Subject: Business | Level: GCSE | Exam Board: AQA
Business location is one of the most critical, long-term strategic decisions an entrepreneur must make. A poor location choice can fatally undermine an otherwise excellent business model through high costs or lack of footfall.
Revision Notes & Key Concepts
Key Terms & Definitions
- Footfall
- The number of people passing by a particular location.
- Agglomeration
- When businesses in similar industries locate close together.
- Proximity
- Nearness in space, time, or relationship.
- Infrastructure
- The basic physical and organizational structures (e.g., roads, broadband, power supplies) needed for a business to operate.
- Enterprise Zone
- A designated geographic area where the government offers tax breaks and other incentives to encourage business investment.
- Fixed Costs
- Costs that do not change with the level of output (e.g., rent).
Worked Examples
Worked Example
Question: Explain one reason why a new independent coffee shop might choose to locate in a busy city centre rather than an out-of-town retail park. (3 marks)
Solution: One reason is the need for proximity to the market (1 mark). A city centre has much higher footfall than an out-of-town retail park (1 mark). This means the coffee shop will have more passing trade, leading to higher sales revenue which is essential for survival (1 mark).
Worked Example
Question: A manufacturer of heavy wooden furniture is deciding whether to relocate its factory from the UK to Eastern Europe. Evaluate this decision. (9 marks)
Solution: One advantage of relocating to Eastern Europe is the availability of cheaper labour. Wage rates in Eastern Europe are generally lower than in the UK. This would reduce the manufacturer's variable costs, allowing them to lower their prices and become more competitive, or maintain prices and increase their profit margins. However, a major disadvantage is the cost of transporting the finished goods back to the UK market. Heavy wooden furniture is bulky and expensive to ship. The increased transport costs could completely wipe out the savings made on lower wages. In conclusion, the manufacturer should probably not relocate. Because the raw materials and finished products are heavy and bulky, proximity to the market and raw materials is more important than cheap labour. The transport costs and potential delivery delays would likely outweigh the benefits of lower wages, damaging customer satisfaction and overall profitability.
Worked Example
Question: Analyse the impact on a business of locating in an area with high unemployment. (6 marks)
Solution: Locating in an area with high unemployment means there is a large supply of available labour. This benefits the business because it will be easier and quicker to fill vacancies, reducing recruitment costs. Furthermore, because supply of labour exceeds demand, the business may be able to offer lower wage rates, reducing their operating costs. However, high unemployment might mean the local workforce lacks the specific, up-to-date skills the business requires. This could lead to lower productivity or force the business to spend more money and time on training programs before workers are fully effective.
Practice Questions
Question: State two factors a web-design agency would consider when choosing a location. (2 marks)
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Question: Explain how the availability of raw materials influences the location of a manufacturing business. (3 marks)
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Question: A fast-food franchise is looking for a new location. It is considering either a busy high street or a quiet residential area. Recommend which location the franchise should choose. (9 marks)
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Question: Explain why a car dealership might choose to locate next to several other competing car dealerships. (3 marks)
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Question: Analyse two reasons why an e-commerce clothing retailer might choose to locate its main distribution warehouse in the Midlands rather than in London. (6 marks)
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