Key Factors Influencing Business Location Decisions

Proximity to Markets, Labour, and Competitors

Proximity to Market

Businesses that produce bulky, heavy, or fragile goods often choose to locate close to their customers so that transportation costs remain low. Service-based businesses may also prefer being near their customers since many services—such as hairdressing or restaurants—are delivered face-to-face.

Proximity to Labour

Firms often look for locations where labour is affordable or where specific skills are available. Labour skills are not evenly spread across regions. For example, some companies in Europe and the USA have moved production to Southeast Asia because wages are lower and labour is readily available.

Proximity to Competitors

Some businesses choose to avoid locating near competitors to reduce the risk of losing customers. For instance, a new barbershop might prefer an area without other barbers. However, in some industries, clustering together can actually attract more customers, though this depends entirely on the business type.

How Business Activity Influences Location

Service Sector Requirements

When selecting a location, service businesses must consider accessibility, nearby parking, and the impact of local traffic. Heavy congestion can discourage customers. Many service businesses choose to locate in shopping centres or malls because these areas already attract a large volume of shoppers.

Agricultural and Primary Industry Needs

Farmers typically need large areas of land, but the specific type of land required varies with the crop or livestock. Different agricultural activities need different environmental conditions. In the fishing industry, for example, businesses usually locate near the coast, but exact locations depend on the catch—such as oyster fishing businesses positioning themselves near oyster beds.

The Impact of the Internet on Business Location

The rise of online shopping has significantly reduced the importance of physical location for many businesses. E-commerce allows companies to sell to customers worldwide without needing a store in a busy shopping area. As a result, many firms now operate from warehouses or remote locations where costs are lower, while still reaching their target market through the internet.