9.1 Location and Scale

2026 Syllabus Objectives

By the end of this topic, you should be able to explain:

  1. The factors that determine location and relocation
  2. The differences between local, national and international location decisions
  3. The reasons for and impact of offshoring and reshoring
  4. The impact of globalisation on location and relocation decisions
  5. The factors that influence the scale of a business
  6. Causes and examples of internal and external economies and diseconomies of scale
  7. The links between economies and diseconomies of scale and unit costs

Section 1: Factors That Determine Location and Relocation

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Where a business decides to set up — or move to — is one of the most important decisions it will ever make. Choosing the wrong location can increase costs, reduce sales, and even cause a business to fail.

Relocation means moving a business from one place to another. This can happen when costs rise, better opportunities appear elsewhere, or the business grows and needs bigger premises.

Here are the main factors that influence where a business locates or relocates:

1. Proximity to the Market

  • "Proximity" simply means how close you are to something.
  • Being close to your customers reduces the cost of delivering goods to them.
  • It also makes it easier for customers to visit your business.
  • Example: A bakery sets up in a busy town centre so local people can easily buy bread on their way to work.

2. Proximity to Labour

  • A business needs workers. Locating near an area with a large number of skilled and available workers makes hiring much easier.
  • If there are few suitable workers nearby, a business may struggle to operate properly.
  • Example: A technology firm locates near a university city so it can hire computer science graduates.

3. Proximity to Materials and Suppliers

  • Some businesses — especially factories — need large quantities of raw materials (such as wood, steel, or food ingredients).
  • Locating close to suppliers cuts transportation costs and ensures materials arrive quickly and reliably.
  • Example: A timber furniture company might locate near a forest or a major timber supplier.

4. Infrastructure

  • Infrastructure refers to the physical systems that support a business — roads, railways, ports, airports, and internet connections.
  • A business that delivers physical goods needs good transport links.
  • An online business needs fast, reliable internet access.
  • Example: A logistics (delivery) company chooses a location near a motorway junction so lorries can reach customers quickly.

5. Nature of the Business Activity

  • Different types of businesses have very different needs.
  • A large factory needs space, delivery access, and parking for lorries.
  • A law firm or financial services company needs a professional, central office that clients can easily reach.
  • The type of work a business does largely shapes where it can and should locate.

6. Proximity to Competitors

  • Some businesses choose to locate near their competitors. This can attract more customers to the area, which benefits everyone.
  • Other businesses deliberately avoid competitors to reduce the risk of losing customers.
  • Example: Many high-end jewellery shops in London's Hatton Garden are located together, which draws customers who know they can compare and shop in one area.

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