Introduction
Successful and new companies are always trying to find new markets and innovative growth opportunities. This may mean looking for a better location for a new manufacturing facility or concentrating on a head office in today’s global economy. In fact, the process of choosing a new place begins for a number of reasons, such as high local taxes, lack of labor, and high numbers of competitors. Therefore, when a company decides that an existing office or production should be relocated or create an additional new location, the question of determining a place arises. Choosing a location for a manufacturing plant is a complex and time-consuming process that often takes many months or even years. For this reason, various firms prefer to hire outside consultants to help them take production sites. However, not all companies are able to pay for such services, so they control the selection process themselves.
On the other hand, it is economically advantageous for large and small cities the possibility that their location meets the demand of companies. As the development of business and industry permits collecting a sufficient amount of taxes to meet the needs of the city. Also, at the same time, a business creates jobs for the population, so sometimes, the town authorities can create special conditions for building new plants, thereby increasing the attractiveness of their territory. Thus, the purpose of companies and municipality governments may be the same. Companies want a favorable location for their activities, including a professional workforce and low taxes. Also, the object of the city may be to improve the community’s financial situation and develop the infrastructure at the expense of the enterprise. Therefore, firms can independently or with the help of particular experts, put forward proposals that will describe the goals of the future company and choose from the proposed places. Thus, the main aims for companies are successful decision-making.
Importance of Location Selection in Operations Management
The location of the company in the right place is a critical element of business success. If a business chooses the incorrect location, it cannot have proper access to customers, employees, transportation, materials, and so on. Thus, a place often plays a significant role in a company’s profits and overall success (Vega et al., 2020). A location strategy is a plan to achieve the optimal location for a company by identifying the requirements and goals of the company and finding places with proposals that are harmonious with those needs and objectives.
The central problem in determining the location of an enterprise is that it is impossible to accurately predict the consequences of the activities of this company or the associated costs. All of them will have some risk, so the chosen location of the enterprise may be suboptimal. It follows that the selection of the company’s location is a problem of decision-making in conditions of uncertainty, which should be solved by comparing alternative calculations based on which the most suitable option is chosen (Vega et al., 2020). The most challenging factor in assessing is the impact of infrastructure.
Thus, insufficient development of railways, ports, energy supply, etc., on the one hand, increases the cost of delivery of materials, raw materials. On the other hand, the city authorities are interested in providing benefits to enterprises that will be willing to work in such conditions. Hence, the company decides whether it has the opportunity to take risks and will clearly expect to complete the development of infrastructure before the start of the business. In such cases, a company that is interested in making a profit involves experts who have experience in making critical decisions. Accordingly, they will assess the possibility of completing the construction and development of infrastructure by the deadline. Then he reports whether it will be profitable to invest in such a location. That is, analyzing the importance and need to get a certain place for business development, owners need to assess the advantages and disadvantages that can be expected (Ivanov et al., 2019). If a potential place has excellent prospects and analysis shows that its use will be highly effective, business owners can take risks.
It is also essential when choosing the location of a new company or opening additional large business complexes to establish contact with local authorities. It is the support of the firm through investment and reduced taxes that will make production profitable. Otherwise, the introduction of additional taxes and rising prices for services will force the company to start looking for a new space. Location can also affect a business’s capacity to sell products and its competition in a particular area (Vega et al., 2020). Therefore, the development of new markets can let the company choose the optimal location for industry, where there will be reasonable taxation and a large amount of labor.
Moreover, customer demand for goods in a particular area and the ability to transport products to other parts of the country perform a vital function. It is the logistical route of transportation of goods, and the long-life cycle permits the company to deliver products from one location over long distances (Ivanov et al., 2019). Although, sometimes, the demand in another part of the country is extremely high, and the product life cycle is short. In this case, it is advantageous for large companies to develop new territories and obtained higher profits without planning transport routes and ensuring proper conditions for the cargo of goods.
The Criteria for the Selection of the Location
Criteria that influence the choice of location of the enterprise are of great importance, but the central rules are different for various types of business. Thus, it is necessary to divide the criteria into qualitative and quantitative. Qualitative factors do not directly impact the company’s products but are crucial to its success. Qualitative parts include the size of the population, the local education system, the community’s connection to nearby markets, and workers’ work ethic. When choosing the location of the enterprise, an important point is the study of future employees, especially when a company needs a narrow specialization of knowledge. In this case, it is necessary to assess the rationality of additional training for employees and coaching. At the same time, it is a requirement to pay attention to the existing labor unions and their requirements for the schedule of the working day of vacations (Ferreira et al., 2016). Assessing this factor will lead to a comprehensive investigation of the willingness of workers and employers to operate towards a general aim and will include risks of disapproval.
Quantitative factors, on the contrary, will have a direct and computational impact on the company’s activities. These include labor costs, construction costs, logistics expenses, utility tariffs, and taxes. To accurately estimate the operating costs of each facility, these variable expenses necessity be determined and projected over several years. Therefore, to successfully calculate the profitability of business expansion needs the involvement of experts. This may require the help of experts, such as a chartered accountant, to assess and calculate taxes and their impact on a company’s profitability (Ferreira et al., 2016). In addition, if buildings already exist in a particular location, they should be evaluated by an appropriate expert to manage the reliability and cost of any improvements that may be expected.
Also, large enterprises that focus on processed raw materials into a complete product are a significant factor in the availability of raw materials. Suppose an extensive amount of massive materials are used in the production. In that case, the possibility of building a factory near their source should be considered, for example, in the extraction of metal from ore, sugar from sugar beet, etc. In the production and wholesale trade, of vast importance is the transportation of materials and goods. First of all, the company needs to choose a method of transportation. If it is rail, water, or air transport, then this will determine the location (Ivanov et al., 2019). The use of road transport gives transcendent flexibility, yet the plant must be near the intersection of major roads. In retail and services, the accessibility of the establishment to customers is crucial, which, again, usually means accessibility for vehicles.
If it is assumed that the buyer may have a car, firms need to provide sufficient parking space. In case if most clients use public transport, then the institution should be located in areas with quality service. Perhaps high demand will force transport companies to open a new stop next to the company (Ivanov et al., 2019). Also, if the manufactured products will be exported to foreign markets, it is worth considering the possibility of building companies in large cities with ports and terminals.
An important condition that needs to be investigated before starting a business in a certain area is labor and business legislation. Thus, if the result requires a large number of workers, it is necessary to pay attention to the rights and responsibilities guaranteed by the state. Accordingly, to analyze whether the company will be able to provide employees with certain types of insurance and medical services (Ferreira et al., 2016). As for business law, the study of the law will enable firms to choose the most loyal state to create a business.
Thus, the criteria for choosing a company location include many variables and depend on the type and purpose of the industry. In order to determine a place for production, the industry needs to consider the infrastructure and payment for energy, access to raw materials, and transportation of products. Instead, for a company specializing in services, the main point will be high-quality employees. Indeed, there are standard criteria for any business, such as taxes, demand formation, and legislation.
My Opinion
The question of the location of companies and the distribution of economic activity has long been the subject of economic geography. From the beginning, location theory emphasized the role of distance, aggregation, and taxes in the locations of firms and industries (Ferreira et al., 2016). However, the modern economy is characterized by large-scale production, where many complexly organized firms offer a variety of goods. Under these circumstances, deciding on a location is difficult.
Therefore, if I choose a location for my business, I would involve an expert with the necessary knowledge in the process. Accordingly, he was tasked with reducing the list of possible locations and submitting it to the company’s board of directors for approval. Thus, it would be possible to control the process of determining the place of the business at the same time and rely on professional administration. As for the most relevant criteria, if I set up a garment factory, I would pay attention to four main features. The most significant rule would be to access raw materials and a logical system of transportation, which would save time on receiving raw materials and sending completed goods.
The next criterion would be demand, market analysis, and determining which part of the state needs the future product the most. Finally, after selecting future locations based on the two previous points, I would make an assessment of the development of the necessary infrastructure and the cost of utilities. In total, these three points would further decrease the list of required places, so the fourth condition is professional workers. It is essential to pay attention to employees’ qualifications and determine their interest in the jobs created. Consequently, companies need to find a balance between the considered criteria and determine the most suitable location according to the field of production.
Conclusion
The location of enterprises can significantly affect the economic results of their activities. The company should choose a place where the effects, which depend on its activities, will exceed the corresponding costs the most. The decision to locate businesses is made based on several factors that need to be considered at both the macro and micro levels. The critical issue in creating an enterprise is demand, the objective need for it.
The location near the market of goods or services facilitates fast and timely service. This is especially important in the business of transportation or distribution, industries in which the delivery of resources to the customer is the firm’s main activity. In other areas, proximity to the market may not be necessary. Thus, the analysis of all factors allows managers to choose the most optimal location of the business according to the individual needs of companies.
References
Ferreira, J., Fernandes, C.I., Raposo, M. Thurik, R., & Faria, J. (2016). Entrepreneur location decisions across industries. International Entrepreneurship and Management Journal, 12, 985–1006.
Ivanov, D., Tsipoulanidis, A., & Schönberger, J. (2019). Global supply chain and operations management: A decision-oriented introduction to the creation of value. Springer.
Vega, L., Cantillo, V., & Arellana, J. (2019). Assessing the impact of major infrastructure projects on port choice decision: The Colombian case. Transportation Research Part A: Policy and Practice, 120, 132-148.