the impact of globalisation on location and relocation decisions

9.1 Location and Scale – Location

Objective: Impact of Globalisation on Location & Relocation Decisions 🌍

Globalisation means that businesses can operate across borders with ease.

This changes how they choose where to set up shop or move their operations.

Think of a business as a plant 🌱 – it needs the right soil, light, and water to grow.

In the same way, a company needs the right location to thrive.

Key Factors Influencing Location Decisions

• Market proximity – closer to customers means faster delivery 🚚
• Labour costs & skills – cheaper wages vs. skilled workforce 💼
• Infrastructure – roads, ports, internet connectivity 🏗️
• Tax incentives & subsidies – government support 💰
• Political & economic stability – safe environment for business 🛡️
• Supply chain logistics – proximity to suppliers and raw materials 🔗
• Environmental regulations – impact on production costs 🌱

Globalisation’s Effect on These Factors

• Reduced transportation costs (thanks to better logistics and technology) make distant markets more accessible.

• Access to global talent pools allows firms to choose locations based on skill availability rather than just cost.

• Competitive pressure pushes firms to locate near key suppliers or customers to stay agile.

• Regulatory harmonisation (e.g., EU single market) simplifies cross-border operations.

• Digital connectivity means many services can be delivered online, reducing the need for physical proximity.

Relocation Decision Formula

The total cost of relocating can be approximated by:

\$C = F + L + T\$

where:

• \$F\$ = Fixed relocation costs (moving equipment, legal fees)
• \$L\$ = Labour costs (wages, training)
• \$T\$ = Transportation costs (shipping goods, travel)

Case Study: Apple Inc. 🌐

Apple moved a large portion of its manufacturing to China in the 2000s because:

1. Lower labour costs (\$L\$) compared to the U.S.
2. Proximity to key suppliers of electronic components.
3. Access to the rapidly growing Asian consumer market.
4. China’s investment incentives and improving infrastructure.

This relocation illustrates how globalisation can shift a company’s optimal location.

Quick Quiz

1. What is the main benefit of reduced transportation costs for a global business?
2. List two factors that might outweigh lower labour costs when choosing a location.
3. Explain how digital connectivity can reduce the importance of physical proximity.

Summary Table