3.1 WHY DO BUSINESSES LOCATE
WHERE THEY DO?
FOUNDATION LEVEL
Where businesses locate
Where the money comes from -
owners, borrowing
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3.1 WHY DO BUSINESSES LOCATE
WHERE THEY DO?
GENERAL LEVEL
Sources of finance
Factors influencing location -
market, resources, infrastructure
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3.1 WHY DO BUSINESSES LOCATE
WHERE THEY DO?
CREDIT LEVEL
 Types of government assistance
 Importance of European Union
 Globalisation
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Location decisions depend on:
 Availability and location of raw materials
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Costs – eg land, rent, tax
Nearness to market – bulk in/decreasing
Competition
Availability of skilled labour
Suitable, available land
Infrastructure – road, rail links
Central and local Government assistance
EU funding
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Sources of Finance -
to start a new business
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Owners - savings, shares
Loan from family or friends
Bank - loan, overdraft (Interest!)
Credit from suppliers
Hire Purchase (don’t own)
Grants from enterprise bodies
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Sources of Finance for an existing business
INTERNAL
 Owners - savings, shares
 Retained profits
 Sale and leaseback scheme –
large businesses
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Sources of Finance -
for an existing business
EXTERNAL – short and medium term
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Bank overdraft
Trade Credit
Factoring (sell debt)
Credit card
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Sources of Finance for an existing business
EXTERNAL – long term
 Bank loan (I _ _ _ _ _ _ _ )
Mortgage
Debentures – large plcs
Leasing and hire purchase
Grants – Princes Trust, Enterprise
bodies
 Small Business Loan Guarantee
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GOVERNMENT ASSISTANCE
Governments try to influence
location decisions in order:
1. to encourage businesses to set up and
expand in areas of high unemployment –
development areas.
2. to discourage firms from locating in
overcrowded areas or on sites which
are noted for their natural beauty.
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GOVERNMENT ASSISTANCE
 Central Government
– if set up in area of high unemployment:
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Regional Selective Assistance –
Investment + Innovation Grants
(encourage creation of jobs)
Scottish Enterprise, Scottish
Development International
Assisted Areas – extra funding
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GOVERNMENT ASSISTANCE
 Local Government
eg Stirling Council
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Business advice + information
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Free/reduced rent + rates
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Reduced rate loans
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GOVERNMENT ASSISTANCE
European Union:
The European Social Fund provides financial aid for
projects which will improve training and job
prospects
The European Regional Development Fund provides
financial aid for businesses involved in
infrastructure and telecommunication projects
The European Agricultural Guidance &
Guarantee Fund provides job opportunities in rural
areas.
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EUROPEAN UNION – Single Market
 The Single Market - makes trade between
member countries as easy as trade within a
country.
 Building one internal market was intended to
launch Europe as an economic superpower.
 Companies would benefit from new economies of
scale as obstacles to trade were removed.
 More cross-border competition would wipe out
inefficient firms.
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EUROPEAN UNION – Single Market
Who Benefits?
Consumers: Lower prices, greater
choice of goods and services, work
within EU.
Businesses: fair competition,
economies of scale, expand to global
markets
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EUROPEAN UNION – The Euro
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One single common currency used throughout
the 25 EU states introduced in January
2002.
Only 12 have joined the single currency.
Removes barriers to free movement of
capital.
European Central Bank - fixes interest rates
Cheaper exchange/transaction costs.
Transparency of pricing allows easier
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comparisons to be made.
EUROPEAN UNION
Advantages
Disadvantages
 No
quotas between
member countries
 Free movement of
workers and capital
 Large choice of
suppliers
 Fewer restrictions, eg
mo customs duties, less
paperwork
 Large unrestricted
market
 Protects own industry
against imports from
non-EU countries
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Language barriers
Countries not allowed
to subsidise own
industry
Cultural differences –
what one market likes,
another may not
Increased competition
Protects own industry
against cheap imports,
but this may mean
higher than necessary
prices for consumers
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Globalisation
Companies grow by supplying national and
then international markets. As foreign
markets increase, some businesses find
it advantageous to switch some
production to foreign countries.
A multinational company operates in at
least 2 countries, usually both selling
and producing in these countries.
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Globalisation
Firms become multinational organisations:
1. to extract raw materials, eg oil
2. to produce goods in countries with low costs
3. to produce goods nearer the market to
reduce transport costs
4. to avoid barriers to trade put up by
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countries to reduce imports
6. to expand into different market areas to
spread risk.
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Globalisation
Advantages of
multinationals to a
country:
Disdvantages of
multinationals to a country:
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New
investment
More exports
Fewer Imports
Jobs created
More competition
Taxes paid to the
government
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Existing firms at risk
Profits flow out of country
Often only unskilled jobs created
Influence the government and
economy
Use of scarce resources
Can withdraw and set up
elsewhere
Less able to protect own industry
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Globalisation
Advantages operating on a global scale:
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Use of same brand name in all countries keeps costs
down.
Use same advertising in all countries
Take advantage of government incentives to locate
anywhere in the world.
Locate where costs are lowest
Greater choice for consumer
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Globalisation
Problems with operating on a global scale:
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Communication problems because of
language, culture, time zones, technological
failure
Different tax laws in different countries
Different consumer regulations and
standards
Currency differences
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Increased competition
Globalisation - Importance of ICT
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ICT Information transmitted and received quickly
between branches in different countries
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Market increased by selling via WWW
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Different time zones become less important
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More flexible workforce - able to work in any part
of the world - trained in software etc.
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