Business Location, Size, and Growth Strategies

Posted on Mar 11, 2025 in Business Administration and Management (BAM)

Business Location

Concept and Target Location

Concept: The place chosen by the employer to locate physically productive activity. This is a major strategic decision in the field, a productive and long-term decision.

Objective: To minimize costs and maximize profitability through commercial and industrial location choices.

Centralization and Decentralization

Concentrating everything in one place or deconcentrating it into various units of lower size. Decentering types include:

  • Horizontal: Several plants dedicated to the production process.
  • Vertical: Each building or facility handles a certain stage of production.

Factors Influencing Industrial Location

  1. Availability of industrial land and its cost.
  2. Access to the supply of raw materials.
  3. Availability of manpower.
  4. Existence of supporting industries.
  5. Existence of transport infrastructure.
  6. Distances between centers of origin and stores.
  7. Official rules for each site.

Factors Influencing Business Location

Consider action radius and threshold, including:

  1. Purchasing power of the population.
  2. Surrounding population density.
  3. Local visibility.
  4. Ease of communication.
  5. Easy parking.
  6. Existence of complementary activities.
  7. Situation in areas of high traffic and pedestrian safety.
  8. Shopping area image.
  9. Direction showing the expansion of the city.
  10. Presence of tourism.

Nelson Model

A qualitative or quantitative model considering factors such as:

  1. Potential commercial area (open bank accounts, etc.).
  2. Accessibility (public transport to the site, etc.).
  3. Growth potential (trend of land use for retail stores, etc.).
  4. Barriers to business (business competition between the commercial and the site).
  5. Cumulative power of attraction (the study of nearby businesses).
  6. Study of risk of competition (competitive system: 1.5 km distance away from non-pose an obstacle).
  7. Local economy (analysis yield).

Business Size

From the standpoint of their size, companies can be small, medium, or large. There are many criteria for classifying them, such as:

  • Number of employees
  • Volume of sales
  • Company assets
  • Value added

Classifying them can be problematic, so investigations choose either one or a combination thereof.

Solutions for Determining Size

  1. Legal and Regulatory: Audit requirements based on size. Criteria include: number of employees (50+), turnover (5.7M+), total assets (2.85M+).
  2. Multi-value: Combination of criteria using a weighted sum (VM = sum x weighting).
  3. Quantitative vs. Qualitative: Small business characteristics include: A minority share of the market, activity that doesn’t affect the country, personal direction by owners, no hired managers, and self-external control.

Business Size and Profitability

There are many studies on this relationship. Classic economic theory suggests the existence of an optimum size where unit production costs are minimal. Economies of scale are an additional argument in favor of the positive relationship between dimensions and income; however, this relationship could not be confirmed in practice.

Economies of Scale

Robinson identified four groups of factors that constitute advantages for companies that increase their size:

  1. Technical Factors: Division of labor, integration of production processes.
  2. Financial Factors: Big businesses generate more financial resources than small ones.
  3. Commercial Factors: Economies of scale allow large companies to get good publicity and promotion.
  4. Leadership Factors: The division of labor makes management functions decentralized, providing an advantage to workers.
  5. Risk Factors: May take greater risks because of diversification.

Q theory relates the critical dimension and profitable growth. Gibrat says that a company can be influenced by various random factors (law of proportionate effect). These studies have resulted in some positive cases and negative in others.

Business Growth Strategies

Growth can be:

  • Domestic: Increased production capacity.
  • External: Acquisition, control, merger.

Another Classification of Growth Strategies

  1. Market Penetration Strategies: Identifying opportunities for growing the existing market.
  2. Expansion Strategy: Moving towards the development of existing products and traditional markets.
  3. Diversification Strategy: Entering new markets and adding new products.
  4. Innovation Strategies
  5. Environment Strategies