Business Studies – 4.6.1 Main factors which influence location decisions | e-Consult

Answer 1: A car manufacturer relocating its production facility faces a complex decision with numerous factors to consider. Here are four key factors and their relative importance:

• Cost of Labour: This is often a very important factor. Manufacturers seek locations with a skilled workforce that can be employed at a competitive wage. Lower labour costs can significantly reduce overall production expenses. However, the quality of labour is also crucial; a low wage workforce might require more training, offsetting the cost savings. (High Importance)
• Transport Links: Efficient transport links are vital for both receiving raw materials and distributing finished vehicles. Proximity to major ports, railways, and highways reduces transportation costs and lead times. Consideration must be given to the cost and reliability of these links. (High Importance)
• Government Incentives & Regulations: Governments often offer incentives such as tax breaks, grants, and relaxed environmental regulations to attract investment. The regulatory environment, including planning permissions and environmental standards, can also significantly impact the cost and ease of operation. (Medium Importance)
• Market Access: Proximity to the target market is important for reducing distribution costs and responding quickly to consumer demand. This might involve locating near major population centres or within a region with strong trade links. Consideration should also be given to import/export tariffs and trade agreements. (Medium Importance)

Relative Importance: The relative importance of these factors will vary depending on the specific circumstances of the car manufacturer. For example, a manufacturer heavily reliant on imported components might prioritize transport links. A manufacturer targeting a specific domestic market might prioritize market access. However, cost of labour and transport links are generally considered the most critical.