Need for selecting a suitable location

Why is Location Selection Necessary?

The need for selecting a suitable location arises in a variety of situations, each with its own set of challenges and considerations. These situations can be broadly categorized into three main scenarios:

I. Starting a New Organization (First-Time Location Choice)

• When launching a new business venture, the location decision is paramount.
• This involves choosing the initial site for operations and setting the foundation for all future activities.
• This is the most crucial time to get the location right, as it has long-term ramifications on an organization's success.

II. Expansion or Diversification of an Existing Organization

• Existing organizations frequently need to make location decisions to accommodate growth through expansion or diversification.
• Expansion: May involve adding new facilities (e.g., manufacturing plants, warehouses) to increase production capacity or serve new markets.
• Diversification: May require new locations to support new products or services that differ from existing operations.
• This is usually a strategic move requiring careful consideration of the implications for existing operations.

III. Global Location

• Organizations operating on a global scale must make strategic location decisions in an international context.
• This involves selecting countries and regions that provide a competitive advantage for manufacturing, sales, or distribution.
• Global location decisions are complex, involving factors like international trade agreements, cultural differences, and political stability.

Objective of Location Strategy

The fundamental objective of location strategy is to maximize the benefit of the location to the firm. This benefit varies depending on the nature of the business.

For Industrial Locations: The primary focus is on minimizing costs. This includes factors like transportation costs, labor costs, raw material costs, and utilities. The goal is to create a cost-effective production environment to enhance the organization's competitive edge.

For Retail and Service Organizations: The primary focus is on maximizing revenue. Factors like proximity to customers, foot traffic, accessibility, and visibility play a significant role in attracting customers and increasing sales. The objective is to choose a location that optimizes revenue generation.

For Warehouse Locations: The strategy is driven by a combination of minimizing costs and ensuring speed of delivery. The location must be cost-effective but also capable of fulfilling customer orders quickly and efficiently. This often involves balancing transportation costs, storage costs, and delivery timelines.

Steps in Choosing a Location

The process of selecting a suitable location typically involves a series of steps, starting with broader considerations and then narrowing down to a specific site:

1. Choosing a Country in Which to Operate

• For organizations expanding internationally, this is the first and most crucial decision.
• Factors to consider include:
  • Political stability
  • Economic conditions
  • Labor laws
  • Trade policies
  • Cultural and linguistic considerations
  • Infrastructure availability

2. Choosing a Region Within the Chosen Country

• Once a country is selected, the next step is to identify the most appropriate region.
• Factors to consider at the regional level include:
  • Proximity to markets
  • Availability of skilled labor
  • Transportation infrastructure
  • Government incentives
  • Specific industry clusters or resources

3. Choosing a Community Within the Chosen Region

• Selecting a suitable community within a region involves analyzing specific local conditions.
• Factors to consider at this level:
  • Local tax rates
  • Education facilities
  • Quality of life
  • Community support for business
  • Presence of existing industries
  • Cost of living

4. Choosing a Specific Site Within a Community

• The final step involves selecting a particular site within the chosen community that meets the organization's operational needs.
• Factors to consider at the site level include:
  • Shipping and Receiving: Adequacy of access for trucks or other transportation modes.
  • Zoning: Compatibility with local land-use regulations.
  • Utilities: Availability and cost of water, electricity, gas, and other essential services.
  • Size: Enough space for current operations and future expansion.
  • Cost: Acquisition or rental price, site preparation costs, and other associated expenses.