What factors influence where a business chooses to locate?
Business location: the factors that influence where a business locates, including nearness to the market, costs, labour, suppliers and transport, and how the best location depends on the type of business.
A CCEA GCSE Business Studies guide to business location. Covers the main factors that influence where a business locates, nearness to the market, costs of premises, availability of labour, nearness to suppliers and good transport links, and how the best location depends on the type of business.
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What this dot point is asking
You need to explain the factors that influence where a business locates, including nearness to the market, the cost of premises, the availability of labour, nearness to suppliers, and good transport links, and explain how the best location depends on the type of business. CCEA examiners reward precise factors, applied reasoning, and the ability to weigh location factors against each other for a specific business. Location matters because it affects costs, the number of customers a business can reach, and how easily it can run, and a poor location can sink an otherwise good business.
The main location factors
Choosing where to locate is a balancing act between several factors.
Nearness to the market and cost
For many businesses, especially shops and services, being near the market is the most important factor: a cafe, hairdresser or shop needs footfall, the flow of passing customers, so a busy high street or shopping centre is valuable even though rent and rates there are high.
This creates a trade-off with cost. A prime location brings more customers but costs more; a cheaper site saves money but may bring fewer customers. A business must weigh the extra sales a good location brings against the extra cost, and the answer differs from business to business.
Labour, suppliers and transport
Other factors matter more for some businesses than others.
- Labour - a business needs access to workers with the right skills; some locate where suitable, affordable labour is available.
- Suppliers and raw materials - manufacturers often locate near their suppliers or raw materials to cut transport costs and delays.
- Transport links - good road, rail and port access matters for moving goods in and out, and for staff and customers reaching the business.
- Online selling - a business that sells online (e-business) depends far less on location, because it can reach customers anywhere, which links to e-business.
Worked example: weighing location factors
A common exam task is to advise a business on a location, weighing the factors.
Why this matters
Location affects both the costs a business carries and the revenue it can earn, so it is one of the most important early decisions an entrepreneur makes, linked to the resources and finance needed to start. The best choice depends entirely on the type of business: a shop prioritises customers, a factory prioritises low costs and transport, and an online business may barely care about location at all. In the exam, the most valuable skill is to weigh the relevant factors for a specific business and recommend a location with a clear justification.
Try this
Q1. State two factors that influence where a business locates. [2 marks]
- Cue. Any two: nearness to the market, cost of premises, availability of labour, nearness to suppliers, transport links.
Q2. Why is footfall important for a shop's location? [2 marks]
- Cue. Passing customers bring sales, so a busy location with high footfall usually means more trade.
Q3. Why does location matter less for a business that sells online? [2 marks]
- Cue. An online business can reach customers anywhere, so it does not depend on being near a physical market.
Exam-style practice questions
Practice questions written in the style of CCEA exam questions on this dot point, with worked answer explainers. The year tag is the paper they imitate, not the source.
CCEA Unit 1 (style)4 marksExplain two factors a retailer should consider when choosing a location.Show worked answer →
An explain question testing AO1 and AO2. Give a factor, then say why it matters, for two marks each.
Nearness to the market: a retailer needs to be where its customers are, for example a busy high street or shopping centre with good footfall, because passing trade brings sales.
Cost of premises: rent and rates differ by area, so the retailer must balance a prime, expensive site against a cheaper, quieter one; high costs in a poor spot can sink the business.
Other valid answers: parking and transport for customers, and nearness to competitors. The mark is for the factor plus a developed reason.
CCEA Unit 1 (style)6 marksDiscuss how the best location for a manufacturer might differ from the best location for a shop.Show worked answer →
A discussion question testing AO2 and AO3.
A shop needs to be near its market, with high footfall and good access for customers, even if rent is high, because it relies on passing trade.
A manufacturer cares less about footfall and more about cheaper land for a large factory, good transport links to move goods, nearness to suppliers and raw materials, and available labour.
Judgement: argue that location priorities depend on the type of business; a shop prioritises being near customers, while a factory prioritises low costs and good transport. A clear, applied contrast reaches the higher marks.
Related dot points
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Sources & how we know this
- CCEA GCSE Business Studies specification — CCEA (2017)