Factors influencing the location of firms
The scope of this paper will delve on these two main subjects. Of importance will be to find out factors influencing the location of certain firms or enterprises at certain location in the city. Explanations will be drawn from using the bid rent theory and various other economic theories. Sources used will mostly be online sources as there are quicker to access and can easily be compared with other sources for aptness and authenticity
1.0 Introduction
The decision process individuals and firms go through when deciding on the best location for a certain business or firm is one worth studying. The theory of agglomeration economies helps us to understand this in much detail. The advantages associated with firms being located in a certain area are very crucial for the company managers as well as for city planners who want to attract investment into their city.
Perhaps the most important factor before any decision to locate a firm in a certain area is that of costs. Firms will tend to move into areas where operational costs are low e.g. low taxes, cheap labor, lower rent etc.
The bid rent model (diagram above) delves on the function of profit maximization in the presence of comparative, multipurpose and impulse shopping behavior. (Findarticles 2010) Thus at the core of any decision to locate a firm, is the issue of profit maximization and reduction of costs.
In this paper we are going to review the various factors that will influence the location of
a head quarters office of a financial institution
a department of a public agency dealing directly with the public
a call centre
an accountants office
a research establishment
This will all be done using the theories outlined in the abstract and the subsequent paragraph. Each firm operates in a different environment and hence has different needs. They each serve different customers. The factors that will influence each firms location decision will be decided based on a trade off to be more accessible to clients as possible but to also keep costs very low.
2.0 Location of a headquarters firm of a financial institution
The headquarters of a financial institution is the central and most important place of a financial companys operations. A financial institutions headquarters will need to be located at a place where it is very visible and accessible. Many financial company headquarters are located in the worlds financial hubs such as London, Hong Kong and New York wall street being a very good example.
2.1 Important factors in the location of financial institutions
According to Burgess theory as demonstrated above the city is arranged as concentric zones. The central business district tends to have the most expensive rent per square kilometer. The headquarters of a financial institution will likely be situated in the central business district. The reasons being
Easy access financial institutions headquarters have to be easily accessible to main lines of transport such as airport, train station. This is to allow easy access by employees to attend company meetings and for other stakeholders to access them.
Closer location to other financial institutions for easier sharing of data, network facilities, infrastructure etc. Infrastructure is also of utmost importance in the CBD, communication, transportation and other essential facilities need are guaranteed to be present.
Image reasons. The headquarters of a financial institution can also act as a marketing icon of the company thus its location is of great importance to the company. A stylish building located in the central business district portrays a good image of the company.
In terms of rent, the financial institution can afford the high charges charged at the CBD thus this will not be a major issue for the income.
There are many other reasons why the headquarters of a financial institution may likely be located in the CBD. The ones outlined above are usually the main ones. However it is possible and becoming for the headquarters of a financial institution to be located close to a university or other place of higher learning. This is to easily attract young talent.
3.0 Location of a Public agency dealing directly with the public
A public agency dealing directly with the public will most likely be located in the community itself thus in a residential area. In Burgess concentric model theory (fig.1) this area will most likely be C, D andor E. The main reason being that it has to be closest as possible to the people it serves. A public agency could be a community centre, police, clinic etc.
A public agency is funded by tax money so thus it cannot afford being in the central business district. Such a location will produce a backlash from the public. It also needs to be very accessible to the public thus its location close to where people live. Economies of agglomeration theory does not apply to the location of a public agency dealing directly with the people because it is usually a non-profit, and hence has no need for the advantages derived from closer location to a similar industry.
3.1 Benefits of public agency in a residential neighborhood
The main benefits of a public agency being located in the community are that
Cheaper rent tax payers money is saved.
Nearer the people thus their needs can be aptly accessed and served.
Even though the majority of public agents will most likely fall into the category mentioned above a few will not. There are some public agencies which have been commercialized or privatized. Though they still serve the community, they are out to make profit. For these public agencies being located in the Central business district would be much more preferable for them as they can gain easier access to more clients and access financial, communication and other essential services. The theory of economies of agglomeration will only be applicable if more companies venture into this service thus the advantages of being located in the same place may apply.
4.0 Factors that will influence the location of a call centre.
The location of a call centre like any other industry can determine if the call centre will succeed or not. Call center managers do not have to worry about a storefront to attract walk-in customers to sell a service or product. Most call centers are back offices, and thus, the productsservices are sold or acquired over the phone or by e-mail. (SearchCRM 2010) There is no need for a call centre to be located in the central business district or other highly visible places like the headquarters of a financial institution for example.
4.1 Site Selection of a call centre
Factors that will influence the selection of a call centre are likely to be
Labor and wages Access to cheap labor is very crucial. In fact the main reason why most firms outsource to call centers is because they want to lower costs. Without an available and affordable labor pool that has the necessary skills, the call center will not be able to function, no matter the community or legislative environment.
Local fringe benefits Local fringe benefit can vary from place to place. They may include lower taxes, tax breaks, beautiful scenery, etc.
Education and language skills Call centre jobs require educated and very skilled people. Location of a call centre close to a place where skills can be easily be recruited is important.
Telemarketing laws need to make it easier to run a call centre in that area
Telecommunication infrastructure Perhaps this is the most important. The success of a call centre will rest on the sound infrastructure in that area. Bad telephone network will make it difficult for calls to get and thus the centre will lose business.
Like the public agencies offering services to the public above, call centers do not have to be concentrated in a certain area. The benefits associated with being located close to each other will be minimal.
5.0 Location of an Accountants office
An accountant is responsible for recording, analyzing and reporting of a firms financial data. Using laid down principles of accounting an accountant will analyze a companys financial information such as net profit, EBIT, costs etc and advice managers on the best possible solutions. As an important stakeholder in the company, an accountants office will usually be located within the firm itself.
5.1 Environmental and work conditions
In deciding the location of an accountants office there are some other factors that may need to be considered. An article which details some of the key factors to take into consideration when deciding the location of an office states, Location is one of the most key factors to success in your business. Does your work space need to be presentable Does it need to be accessible Does it need to be geographically specific (Officefront 2010). Indeed these are some of the key factors that need to be considered when deciding on the location of an accountants office.
A clean and healthy working environment is important when considering the location of an accountant. The office should not be located in an area where too much sunlight penetrates, or smoke and noise from polluting industries nearby come through. These factors would be de-motivating and thus the company may find it difficult to attract and retain skilled labor such as that of an accountant.
With respect to rent, office space will need to be in alignment with the overall revenue and cost plans of the company. For a company wishing to incur small operations costs, a location close to the central business district will not be ideal. Cheaper office space can be found in investment zones, or tax free zones.
6.0 Research Establishment Location Factors
A research establishment serves as a place of higher learning and where so many discoveries are made. Many universities and colleges usually have their research centers attached to them. It is common for a medical school, or IT institute to have a research arm attached to it. The location of a research establishment is influenced by the need to be close to the parent research institution and of course easier access to skilled labor and in some cases the kind of materiel that is going to be researched.
6.1 Key factors
Availability of skilled workers and nearness to university.
Many research centers are usually located close to a university this is to enable the centre to easily recruit skilled personal to work in the research centre. In some cases students carry out part of their studies at the research institute easy access to and from the university is very important here.
Research subsidies, tax breaks and other incentives
There may be subsidies provided in certain locations, to attract potential industry to the location. For example, transport subsidies or even potential tax breaks offered to industry for locating at a given location. Such subsides can be a real financial incentive, that may well overshadow a few disadvantages of the actual location. (Helium 2010) In this regard certain subsidies targeted at stimulating research and innovation in a certain area, will make it suitable for a research institution to be located there.
6.1Economies of Agglomeration Research Establishment
A research establishment may benefit from economies of agglomeration which will come about as a result of synergy of related establishments in the area. Industries can also reap benefits of economies of scale by location close to firms engaged in similar industries through the sharing of facilities, knowledge, and expertise and manpower resources. Industries located near to related industries enjoy the benefits of industrial linkages. (Helium 2010). The research establishment can share information with surrounding research establishments.
7.0 Summary and conclusion
They essay has outlined some of the most important factors which are often considered when deciding the best place to locate a firm or organization. As may have been seen in the whole essay certain key factors are crucial to almost every business. The relation between revenues and costs of rented buildings is also very important. A financial institution can afford to have its headquarters in a high rent area as its revenues and cost structure may allow it. On the other had there is not much use for a research establishment or public agency to be located in a high rent area, rather access to skills and the community is more important.
Firms can derive a lot of advantages by being located close to other similar firms. The theory of economies of agglomeration states these advantages as the more related firms that are clustered together, the lower the cost of production (firms have competing multiple suppliers, greater specialization and division of labor result) and the greater the market that the firm can sell into. Even when multiple firms in the same sector (competitors) cluster, there may be advantages because that cluster attracts more suppliers and customers than a single firm could alone. Cities form and grow to exploit economies of agglomeration.