast delivery to retailers, low production cost, room for expansion).
2. Assign weights to each factor reflecting those priorities (as in the table above).
3. Gather data for Site A and Site B and give each a score (1‑5) for every factor.
4. Calculate the weighted scores and compare totals.
5. The site with the higher total (e.g., Site A = 4.12, Site B = 3.68) is recommended for investment.

6. Decision‑Making Flowchart (Suggested Diagram)

1. Identify business priorities.
2. List all potential sites.
3. Collect data for each factor.
4. Assign weights (based on priorities).
5. Score each site (1‑5).
6. Calculate weighted scores.
7. Compare totals and select the optimal location.
8. Review the decision periodically (technology, market or legislative changes).

7. Exam‑Style Tips

• Start every answer with a concise definition of the factor.
• Give at least two advantages and two disadvantages for each factor you discuss.
• When evaluating, explain which factor is most important for the specific business and why.
• Use bullet points or a short table – clear, organised presentation gains marks.
• Even if a question asks for “main factors”, briefly mention the country‑level considerations to show full syllabus coverage.

8. Quick Audit – Alignment with Syllabus 0450 (Section 4.4)

9. Summary

• Location decisions balance many inter‑related factors: market proximity, raw‑material access, transport, labour, utilities, government policy, land cost, infrastructure, legal controls and expansion potential.
• Country‑level issues (political stability, exchange‑rate risk, trade barriers, tax regime, FDI incentives) can outweigh local factors for multinational manufacturers.
• Weighting each factor according to the firm’s strategic objectives provides a systematic, exam‑friendly method for comparing sites.
• Regular review is essential because market conditions, technology and legislation evolve over time.