A new branch can be opened by big brands like Jollibee or Mercury Drug almost anywhere and expect people to come through the doors – but picking exactly the right location can mean much bigger profits. For a smaller business, knowing where to set up could make the difference between staying open and shutting down. But how do you work out where to open up? Location strategy can help. By understanding things like how people travel, you can identify which locations will attract the most customers – and that can mean big money in business.
In the same way, your knowledge in geography can help to work out the best countries to expand into, or help to predict how changes in the economy that might affect a business’s future. It is also vital for businesses that are trying to become more environmentally friendly – so even if you’re more motivated by saving the planet than making money, there might be a place for you in the world of business. Strategic Locations for a Business Finding the perfect location for your business is not an easy task.
Some businesses don’t rely on foot traffic while others rely on a place that has a lot of natural traffic, plenty of parking and is in an area that penetrates your target market. But there are many factors that go into finding the perfect space that involve the size of your business, the type of business and your budget for a space. Where is the Competition? For some businesses, such as a bookstore or small family grocery store, being close to a competitor is a bad thing especially if the competitor is bigger than you and can offer more selection or better prices.
For other businesses, such as restaurants or shoe stores, being close to a competitor can offer an advantage. Having a restaurant near others allows people to go to one place and find something to eat. Of course, you don’t want to be an Italian restaurant competing with an Italian restaurant. But if you offer a different type of cuisine or if one restaurant is too crowded, people will overflow to you or simply decide to try you for something different.
Shoe stores and other retail providers can do well being near each other because hoppers like to shop and find the best deal. Staying close to competitors will have people going back and forth to find the better deal. When you determine how large of a location you need, you will also have to take a close look at what you can afford. The corner of the busiest street may be an ideal location, but way out of your budget range. You will need to consider if it is more important to get a location on this street, albeit smaller, to have walk-in traffic improve or get a larger location, slightly off the beaten path, that highlights what you do.
Hair salons often go with high-traffic areas, but if you are promoting a salon and spa, being slightly away from traffic will help your clients feel like they are getting away and improve the quality of their experience. Parking Being on the busy strip will drive walk-in traffic into your establishment. But if you are not somewhere people are walking, they need to have easy access to your building. If you are a lawyer or a certified public accountant, you will not need a lot of parking.
Still, you will want a few spaces available for people to park during their appointments. You will not need to worry about an overflow parking area because the appointments regulate your incoming traffic. But if you are a retail provider, having ample parking is important. If people don’t like the parking situation, they may keep driving until they find a place to park where one of your competitors happens to call home. As for global companies the top five location factors are costs, infrastructure, labor characteristics, government and political issues, and economy.
Key sub-factors are the availability and quality of the labor force, the quality and reliability of modes of transportation, the quality and reliability of utilities, wage rates, worker motivation, telecommunication systems, record of government stability, and industrial relations laws. Other sub-factors—protection of patents, availability of management resources and specific skills, and system and integration costs—are of increasing importance. Location Strategy Formulation Being in the right location is a key ingredient in a business’s success.
If a company selects the wrong location, it may have adequate access to customers, workers, transportation, materials, and so on. Consequently, location often plays a significant role in a company’s profit and overall success. A location strategy is a plan for obtaining the optimal location for a company by identifying company needs and objectives, and searching for locations with offerings that are compatible with these needs and objectives. Generally, this means the firm will attempt to maximize opportunity while minimizing costs and risks. A company’s location strategy should conform with, and be part of, its overall corporate strategy.
Hence, if a company strives to become a global leader in telecommunications equipment, for example, it must consider establishing plants and warehouses in regions that are consistent with its strategy and that are optimally located to serve its global customers. A company’s executives and managers often develop location strategies, but they may select consultants (or economic development groups) to undertake the task of developing a location strategy, or at least to assist in the process, especially if they have little experience in selecting locations. Formulating a location strategy typically involves the following factors:
- Facilities. Facilities planning involves determining what kind of space a company will need given its short-term and long-term goals.
- Feasibility. Feasibility analysis is an assessment of the different operating costs and other factors associated with different locations.
- Logistics. Logistics evaluation is the appraisal of the transportation options and costs for the prospective manufacturing and warehousing facilities.
- Labor. Labor analysis determines whether prospective locations can meet a company’s labor needs given its short-term and long-term goals.
- Community and site. Community and site evaluation involves examining whether a company and a prospective community and site will be compatible in the long-term.
- Trade zones. Companies may want to consider the benefits offered by free-trade zones, which are closed facilities monitored by customs services where goods can be brought without the usual customs requirements. The United States has about 170 free-trade zones and other countries have them as well.
- Political risk. Companies considering expanding into other countries must take political risk into consideration when developing a location strategy. Since some countries have unstable political environments, companies must be prepared for upheaval and turmoil if they plan long-term operations in such countries.
- Governmental regulation. Companies also may face government barriers and heavy restrictions and regulation if they intend to expand into other countries. Therefore, companies must examine governmental—as well as cultural—obstacles in other countries when developing location strategies.
- Environmental regulation. Companies should consider the various environmental regulations that might affect their operations in different locations. Environmental regulation also may have an impact on the relationship between a company and the community around a prospective location.
- Incentives. Incentive negotiation is the process by which a company and a community negotiate property and any benefits the company will receive, such as tax breaks. Incentives may place a significant role in a company’s selection of a site.
Depending on the type of business, companies also may have to examine other aspects of prospective locations and communities. Based on these considerations, companies are able to choose a site that will best serve their needs and help them achieve their goals.
Reasons for adopting the best Business Location Strategy Whether it is a fast food store or a manufacturing facility, there are a lot of strategies to consider when choosing a business location. Many businesses have various locations catering to its different needs. A corporate headquarters in a business district can provide the company with an easier connection to potential clients, whereas a production facility in a different state might provide the business with tax and labor cost incentives. The strategy of each location takes into account specific business goals, depending on the purpose of the location.
Relocation incentives, reinforcement of corporate culture, and adding value to company’s branded image are all viable reasons why a specific location is chosen. Add Value to Corporate Brand There is a reason why companies fork over top dollar to get the right high-priced address: Location lends credibility to a corporate brand, thus strengthening its value.
A design house on an affluent strip or a corporate office in a wealthy business complex communicates to clients that products or services are worth a premium price. This justifies the sometimes high costs, such as rent and insurance, associated with spending money on the location. Creating a Unique Corporate Culture Corporate culture directly affects worker productivity, so it is not a surprise that companies select a location with the objective of reinforcing their unique culture and brand values.
For example, a sustainable company might choose an ecologically friendly facility to create a well-branded complex, equipped with a macrobiotic restaurant and sleeping and exercising facilities. If the strategy is to create an atmosphere that epitomizes the company’s core values, then the facility must be a translation of the corporation’s mission and strong belief system.
The need for a highly trafficked and visible location is often associated with retail businesses, as they have a need to be in constant and direct contact with their customer. In a highly trafficked area, the business or storefront acts as an advertising vehicle, making impressions on the pedestrians that pass by. This location strategy is not only for the retail environments. It can translate to any type of business that needs to be constantly visible to their end-customer.
For instance, there are news organizations that have their production facilities visible and accessible from a highly trafficked street. Strength in Numbers Some businesses thrive off of being in a specific district, such as a financial district or a garment district. There is strength in numbers and situating a business location around similar companies can bring about prestige and cross-company sales. For instance, a buyer might be more inclined to visit a fashion showroom, production facility or tech business if it is situated in the respective district.
Relocation Incentives Some cities have incentives to promote foreign companies headquartering themselves there. Tax incentives, access to capital, and energy efficiency programs are just some of the perks that can make a location attractive to an out-of-state or international company looking to invest in a new facility. As mature companies look shave their operational costs and pad their bottom line, a move to a more cost-effective location is attractive and if they add more jobs to a location resulting in positive local consumer sentiment, that’s even better.