Location — common mistakes

In an exam, when asked to recommend a location, always support your choice with a balance of quantitative and qualitative factors. Use numerical data from the case study to calculate and compare costs, but also analyse how qualitative issues like infrastructure or brand image might affect the business long-term.

Not necessarily. While low cost is a powerful incentive, it is a common misconception that it is the only factor. A location with the lowest labour and rent costs might suffer from poor infrastructure, an unskilled workforce, or political instability. These qualitative factors can lead to production delays, poor quality, and supply chain disruptions, which can ultimately cost the business more than the initial savings. A strategic location decision balances quantitative cost savings with qualitative factors that ensure long-term operational efficiency and stability.

Yes, physical location remains critically important, although the reasons have evolved. While e-commerce reduces the need for prime retail frontage for some businesses, it dramatically increases the importance of locating near efficient logistics hubs and distribution centres for quick delivery. Similarly, while remote working allows for a distributed workforce, the business still needs a legal base, and access to key infrastructure like high-speed internet and reliable power becomes even more critical. For manufacturing, proximity to suppliers and transport links remains fundamental.

While reducing labour costs is a major driver for offshoring, it is not the only one. Businesses also move overseas to gain access to large and growing markets, bypassing import tariffs and reducing distribution costs. Other reasons include accessing specific skills (e.g., tech talent in Silicon Valley or engineering expertise in Germany), benefiting from more favourable government regulations or tax incentives, and operating in different time zones to provide 24-hour customer service. The decision is a multi-faceted one, not just a simple search for the lowest wage.