Locating Operations Essays - Economy, Money, Finance,

Locating Operations Quick revise Regional Location Businesses need to choose which regional locations are best for their operations.There are a number of factors that impact regional location. Location is based on a combination of quantitative (measurable) and qualitative factors Cost Cost of land varies between locations Costs of labour and services also vary The choice of business location therefore affects profitability Resources The availability of resource can influence location These may be natural resources or could be technological resources Businesses often cluster together in areas where there is particular expertise e.g. hi-tech organisations are centred on the M4 corridor in the UK Infrastructure Infrastructure refers to energy and transport facilities These factors influence the ease, speed and costs of production The impact of infrastructure on firms is dependent on the type of business and their needs Market Location of the market may influence location choice For some businesses it is important to be close to the market If businesses don't need to be close to their market they may need to have good access to the market Government Intervention Government grants are offered in certain areas these make the area more attractive to businesses Qualitative Factors Businesses may also consider qualitative factors including: Quality of life Image Ethical issues Analysis of Factors Businesses will use a number of methods to analyse the best location: Break even analysis They will calculate costs and revenues to see how many units they need to break even. If fixed costs e.g. rent are lower in one location than another this will reduce break even output If variable costs e.g. wages are lower in one location than another this will reduce break even output The greater the margin of safety at a particular location the lower the risk Investment Appraisal Techniques Businesses can use investment appraisal techniques such as payback, ARR and NPV to see which location is best Businesses usually select the option with the quickest payback, the highest ARR and the highest NPV Types of Location Decision Organisations have a number of different location decisions: Where to locate their business When they start up Relocation Expansion International Location Multinational businesses locate in more than one country. If you locate overseas you need to consider additional factors Why locate overseas? Businesses often locate overseas to: Exploit lower costs Benefit from less regulation Benefit from cheaper labour Use minerals / resources in a country Exploit market opportunities overseas To be closer to overseas customers To overcome protectionist trade barriers To decrease trade union power To decrease exchange rate problems Sources of finance These are how businesses get money to finance growth, to overcome working capital / cash flow problems etc. Choosing the right source of finance Businesses need to consider a number of factors when deciding what sources of finance to use External sources of finance are more expensive as you need to pay interest To use retained profits you need to get agreement from shareholders The source of finance chosen also depends on the time period and what you need the finance for The key questions that managers have to answer are: how much finance is needed whether it can be obtained internally whether it should be borrowed temporarily, with a view to paying back, or obtained as permanent (e.g. share) capital ( if borrowed) whether the loan is for the short (up to one year), medium (1-5 years) or long term. The amount and nature of this finance varies from firm to firm, and is influenced by a firm's size, its form of ownership, the type of technology currently being used within the firm, the relationship between capital and labour, the length of credit periods (taken and allowed), and the age of the firm's assets. Internal sources From inside the business e.g. directors No external body to pay Generally No time limit Internal Sources - Retained Profit Cheap and flexible Technically profit is shareholders so they need convincing its used effectively Usually okay infrequently Idea retained profit used to generate future profits and therefore used for purchase of fixed assets Opportunity cost needs to be assessed Internal Sources - Control of working capital and cashflow Working capital measures the amount of money the business