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Part Two
Design
Energy costs. Operations which use large amounts of energy, such as aluminium smelters, can
be influenced in their location decisions by the availability of relatively inexpensive energy.
This may be direct, as in the availability of hydroelectric generation in an area, or indirect,
such as low-cost coal which can be used to generate inexpensive electricity.
Transportation costs. Transportation costs include both the cost of transporting inputs
from their source to the site of the operation, and the cost of transporting goods from the
site to customers. Whereas almost all operations are concerned to some extent with the
former, not all operations transport goods to customers; rather, customers come to them
(for example, hotels). Even for operations that do transport their goods to customers (most
manufacturers, for example), we consider transportation as a supply-side factor because as
location changes, transportation costs also change. Proximity to sources of supply dominates
the location decision where the cost of transporting input materials is high or difficult. Food
processing and other agriculture-based activities, for example, are often carried out close to
growing areas. Conversely, transportation to customers dominates location decisions where
this is expensive or difficult. Civil engineering projects, for example, are constructed mainly
where they will be needed.
Community factors. Community factors are those influences on an operation’s costs which
derive from the social, political and economic environment of its site. These include:
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local tax rates
capital movement restrictions
government financial assistance
government planning assistance
political stability
local attitudes to ‘inward investment’
language
local amenities (schools, theatres, shops, etc.)
availability of support services
history of labour relations and behaviour
environmental restrictions and waste disposal
planning procedures and restrictions.
Figure 6.6 A major influence in where businesses locate is the cost of operating at different
locations. But, total operating cost depends on more than wage costs, or even total labour
costs (which includes allowances for different productivity rates). The chart illustrates what
makes up the cost of shirts sold in France. Remember, the retailer will often sell the item for
more than double the cost 8