recommend and justify an appropriate location for a business in a given situation

4.6.1 Main Factors Which Influence Location Decisions

Learning Objective (AO1‑AO4)

Recommend and justify an appropriate location for a business in a given situation, using relevant data, a clear evaluation of alternatives and a risk‑mitigation plan.

Why Location Matters

• Cost impact – rent, utilities, transport, wages, taxes.
• Revenue impact – customer access, footfall, brand image.
• Sustainability – long‑term risk, growth potential and stakeholder relationships.

1. Key Factors to Consider

Factor Category	Specific Elements	Business Impact
Market‑related factors	Proximity to customers	Reduces distribution costs and increases convenience → higher sales.
	Market size & growth potential	Ensures sufficient demand now and in the future.
	Competition density	High density may erode market share; low density may indicate unmet demand.
	Customer demographics & buying behaviour	Matches product/service to the needs and preferences of the target market.
Cost factors	Land or rent price	Major component of fixed costs; influences pricing strategy.
	Utilities and rates	Ongoing operating expense; varies by location.
	Transportation & distribution costs	Impacts cost of getting goods to/from the site.
	Labour costs & availability	Determines wage levels, training needs and productivity.
	Tax incentives / environmental levies	Can reduce or increase the overall tax burden; may affect profitability.
Infrastructure	Roads, rail, ports and airports	Facilitates movement of raw materials, finished goods and staff.
	Internet & telecommunications	Essential for modern operations, e‑commerce and communication.
	Utilities (water, electricity, gas)	Reliability and cost affect production and service delivery.
	Access to suppliers & raw materials	Shorter supply chains lower transport costs and improve lead times.
Legal & regulatory environment	Zoning & planning permissions	Determine whether the intended activity is allowed on the site.
	Health & safety regulations	Compliance costs and possible restrictions on layout or processes.
	Tax incentives or reliefs	Local authority or government schemes that can improve profitability.
	Environmental restrictions	Limits on emissions, waste disposal or building design; may require extra investment.
Human‑resource considerations	Skill level of the local workforce	Higher skill levels can reduce training costs and increase productivity.
	Labour relations & union presence	Unionised workforces may demand higher wages or stricter conditions.
	Training facilities & educational institutions	Proximity to colleges/universities provides a pipeline of qualified staff.
Social & cultural factors	Community attitudes toward the business type	Positive attitudes boost brand image; opposition may lead to protests or boycotts.
	Quality of life for employees (housing, schools, health services)	Attractive living conditions aid recruitment and staff retention.
	Crime rates & safety	High crime can increase security costs and deter customers.
Future development	Planned infrastructure projects	New roads, rail links or housing schemes can increase footfall and property values.
	Potential for expansion	Availability of adjacent land or the ability to acquire nearby sites.
	Long‑term economic forecasts	Regional growth trends help predict future demand and cost changes.
Manufacturing vs. Service Emphasis
Manufacturing	Proximity to raw materials, large plant space, heavy‑duty utilities, transport links for bulk freight, lower labour cost zones.	Reduces inbound logistics costs and production downtime.
Service	High customer footfall, good public‑transport access, visibility, parking, ambience, proximity to complementary services.	Increases sales opportunities and enhances customer experience.
Country‑level (International) Considerations
Political stability & government policy	Reduces risk of sudden regulatory change, expropriation or civil unrest.	Protects long‑term investment.
Economic environment	GDP growth, inflation, exchange‑rate volatility.	Influences consumer purchasing power and cost of imported inputs.
Trade agreements & tariffs	Preferential access to markets, reduced customs duties.	Improves profitability of export‑oriented businesses.
Legal system & intellectual‑property protection	Strength of contract enforcement, patent laws.	Protects competitive advantage.
Infrastructure quality (national level)	Port efficiency, national broadband coverage, energy reliability.	Supports both manufacturing and service operations.

2. Sources of Information for Each Factor

• Market research reports, census data, local authority demographic profiles.
• Commercial property listings, rent indexes, utility company tariffs.
• Transport authority maps, logistics company quotes, supplier‑distance calculators.
• Local council planning portals, health & safety inspectorate publications, tax‑incentive schemes.
• Job‑centre statistics, university graduate output tables, trade‑union newsletters.
• Police crime statistics, community surveys, quality‑of‑life rankings.
• Local development plans, regional economic forecasts, national infrastructure investment announcements.
• World Bank “Ease of Doing Business”, IMF country reports, WTO trade‑policy summaries (for international sites).

3. Evaluating and Comparing Sites

3.1 Weighted Scoring System (AO2)

1. Identify the most important factors for the specific business and assign a weight (e.g., 0‑100 %).
2. Score each site on a consistent scale (e.g., 1‑5, where 5 = most favourable).
3. Calculate the weighted score:
   Weighted Score = Σ (Weight × Score)
4. The site with the highest total weighted score is preferred, provided the risk analysis is acceptable.

3.2 Profit‑Impact Formula (AO2)

Estimate the expected annual profit for each site:

\[ \text{Estimated Annual Profit}= (\text{Projected Sales} - \text{Variable Costs}) - (\text{Fixed Costs} + \text{Location‑specific Costs}) \]

• Projected Sales = Footfall × Conversion Rate × Average Spend.
• Variable Costs = COGS % × Projected Sales.
• Fixed Costs = Rent + Utilities + Staff Salaries + Insurance.
• Location‑specific Costs = Transport to/from suppliers, tax incentives (positive or negative), environmental levies.

3.3 Risk & Long‑term Evaluation (AO4)

• Lease terms – length, break‑clauses, rent reviews.
• Seasonal fluctuations in footfall or demand.
• Potential regulatory changes (e.g., new zoning rules).
• Exposure to future competition or infrastructure projects.
• Mitigation strategies – flexible lease, diversification of channels, contingency budgets.

4. Step‑by‑Step Approach to Recommending a Location

1. Set objectives – profit targets, market‑share goals, strategic priorities (e.g., brand positioning, sustainability).
2. Identify potential sites – use market research, GIS tools or trade‑association directories to shortlist 3‑5 locations.
3. Collect data for every factor (costs, demographics, infrastructure, legal constraints, country‑level risks).
4. Apply weighted scoring – calculate a total score for each site.
5. Estimate profit impact – use the profit‑impact formula to produce a numeric forecast.
6. Conduct risk analysis – list major risks, assess likelihood & impact, and suggest mitigation.
7. Make the recommendation – state the chosen site, present the weighted score, profit estimate and risk‑mitigation plan. Explain why it best meets the business objectives (AO4).

5. Sample Scenarios

5.1 Service Business – Fast‑Food Chain “QuickBite”

Situation: New fast‑food outlet in a mid‑size UK town; target market 16‑35 year‑olds who value speed and low price.

1. Objectives – £150 k annual profit; capture ≥5 % of the town’s young‑adult market.
2. Shortlisted sites:
   • (A) Town‑centre high street
   • (B) Central shopping mall
   • (C) Industrial estate near a commuter rail station
3. Key data (excerpt):

   Factor	Site A	Site B	Site C
   Monthly rent (£)	3,200	2,800	1,500
   Weekly footfall (people)	12,000	15,000	4,000
   Average distance to main suppliers (km)	5	8	3
   Labour pool (students & graduates per 1,000 residents)	45	45	20
   Tax incentive (annual rebate)	£0	£5,000	£2,000
   Crime index (lower = safer)	3.2	2.9	4.1

4. Weighted scoring (weights: Footfall 40 %, Rent 20 %, Supplier distance 15 %, Labour 15 %, Tax incentive 10 %):

   Site	Score (out of 5)	Weighted Total
   A	3.8	3.46
   B	4.5	4.03
   C	2.5	2.45

5. Profit estimate for Site B (assumptions: conversion 5 %, average spend £5, COGS 40 %, utilities £800/yr, staff salaries £45,000/yr): \[ \begin{aligned} \text{Projected Sales} &= 15{,}000 \times 52 \times 0.05 \times £5 = £195{,}000\\ \text{Variable Costs} &= 0.40 \times £195{,}000 = £78{,}000\\ \text{Fixed Costs} &= (2{,}800 \times 12) + £800 + £45{,}000 - £5{,}000 = £84{,}600\\ \text{Estimated Profit} &= (£195{,}000 - £78{,}000) - £84{,}600 = £32{,}400 \end{aligned} \] (Site A profit ≈ £28 k; Site C profit ≈ £10 k.)
6. Risk analysis – 5‑year lease with 6‑month break clause; footfall peaks during school holidays; possible future mall redevelopment – monitor landlord’s planning applications.
7. Recommendation – Choose **Site B (shopping mall)**. It scores highest on the weighted evaluation, delivers the greatest projected profit, aligns with the target market’s shopping habits, and the tax rebate offsets the slightly higher rent. Risks are manageable through the break clause and a proactive marketing plan.

5.2 Manufacturing Business – “Eco‑Widgets Ltd.”

Situation: A start‑up producing biodegradable plastic components wants a plant in the West Midlands. Key priorities are low transport costs for raw material (starch), access to skilled technicians and eligibility for regional green‑technology grants.

1. Objectives – break‑even within 24 months; minimise logistics cost to < £30 k/yr.
2. Shortlisted sites:
   • (X) Former warehouse on the M6 corridor
   • (Y) Business park on the outskirts of a university town
   • (Z) Rural site near a major rail freight hub
3. Key data (excerpt):

   Factor	Site X	Site Y	Site Z
   Annual rent (£)	120,000	150,000	80,000
   Distance to starch supplier (km)	12	30	8
   Skilled technicians per 1,000 residents	25	40	15
   Green‑tech grant (annual)	£20,000	£35,000	£15,000
   Rail freight access (minutes to terminal)	25	45	10

4. Weighted scoring (weights: Supplier distance 30 %, Skilled labour 30 %, Grant 20 %, Rent 15 %, Rail access 5 %):

   Site	Score (out of 5)	Weighted Total
   X	3.5	3.30
   Y	4.2	3.97
   Z	3.0	2.85

5. Profit estimate for Site Y (assumptions: annual sales £800,000, COGS 45 %, utilities £25,000, staff salaries £200,000): \[ \begin{aligned} \text{Variable Costs} &= 0.45 \times £800{,}000 = £360{,}000\\ \text{Fixed Costs} &= £150{,}000 + £25{,}000 + £200{,}000 - £35{,}000 = £340{,}000\\ \text{Estimated Profit} &= (£800{,}000 - £360{,}000) - £340{,}000 = £100{,}000 \end{aligned} \] (Site X profit ≈ £85 k; Site Z profit ≈ £70 k.)
6. Risk analysis – reliance on a single starch supplier (mitigate by signing a secondary contract); potential changes to grant eligibility (monitor policy updates); rail‑freight capacity constraints.
7. Recommendation – Choose **Site Y**. Although rent is higher, the superior skilled‑labour pool and larger grant outweigh the extra cost, delivering the highest profit forecast and supporting long‑term growth.

6. Interpreting Data – Tables, Graphs & Charts (AO3)

• Bar chart: footfall × conversion rate for each site → visualise expected sales.
• Pie chart: breakdown of total costs (rent, utilities, salaries, transport) for the recommended site.
• Radar diagram: shows which factors each site scores highest on, highlighting trade‑offs.
• Explain trends (e.g., “higher footfall directly raises projected sales”) and anomalies (e.g., “low rent at Site C is offset by a poor labour pool”).

7. Flowchart of the Location‑Selection Process

8. Quick Reference Checklist (AO1)

1. Define business objectives.
2. Distinguish whether the venture is manufacturing or service‑oriented.
3. List all relevant factors (market, cost, infrastructure, legal, HR, social, future, international).
4. Gather reliable data for each factor.
5. Apply a weighted scoring model.
6. Calculate profit impact for each site.
7. Identify and evaluate major risks.
8. Write a concise recommendation that links the chosen site to the original objectives and explains why alternatives are less suitable.