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STANDARD GRADE
BUSINESS
MANAGEMENT
UNIT 3
LOCATION OF
BUSINESSES
PUPIL NOTES
CONTENTS
FINANCING A BUSINESS 5
GOVERNMENT ASSISTANCE 6
GLOBALISATION 10
COMMUNICATION 10
TRANSPORTATION 10
BARRIERS TO TRADE 10
DEVELOPING MARKETS 11
THE PACIFIC ECONOMIES 11
THE GLOBAL MARKET 11
MULTI-NATIONALS 12
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WHAT LOCATION CRITERIA CAN BE IMPORTANT TO A BUSINESS?
When identifying possible locations for a business its owners have to consider a
number of different factors. The list below contains information about the factors
which might influence the owners’ decisions. Not all companies require the same
blend of factors. Some factors are more important to some companies than others.
Businesses which depend on’ bulky’ raw materials tend to set up close to the source
of these raw materials. eg coal mining, steel production. Once the ‘bulky’ raw
materials have been processed the final product is then transported to the market.
These businesses tend to use huge quantities of raw materials - ie in ‘bulk’ - which
are then processed into a product which is much smaller in size - this is why these
industries are often called ‘bulk reducing’ industries.
• Businesses which deal in products that increase in volume will locate near their
customers to reduce their transport costs. By locating close to their market
they can keep their prices competitive - packaging businesses, soft drinks, beer,
computer assembly. Since these types of businesses take in many different
small deliveries of raw materials which are used to produce a bigger product
they are often called ‘bulk increasing’ industries.
c Availability of labour
All businesses will wish to locate where they can employ workers with the skills they
require. Since labour costs are high, few businesses will want to have to invest in
retraining workers.
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d Availability of land
The size of a business’s premises depends upon the nature of the business.
Premises in cities are more expensive than those of a similar size in the country.
e Transport costs
Transport costs depend on the distance to the market, the type of transport used
eg road, rail, and the bulkiness of the product being transported.
f Infrastructure
The basic facilities, services, and installations needed for the functioning of a
community or society, such as:
In an effort to attract businesses into an area, Local Councils may offer reduced
business rates, or provide grants for building premises etc. Planning regulations
and the availability of industrial estates are also key factors.
h Central Government
Grants and loans are offered by Central Government to help businesses train staff
and purchase premises and machinery. These are offered to businesses which are
prepared to locate in areas which have high unemployment.
i Component businesses
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FINANCING A BUSINESS
♦ The size of the business – the larger the business the easier to raise finance, as it
is seen as a ‘safer bet’. This is because assets can be sold to cover loans, these
assets are known as collateral.
collateral
Regardless of size, every business which decides to borrow must take into account the:
♦ risk of borrowing - not being able to pay back the money borrowed and therefore
risks going bankrupt.
♦ cost of borrowing - lenders expect to receive a return for money lent in the form
of interest or a dividend. This is a cost for the borrower until the money is repaid.
♦ pay interest;
♦ convince others that it is a ‘safe bet’.
External sources of finance are available from a wide range of financial institutions
outside the business such as Banks. The main types include:
♦ Shares ♦ Debentures
♦ Mortgage ♦ Loan
♦ Hire Purchase ♦ Factoring
♦ Overdrafts ♦ Leasing
♦ Trade Credit ♦ Small Business Loans Guarantee
Scheme
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GOVERNMENT ASSISTANCE
♦ high unemployment
♦ derelict buildings caused by industrial closures
♦ poor infrastructure
♦ few occupational skills
♦ high crime rates as a result of the above.
The European Union has identified “Assisted Areas” which are those
locations where regional aid may be granted under EU legislation. The
current Assisted Areas Map came into effect on 13 February 2007, and
remains in force until 31 December 2013; it includes most of the
Highlands and Islands of Scotland.
The European Union’s main instruments for supporting social and economic
restructuring across the EU are known as:
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CENTRAL GOVERNMENT SUPPORT
Scottish Enterprise (a Government Agency) can provide financial assistance to new and
existing businesses in Scotland through its “innovation” (SMART: SCOTLAND) and
“investment” (RSA) grants.
• be independent;
• have an annual turnover of less than €50 million or an annual balance sheet total
of less than €43 million
This is the main investment grant scheme for businesses in designated areas of
Scotland (Assisted Areas). The aim is for overall gains in net employment in Scotland.
Provide Research and Development (R&D) Tax Relief. This is a Corporation Tax relief
that may reduce an organisation's tax bill if they qualify.
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THE EUROPEAN UNION
The European Union is a very large single market containing over 400 million potential
customers.
♦ no limit to the quantity of goods or services they can sell within any member EU
country, ie no quotas;
♦ free movement and larger supply of both workers and capital;
♦ a larger choice of suppliers;
♦ european wide protection of patents and trademarks;
♦ simplified procedures when moving goods;
♦ collaboration between businesses is possible.
The opportunities can be enormous if a business plans its production, marketing and
distribution policies to take advantage of EU membership.
INWARD INVESTMENT
Inward investment comes from non-EU countries like Japan and the USA setting up
businesses within EU countries. This allows them the same benefits and advantages of
European businesses as well as avoiding external tariffs.
♦ to improve living and working conditions through social benefits and health and
safety;
♦ to protect the rights of children, adolescents, the elderly and the disabled.
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These objectives all have consequences for businesses since costs will rise:
REGIONAL POLICY
There are various funding procedures to aid businesses in the poorer regions of Europe.
These are generally referred to as ‘Structural Funds’.
♦ European Regional Development Fund (ERDF) provides financial aid and assistance
for businesses involved in infrastructure and telecommunications projects.
♦ European Social Fund (ESF) - this provides finance for projects designed to
improve training and so solve labour supply difficulties in the market.
These ‘Structural Funds’ have assisted with funding in several areas in Scotland
including;
THE EURO
The ‘Euro’ is the single European currency which is used by most of the countries in
Europe. This will:
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GLOBALISATION
Globalisation is the term used to describe the world becoming part of one world
market. Globalisation of the market place is possible because of the following:
COMMUNICATION
Technological developments like the television and the electronic highway, allows
businesses to effectively communicate with:
a) their staff;
b) their customers.
Communications has ‘shrunk’ the world and created global brands - products that are
equally acceptable in any part of the world, such as:
♦ McDonalds;
♦ Levi;
♦ Nike;
♦ Coca-Cola
The speed with which business information can be communicated enables multinational
organisations to plan their production and marketing strategies to:
TRANSPORTATION
Businesses which are able to get the product to the customer at the right price are
normally successful. New methods have enabled businesses to be competitive in the
global market place with goods being transported quickly and relatively cheaply
through:
♦ super freighters;
♦ containerisation
BARRIERS TO TRADE
Trade barriers - tariffs and quotas - are continually being reduced. This has enabled
businesses to deliver their products to foreign markets at competitive prices. 90% of
world trade is now covered by the trade agreements negotiated through:
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DEVELOPING MARKETS
Several countries have entered the international market place for the first time.
These include:
♦ Russia/Eastern Europe;
♦ China;
♦ India.
These countries represent a huge market place for businesses wishing to expand into
both new areas and new products. The demand for goods, services and ‘know-how’ in
these areas creates opportunities for businesses prepared to operate globally eg HSBC
‘the worlds local bank’.
The Asian Pacific countries contain the world’s most dynamic countries. The operation
of low cost mass production in a range of goods - TVs, cars, computers - has made many
Japanese, Korean and Malaysian businesses globally successful.
The competition created by these so-called ‘Tiger Economies’ has created a global
business environment, which is cost effective.
Benefits Problems
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To operate successfully in the global market place businesses can either be:
MULTI-NATIONALS
♦ production facilities;
♦ distribution outlets;
♦ office space.
Ford, Matsui, Unilever, Mobil, Sony, Exxon, General Motors, Virgin, Glaxo are all
multinationals.
♦ switch production from plant to plant and country to country when profit levels
change;
♦ move into production where cheap labour and cheap materials are available;
♦ locate where tax advantages can be gained.
Advantages Disadvantages
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