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Unit 3.1 Why do businesses locate where they do?
Gleneagles Hotel Gleneagles Hotel in Perthshire is probably Scotland’s most famous hotel. Rooms are charged at around Β£500 per night and has a championship golf course. Why do you think the owners can charge such high prices? It’s location.
Why is location important? Businesses have to decide where to locate their factory, offices or shops. Businesses may need to expand their premises, or move to smaller premises. They may need to locate near to new or old customers. They may locate to where there is less competition. Good location choices can lead to higher sales, lower costs and therefore greater profits!
Ptarmigan Restaurant The restaurant is at the summit of Cairngorm Mountain. During the summer tourists flock here to see the views. In winter the skiers use it as a base for skiing. What are the main advantages for the Ptarmigan?
What are the key factors which influence location? Availability of raw materials  – if extraction is required then firms locate near the extraction points  Distance to market  – close to the customer makes it easier to sell Availability of labour  – are there skilled workers at the ready? Availability of land  – are premises adequate and ready?
Transport costs  – depends on the other factors Infrastructure  – are the transport links good? Are local colleges training the workforce in skills needed?  Grants  – these can be offered by Local Authorities, the Government or the EU Support Businesses  – suppliers which make parts that are used in output are vital to have nearby. Witness Silicon Glen. What are the key factors which influence location?
Cost/Benefit of Different Locations Costs Premises Rates Wages Transport Costs Benefits Market Wages Rates Premises Transport Costs Financial Support
Silicon Valley Silicon Valley is in California and is the world’s capital for electronics firms. Why do you think this benefits all the major firms who work in electronics?
Where does the money come to finance a business? Businesses cost money to run. As well as paying workers and making products, they have overheads to pay. Where does the money come from? Two main sources of finance: Internal External
Internal Sources of Finance Owner’s Capital  – this is the money raised at the start of the business or funds invested later by the owner Retained Profit  – monies saved up over the years, but depends on turnover, mark-up, and control of costs Efficient firms use profits to reduce external borrowing and provide cash to pay any outstanding liabilities
External Sources of Finance Shares  – two types: Ordinary and Preference shares. Ordinary dividend depends on profits, while Preference shares have fixed dividends. Debentures  – a long term fixed interest loan (20-25 years). Debentures have first claim on profits. Mortgage  – a loan secured on property -usually 25 years. If borrower doesn’t pay mortgage back, then lender claims property.
External Sources of Finance Loan  –money lent to a borrower Hire Purchase  – buy an asset and have use of it buy pay it off over a period of time Factoring  – using a third party to recall your debts.  Overdrafts  – spending more than you have in your bank account Leasing  – renting an asset Trade Credit  – customers buy goods and pay for them later
Government Assistance Some areas need more help from the Government due to high unemployment, poor infrastructure etc. Government provides Central Government Support and Local Government Initiatives.
Central Government Support Assisted Areas  – certain regions of UK have priority to boost local economy. There are two kinds: Development Areas and Intermediate Areas. Regional Selective Assistance  (RSA) – businesses can qualify for selective assistance allowing for project and training grants. Regional Enterprise Grants  (REG) – aimed at small businesses, given Investment grants or Innovation grants.
Central Government Support Enterprise Zones  – aim to keep firms in certain areas of country, may be given tax breaks as incentive Urban Development Corporations  – they manage and develop land by providing buildings, roads and services Training and Enterprise Councils  (TEC) – responsible for funding of training and vocational education
Local Government Support Local Councils aim to support local businesses usually by finance, planning permission or advice. They can offer: Business start-up grants R&D grants Job creation grants Relocation grants Free rent and rates Business advice Reduced charges loans Help with finance and premises
Linwood – The Phoenix Linwood was once one of the largest car manufacture areas in Europe. When the factories closed thousands of jobs were lost. Strathclyde Region (as it was then) and the Scottish Development Agency invested millions to regenerate the area to attract Asda, Showcase, McDonald’s and the other businesses.
European Union Assistance Important factors of EU Inward Investment Single Market Monetary Union Regional Policy Social Charter
EU Single Market No limit to quantity of goods/services sold within EU member states No custom duty Free movement of workers and capital European wide protection of patents and trademarks Increased competition increases business efficiency
EU Inward Investment Since the birth of the single market many overseas firms have located in the EU. Japan and the US are the main ones. Most inward investment comes from capital intensive businesses (computers, cars, telecommunciations equipment, domestic appliances)
EU Social Charter Objectives: Minimum wage Equal pay for men and women Maximum 48 hour week Improve living and working conditions Improve relations between management and workers Collective bargaining (Trade Unions) Protect rights of children, elderly and disabled Encourage vocational training
EU Regional Policy European Regional Development Fund  – provides financial aid for infrastructure and telecommunications European Social Fund  – provides funding for training European Agricultural Guidance and Guarantee Fund  – funds job opportunities in farming areas European Investment Bank  – offers loans at good rates to set up in depressed areas
EU Monetary Union The Euro has benefits: Save money on currency conversions Allow free movement of capital Easier to compare prices across Europe Create stable prices and lower interest rates Give poor regions a better chance to catch up
Globalisation What is globalisation? A single worldwide marketplace Multinationals are firms with operations based in more than one country McDonalds, IBM, Levi’s are some examples
Rise of Globalisation Better communication – radio, TV and now the net has changed the world Better transportation – airliners, super freighters, containerisation Less trade barriers – less tariffs and quotas Developing markets – Russia, Eastern Europe, China and India Pacific Economies – the Tiger Economies have created global competition
Globalisation Benefits Wide range of markets Higher potential profits Possible volume increases in production Economies of scale Reduction of business risk Problems Language barriers Cultural differences Local market research collection problems Need to create an export division Develop distribution methods
Multinationals They aim by expanding to control production facilities, distribution outlets and office space They can switch production from plant to plant and country to country Move to were cheap labour is Move to gain tax breaks
Multinationals Benefits to countries Invest in plant and equipment Introduce new technology Employ new management techniques Create jobs Costs to countries Kill local competition Pay low wages Dubious health and safety Produce unsuitable products Poorly trained staff

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Unit 3.1 Slides

  • 1. Unit 3.1 Why do businesses locate where they do?
  • 2. Gleneagles Hotel Gleneagles Hotel in Perthshire is probably Scotland’s most famous hotel. Rooms are charged at around Β£500 per night and has a championship golf course. Why do you think the owners can charge such high prices? It’s location.
  • 3. Why is location important? Businesses have to decide where to locate their factory, offices or shops. Businesses may need to expand their premises, or move to smaller premises. They may need to locate near to new or old customers. They may locate to where there is less competition. Good location choices can lead to higher sales, lower costs and therefore greater profits!
  • 4. Ptarmigan Restaurant The restaurant is at the summit of Cairngorm Mountain. During the summer tourists flock here to see the views. In winter the skiers use it as a base for skiing. What are the main advantages for the Ptarmigan?
  • 5. What are the key factors which influence location? Availability of raw materials – if extraction is required then firms locate near the extraction points Distance to market – close to the customer makes it easier to sell Availability of labour – are there skilled workers at the ready? Availability of land – are premises adequate and ready?
  • 6. Transport costs – depends on the other factors Infrastructure – are the transport links good? Are local colleges training the workforce in skills needed? Grants – these can be offered by Local Authorities, the Government or the EU Support Businesses – suppliers which make parts that are used in output are vital to have nearby. Witness Silicon Glen. What are the key factors which influence location?
  • 7. Cost/Benefit of Different Locations Costs Premises Rates Wages Transport Costs Benefits Market Wages Rates Premises Transport Costs Financial Support
  • 8. Silicon Valley Silicon Valley is in California and is the world’s capital for electronics firms. Why do you think this benefits all the major firms who work in electronics?
  • 9. Where does the money come to finance a business? Businesses cost money to run. As well as paying workers and making products, they have overheads to pay. Where does the money come from? Two main sources of finance: Internal External
  • 10. Internal Sources of Finance Owner’s Capital – this is the money raised at the start of the business or funds invested later by the owner Retained Profit – monies saved up over the years, but depends on turnover, mark-up, and control of costs Efficient firms use profits to reduce external borrowing and provide cash to pay any outstanding liabilities
  • 11. External Sources of Finance Shares – two types: Ordinary and Preference shares. Ordinary dividend depends on profits, while Preference shares have fixed dividends. Debentures – a long term fixed interest loan (20-25 years). Debentures have first claim on profits. Mortgage – a loan secured on property -usually 25 years. If borrower doesn’t pay mortgage back, then lender claims property.
  • 12. External Sources of Finance Loan –money lent to a borrower Hire Purchase – buy an asset and have use of it buy pay it off over a period of time Factoring – using a third party to recall your debts. Overdrafts – spending more than you have in your bank account Leasing – renting an asset Trade Credit – customers buy goods and pay for them later
  • 13. Government Assistance Some areas need more help from the Government due to high unemployment, poor infrastructure etc. Government provides Central Government Support and Local Government Initiatives.
  • 14. Central Government Support Assisted Areas – certain regions of UK have priority to boost local economy. There are two kinds: Development Areas and Intermediate Areas. Regional Selective Assistance (RSA) – businesses can qualify for selective assistance allowing for project and training grants. Regional Enterprise Grants (REG) – aimed at small businesses, given Investment grants or Innovation grants.
  • 15. Central Government Support Enterprise Zones – aim to keep firms in certain areas of country, may be given tax breaks as incentive Urban Development Corporations – they manage and develop land by providing buildings, roads and services Training and Enterprise Councils (TEC) – responsible for funding of training and vocational education
  • 16. Local Government Support Local Councils aim to support local businesses usually by finance, planning permission or advice. They can offer: Business start-up grants R&D grants Job creation grants Relocation grants Free rent and rates Business advice Reduced charges loans Help with finance and premises
  • 17. Linwood – The Phoenix Linwood was once one of the largest car manufacture areas in Europe. When the factories closed thousands of jobs were lost. Strathclyde Region (as it was then) and the Scottish Development Agency invested millions to regenerate the area to attract Asda, Showcase, McDonald’s and the other businesses.
  • 18. European Union Assistance Important factors of EU Inward Investment Single Market Monetary Union Regional Policy Social Charter
  • 19. EU Single Market No limit to quantity of goods/services sold within EU member states No custom duty Free movement of workers and capital European wide protection of patents and trademarks Increased competition increases business efficiency
  • 20. EU Inward Investment Since the birth of the single market many overseas firms have located in the EU. Japan and the US are the main ones. Most inward investment comes from capital intensive businesses (computers, cars, telecommunciations equipment, domestic appliances)
  • 21. EU Social Charter Objectives: Minimum wage Equal pay for men and women Maximum 48 hour week Improve living and working conditions Improve relations between management and workers Collective bargaining (Trade Unions) Protect rights of children, elderly and disabled Encourage vocational training
  • 22. EU Regional Policy European Regional Development Fund – provides financial aid for infrastructure and telecommunications European Social Fund – provides funding for training European Agricultural Guidance and Guarantee Fund – funds job opportunities in farming areas European Investment Bank – offers loans at good rates to set up in depressed areas
  • 23. EU Monetary Union The Euro has benefits: Save money on currency conversions Allow free movement of capital Easier to compare prices across Europe Create stable prices and lower interest rates Give poor regions a better chance to catch up
  • 24. Globalisation What is globalisation? A single worldwide marketplace Multinationals are firms with operations based in more than one country McDonalds, IBM, Levi’s are some examples
  • 25. Rise of Globalisation Better communication – radio, TV and now the net has changed the world Better transportation – airliners, super freighters, containerisation Less trade barriers – less tariffs and quotas Developing markets – Russia, Eastern Europe, China and India Pacific Economies – the Tiger Economies have created global competition
  • 26. Globalisation Benefits Wide range of markets Higher potential profits Possible volume increases in production Economies of scale Reduction of business risk Problems Language barriers Cultural differences Local market research collection problems Need to create an export division Develop distribution methods
  • 27. Multinationals They aim by expanding to control production facilities, distribution outlets and office space They can switch production from plant to plant and country to country Move to were cheap labour is Move to gain tax breaks
  • 28. Multinationals Benefits to countries Invest in plant and equipment Introduce new technology Employ new management techniques Create jobs Costs to countries Kill local competition Pay low wages Dubious health and safety Produce unsuitable products Poorly trained staff