A major problem facing a start-up business is how to choose a good location. You will

recall that we have the proprietor, the partnership and limited company. Also we have the

retailer, the wholesaler and the manufacturer. All of these businesses face locational

problems. The location of a business is largely influenced by a host of factors ranging

from personal to economic factors. Another problem also is to adapt facilities to the

specific needs of a business in terms of layout.

We shall now discuss general factors in selecting a location.



Personal Factors

One of the most important factors in choosing the location of a business is the personal

values of the entrepreneur. The personal values of the entrepreneur may not have

anything to do with economics or profitability. An entrepreneur may decide to locate a

business in a rural area just for the joy of it. Again, an entrepreneur may decide to locate

a business right in his or her village just to provide jobs for his or her immediate relations.

These are the things which we may regard as personal to the entrepreneur.



Economics And Competition

Every area, district or location has its own economic base. And the economic base of an

area depends on the total population, the workforce, total family income, deposits etc. All

these determine the purchasing power. Obviously then, the entrepreneur in choosing

where to locate will consider the economic base of the area. Areas with strong economic

base will obviously have strong purchasing power which will in turn translate to sales for

established business.

Again competition is a very important factor. The shape of competition is critical. When

competition is healthy, it leads to increased sales for participants. For example retail

shops located in a shopping plaza are likely to do better than a lonely shop located in an

obscure part of the town. In business certain types of businesses seem to be located at

particular areas. In Onitsha for example, major electronics dealers are located on Iweka

Road. Any electronics dealer who does not have a shop on Iweka Road is not likely to be

successful. Even in far away Britain, good surgeons usually are found on Harley Street.

Also good tailors in London are located on Saville Row.

An entrepreneur therefore wishing to locate his or her business will therefore consider

such things as the economic base of an area and also the locational pattern of existing

businesses. Even in Lagos, businesses have locational patterns. Oke-Arin market is

popular for Cosmetics, wine and provisions. Balogun market is known for textiles and

dresses.

What we have just done is to provide a general overview of factors that determine where

the entrepreneur will locate his/her business. We will now go further to discuss specific

factors in selecting a location.



Specific Factors in Selecting a Location.

We just discussed general factors that determine where an entrepreneur will locate his or

her business. We shall now go ahead to discuss more specific factors that guide the

entrepreneur in selecting a location.

Choosing Retail Locations

Retail stores are unique in their own way. This is because the small retail store is run by a

sole proprietor. Retail stores are supposed to be very friendly and provide more personal

service unlike the large supermarket chains. In a rural setting, the simple retail store is

usually located right in the middle of the community. For example in the village market

square, provision stores, food stores and small restaurants can be found there. The reason

is that the village market is a very important place that attracts both the old and young.

And most importantly, decisions concerning the community are usually taken in the

village market square. The rural retail store is usually important to a community because

it brings goods to the population in the rural areas. It saves people the problem of

traveling long distances to the city to buy goods.

Also retail stores in the rural areas will tend to locate near the local primary and

secondary schools to cater for the needs of students who may need to buy biscuits, water,

pencils, exercise books etc.

However in an urban setting, choosing a retail location will involve a lot of other

considerations. Firstly, the retail store usually locates to where the population exists. The

driving force is population density. In a crowded area, retail stores are likely to do well

because they will receive patronage. Take Lagos as an example. Retail shops are located

in Ajegunle, Oshodi, Lawanson, and Ojuelegba because of the high population densities.

Another consideration in determining a retail location in an urban setting is the stage of

development of an area. Again let us look at the development in Lagos. Development of

Lekki and Ajah present new business opportunities. As people move towards Lekki and

Ajah, so also will the stores follow them. Apart from the small retail store, large

shopping complexes are springing up in the two areas. It is therefore desirable for

entrepreneurs to consider locating in the shopping centres or complexes because most

people now prefer convenient shopping centres where they will do their shopping.

Shopping centres attract a lot of traffic and the entrepreneur should be fully aware of that

fact.



Choosing Wholesale Locations

We have just discussed the retail store. We will now discuss how to choose wholesale

locations. Most wholesalers are former retailers who having grown through their

profitability now want to provide wholesale services to the retailers. The critical factors

to be considered in locating a wholesale location are warehousing costs and rents. A

warehouse must be spacious enough to accommodate sufficient goods for distribution to

the retailers. There should be space enough to accommodate the various vehicles and

delivery trucks that will both deliver goods to the warehouse and also collect goods from

the warehouse. In most cases, retailers are fully aware of the location of the wholesaler

and they go there to make their normal small purchases. In the wholesale distribution of

beer for example, the wholesaler chooses his or her location not based on nearness to the

drinkers of beer but based on the convenience of a location. A wholesale depot for beer

should be spacious and the rent also attractive. In the sale and distribution of drugs, you

will observe that most wholesalers locate where they choose and then use their

distribution vans to supply the various pharmacy shops that patronize them.



Choosing Service Locations

All along, we have been discussing physical goods which we can see with our two eyes.

We shall now discuss the choosing of service locations. The most critical factor in

location is the type of service a business offers. Take for example the business of

banking.

Banks locate very close to where their customers are or better still where they think that

they will get business. Today Victoria Island in Lagos is full of banks. This is because

the rich and their business have moved over to Victoria Island. Also banks locate close to

the markets. And that explains why in Onitsha most banks are located on the New

Market Road. This is because they want to locate close to the Onitsha Main Market

which is a very big source of deposits and business.

If a business requires that the clients must come to the location to receive service e.g. sale

& purchase of shares, then the location should be accessible. Again it should be located

in the financial district where banks, insurance companies etc are located.

A laundry and dry cleaning service business ideally should be located close to the

customers who patronize it. However closeness to the customer is not the only guiding

factor here. A dry cleaning service centre that has an excellent reputation for quality can

locate any where since customers will come and look for it. A barber shop should locate

near the people or near theatres and shopping complexes.



Choosing Manufacturing Locations

We have discussed choosing retail locations. We also discussed choosing wholesale

locations and service locations. We shall now discuss choosing manufacturing locations.

The major problem facing the entrepreneur is that once he or she has built a

manufacturing plant at a particular location, the cost of dismantling and relocating it to

another location can be expensive. In finance once a project has been undertaken, we say

that a capital budgeting decision has been taken. In most cases, the action is usually

irreversible. Because of the cost of setting up manufacturing factories, entrepreneurs

must be very careful as they locate their plants.

We will now discuss some of the factors that influence the choice of manufacturing

locations.



• Nearness to Markets

Perhaps this is the most important factor that should influence the location of a

manufacturing plant. As we are fully aware, the primary reasons for establishing a

manufacturing plant is to produce goods and make profit from the business.

Apparently therefore nearness to the markets ensures that the manufacturer will sell his or

her goods and make a profit from so doing.



• Nearness to sources of raw materials.

Raw materials constitute a very large percentage of the cost of production of any product.

Nearness to the sources of raw materials is therefore an important factor that determines

the location of a manufacturing plant.

A garri processing factory obviously will try to locate where cassava is found in very

large quantities. So also will be a cassava starch manufacturer.

In like manner, vegetable oil manufacturing firms will tend to locate in areas where there

will be plenty supply of palm kernel oil which is the major raw material used in the

manufacture of vegetable oil.

Also palm oil extraction plants will thrive well if they locate in areas with good supply of

oil palm.



• Nearness To Source of Power Supply

Most manufacturing plants require power to drive the various machinery and equipment.

Since power supply is very costly and important, manufacturing plants see the need to

locate close to the source of power supply. That explains why most manufacturing firms

locate near urban areas where there is power supply. Last but not the list.



• Availability of Good Transport Network


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