Explain the differences between local, national and international location decisions, identify the full range of factors that influence each type of decision, and apply the analytical tools required by the Cambridge A‑Level syllabus to evaluate alternatives.
Key Definitions
Local location decision: Selecting a site within a limited geographical area (e.g., a town, city or region) to serve a specific market or to exploit local resources.
National location decision: Selecting a site somewhere inside the borders of a single country to reach a broader domestic market or to benefit from national‑level advantages.
International location decision: Placing an operation in a different country, usually to access new markets, cheaper inputs, or strategic positioning.
Off‑shoring: Moving part or all of a production process to a foreign country, mainly to reduce costs.
Near‑shoring: Relocating operations to a neighbouring or nearby country to combine cost advantages with reduced cultural and logistical distance.
Reshoring (on‑shoring): Bringing production or services back to the home country after having off‑shored them.
Comparison of Local, National and International Decisions
Aspect
Local Decision
National Decision
International Decision
Geographical scope
Within a town, city or region
Anywhere within the same country
Across national borders
Primary purpose
Serve a specific community or exploit local resources
Reach a larger domestic market or access national resources
Enter new markets, obtain cheaper inputs, achieve strategic positioning, or benefit from trade agreements
Key influencing factors
Customer proximity
Local labour pool (e.g., retail assistants)
Rent and business rates
Transport links (bus routes, parking)
Local planning regulations
National distribution networks (rail, motorways)
Tax regimes and incentives (e.g., Enterprise Zones)
Medium – broader exposure but still within familiar legal and cultural framework
High – exposure to foreign political, economic, cultural and legal risks
Decision‑making time
Short – data are readily available; usually a few weeks
Moderate – national market analysis, feasibility studies and sometimes planning permission (months)
Long – extensive feasibility work, due‑diligence, negotiations with foreign authorities, and risk‑mitigation planning (often 6‑12 months)
Typical examples
Opening a new coffee shop on a high‑street location
Establishing a regional distribution centre in another part of the country
Setting up a manufacturing plant in Vietnam to serve Asian markets
Factors Common to All Location Decisions
Cost considerations: rent, utilities, wages, local taxes. Example: A retailer chooses a suburb where rent is 30 % lower than the city centre.
Access to markets: proximity to customers, suppliers and distribution channels. Example: A fast‑food chain locates near university campuses to capture student demand.
Transport and logistics: road, rail, port and airport connectivity. Example: A distribution centre close to a motorway junction reduces delivery times.
Availability of skilled labour: concentration of relevant expertise. Example: A software firm prefers a city with a strong university graduate pool.
Legal and regulatory environment: planning permission, health & safety, environmental licences.
Quality of infrastructure: power reliability, water supply, broadband speed.
Political stability and government incentives: tax breaks, subsidies, free‑trade zones.
Environmental considerations: carbon footprint, local environmental regulations, community sustainability expectations.
Special Considerations for International Decisions
Exchange‑rate fluctuations: can turn a cost advantage into a loss; firms often hedge using forward contracts.
Trade barriers: tariffs increase unit costs; quotas limit volume; import licences may cause delays. Example: A UK apparel firm faces a 12 % tariff on Chinese imports after Brexit.
Cultural differences: consumer tastes, management styles, negotiation practices.
Legal system differences: contract law, employment law and intellectual‑property protection vary widely.
FDI incentives: tax holidays, subsidised land, training grants, or special economic zones.
Impact of Globalisation on Location Decisions
Globalisation has reduced the cost of moving goods, information and capital across borders. Key effects include:
Greater availability of low‑cost inputs through global supply chains.
Free‑trade agreements (e.g., EU Single Market, CPTPP) that lower tariffs and simplify customs procedures.
Increased competition, prompting firms to locate where they can achieve the lowest total cost while maintaining speed to market.
Pressure to adopt near‑shoring or reshoring strategies when political risk or consumer demand for “Made‑in‑Home” products rises.
Location‑Specific Risks and Mitigation Strategies
Risk Type
Typical International Example
Mitigation Tactics
Political risk
Sudden change in export taxes in Country X
Political‑risk insurance; diversify production across several countries.
Exchange‑rate risk
Depreciation of the host‑country currency increasing import costs
Forward contracts, currency‑option hedging, invoicing in stable currencies.
Regulatory risk
New environmental legislation requiring costly upgrades
Early engagement with local authorities; include compliance costs in feasibility study.
Supply‑chain disruption
Port strikes in the host country
Alternative transport routes; safety‑stock inventories; multi‑sourcing.
Legal‑system risk
Poor enforcement of intellectual‑property rights leading to counter‑feiting
Choose jurisdictions with strong IP regimes; register patents locally; use contractual safeguards.
Cultural risk
Product packaging that offends local customs, causing sales drop
Market research and localisation of product design; employ local managers to guide cultural adaptation.
Analytical Tools for Evaluating Locations
Cambridge A‑Level expects candidates to use at least one of the following tools.
1. Weighted Scoring Model
Assign weights to the most important factors, score each site, and calculate a total weighted score.
Factor
Weight (%)
Site A (North)
Site B (South)
Transport links
30
8
6
Labour cost
20
7
9
Rent
15
9
7
Market proximity
20
6
8
Incentives (tax relief)
15
5
8
Total weighted score
7.0
7.5
Site B scores higher, mainly because of lower labour costs and larger tax incentives, so it would be recommended for further detailed study.
2. Cost‑Benefit Analysis (CBA)
Compare the present value of all expected costs with the present value of all expected benefits. A simple CBA can be shown with Net Present Value (NPV).
Item
Site C (East) – £
Site D (West) – £
Initial capital outlay
5,000,000
4,500,000
Annual operating cost (5 years)
1,200,000
1,350,000
Annual revenue (5 years)
2,500,000
2,600,000
Discount rate
8 %
NPV of cash‑flows
+£1,040,000
+£980,000
Both sites generate a positive NPV, but Site C has the higher NPV and would be the preferred option, assuming the risk profile is acceptable.
Link Between Location and Scale Decisions
Economies of scale: A large plant may be sited where it can serve a wide market efficiently (often national or international).
Capacity utilisation: Locating close to major customers helps keep capacity high and reduces idle time.
Scope for future expansion: Sites with ample land or modular facilities support growth without the need for relocation.
Decision‑Making Process (Step‑by‑Step)
Define objectives – e.g., reduce unit cost by 10 %, improve delivery time to <24 h, access a new market.
Identify potential sites – generate a shortlist using GIS tools, trade directories, or government investment agencies.
Collect data – costs (rent, wages, taxes), labour availability, transport links, legal requirements, environmental impact, incentives, exchange‑rate forecasts.
Analyse alternatives – apply a weighted scoring model **or** a cost‑benefit analysis; run sensitivity tests for exchange rates, tax changes or demand fluctuations.
Assess risks & develop mitigation – use the risk‑mitigation table above; consider insurance, hedging, contingency plans, and diversification.
Make the final decision – present findings to senior management; obtain board approval.
Plan implementation – secure land, obtain licences, recruit staff, set up logistics, and monitor performance against objectives.
Post‑implementation review – compare actual outcomes with forecasts; adjust strategy if required.
Suggested diagram: Flowchart of the location‑decision process, from objective setting through to implementation and post‑implementation review.
Summary
Local, national and international location decisions differ in geographical scope, purpose, influencing factors, risk profile and the time needed for analysis. All decisions share a core set of considerations—cost, market access, transport, labour, legal environment, infrastructure, political stability, incentives and environmental impact—but complexity rises as the decision moves outward. Off‑shoring, near‑shoring and reshoring illustrate how firms respond to globalisation, cost pressures and risk considerations. Using analytical tools such as weighted scoring models or cost‑benefit analyses enables managers to compare alternatives objectively, while risk‑mitigation strategies protect against the higher uncertainties of international locations. Mastery of these concepts equips students to choose sites that align with an organisation’s strategic objectives and scale ambitions.
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