Location of firms tries to answer the key economic question “where to produce”. Where a firm should be located is an important decision to be taken because the success or failure of the firm may depend on the location chosen. It involves deciding on the area that a firm should be sited. In siting a firm, several factors may be considered which may include the following:
- Closeness to the Source of Raw Materials: Cost of production of firm includes both costs incurred in purchasing and transporting the raw materials to the industry. When a firm is located close to the source of its raw materials, transportation costs are reduced especially in the case of bulky raw materials.
- Supply of Labour: An important factor of production is labour. Unskilled labour may easily be found at all places but not specialized or skilled labour. If suitable labour is not available where the firm is located, then it should be attracted from other sources at higher costs.
- Good Transport Routes: Transport routes include roads, railways, water-ways and airways. Satisfactory all-weather transport routes are essential to any firm because raw materials would be transported to the firm and products produced would be transported to markets.
- Closeness to Source of Power: A key requirement for firm production is power. In most cases, source of power from the national supply is cheaper. Therefore, when locating a firm, the owner considers availability of power for easy operation.
- Closeness to Market: When goods are produced, they should be sold. This makes the decision to site firms close to trading centres very critical and accounts for many firms crowding around established trading centres. This is particularly necessary if the goods are bulky to transport to the market.
- Other Factors: Other factors that should be considered may include:
- Reasonable social services and amenities in the form of hospitals, schools and facilities for relaxation (cinemas, clubs) for workers welfare.
- Reasonable communication facilities such as telephone services, banking services, postal services, etc.
- Reasonable security services such as police posts, fire services, etc.