Optimal Firm Location and Size: Key Factors and Determinants
Firm Location and Size
2.1. Firm Location
The location of a firm is defined as the place chosen by the employer. (Fernández Pirlo, 1981) This is a long-term decision that commits the company for a considerable period. Its importance lies in the fact that:
- The success or failure of economic activity can depend largely on the choice of location.
- Relocating involves significant costs and potential losses.
Furthermore, location influences:
- Access to distribution channels, markets, and potential customers.
- Supplier choices.
- Potential company size due to geographical space.
Selecting the optimal location is a complex decision with inherent risks. The primary objectives are:
- Reduce procurement, production, marketing, and funding costs.
- Optimize market access for both suppliers and customers.
- Enhance management efficiency, including premises utilization and potential income.
Location Theory
Location theory studies the spatial effects on economic activity, impacting it in two ways:
- Costs related to product and factor displacement.
- Effects of economic activity on adjacent areas (neighborhood effects or agglomeration economies), such as:
- Economies of scale: achieved through company growth.
- Localization economies (external or internal): gained from being in a particular sector or industry.
- Urbanization economies (external): derived from the overall progress of a nation/region providing necessary infrastructure.
2.3. Determinants of Location
Key determinants of business location include:
- Consumer Market: Proximity allows efficient and quick customer service.
- Supply Market: Location of production factors. Transportation costs can increase with distance and even become prohibitive (perishables).
- Transportation: Includes fixed (loading/unloading) and variable (route-based) costs.
- Land: Price, quality, spatial planning, land use legislation, infrastructure (energy, roads, communications), and environment.
- Financial Capital: Availability of funding in a specific region or under specific circumstances (e.g., area revitalization).
- Legal, Fiscal, and Social Factors: Recruitment laws, price liberalization, tax pressure, social environment, and skilled labor availability.
2.4. Firm Size
The concept of workplace size is relative. Productive capacity is determined by several factors, primarily technological ones.
Criteria used to determine company size:
- Technical: Production equipment, production volume, value added, factors consumed, number of employees.
- Financial: Available capital, potential debt, equity, cash flow, gross profit before tax.
- Business: Sales volume, market share.
- Administrative/Organizational: Business complexity.
Technical Factors Affecting Size
- Division of labor (worker specialization)
- Process integration (using a single production team)
- Balance of processes (coordinating production factors for maximum performance)
Financial Factors
- Access to external funding
- Resource acquisition for growth
Business Factors
- Market size/demand dimensions
- Growth potential
2.7. Optimal Dimension
(Content related to optimal dimension was not provided)