Factors influencing business location: proximity to market, labour, materials and competitors; the nature of the business activity; and the impact of the internet on location decisions (e-commerce and/or fixed premises).

What this dot point is asking

Edexcel wants you to explain the factors that influence where a business locates, how the nature of the activity affects the choice, and how the internet and e-commerce have changed location decisions.

Factors influencing location

Proximity to the market is the top factor for any business that depends on customers physically visiting, such as a cafe, hairdresser or shop, because being where the customers are brings in sales. Proximity to labour matters where the business needs particular skills or a large workforce. Proximity to materials matters most for businesses that transform heavy, bulky or perishable inputs (a sawmill near forests, a bakery near its market), because transport costs and freshness depend on it. Proximity to competitors cuts both ways: some businesses cluster (car dealerships, restaurants) to draw shared trade; others deliberately avoid rivals.

The nature of the business activity

There is no single best location; it depends on the activity. A clothes shop and a steel works have completely different needs. Edexcel wants you to match the location factor to the type of business in the question, rather than assuming every business wants the same thing.

The impact of the internet and e-commerce

The internet has changed location decisions profoundly.

For many businesses, e-commerce has reduced the need to be near customers: an online retailer can locate in a cheap out-of-town unit and still sell to the whole country. This cuts the cost of premises and widens the customer base. But location has not become irrelevant; it has changed. Online businesses now value good transport links and proximity to delivery networks so they can fulfil orders fast. Some businesses keep fixed premises (a shop) alongside a website, because certain customers still want to see and try products in person, and some activities (cafes, gyms, hairdressers) can only be delivered face to face.

Try this

Q1. State one type of business for which proximity to the market is the most important location factor. [1 mark]

• Cue. A shop, cafe, hairdresser or other business that needs customers to visit in person.

Q2. Explain one way the internet has reduced the importance of a business's physical location. [3 marks]

• Cue. It can sell online from cheap premises and reach customers nationwide, so it need not pay for a high-street site.