9.1 Location and scale
- Syllabus
- 9609–2026–2027
- Topic
- 9.1
- Level
- A2
Learning objectives
9.1.1Location• Location- the factors that determine location and relocation- the differences between local, national and international location decisions- the reasons for and impact of offshoring and reshoring- the impact of globalisation on location and relocation decisions9.1.2Scale of operations• Scale of operations- the factors that influence the scale of a business- causes and examples of internal and external economies and diseconomies of scale- the links between economies and diseconomies of scale and unit costs
Location decisions compare total system value, capability and risk
| Factor | Location mechanism to analyse |
|---|---|
| Market/customer | Demand/footfall, service speed, delivery cost, local adaptation and competitor clusters |
| Inputs/suppliers/logistics | Material availability/quality, lead time, ports/roads/digital/energy reliability, inventory and disruption |
| Labour/capability | Wage and total productivity, skill availability, turnover, language/culture and labour law |
| Site/capital | Land/rent/build cost, capacity/expandability, finance, sunk relocation/shutdown and transition |
| Government/external | Tax/grant/tariff/trade bloc, planning/environmental rules, political/currency/climate risk and community impact |
| Strategy/coordination | Quality/IP/control, brand, proximity to R&D/functions, time zones and resilience/diversification |
| Decision level | Distinct emphasis |
|---|---|
| Local site | Footfall/access, nearby labour, rent/rates, planning, parking, competitors and immediate service/logistics |
| National region | Regional wages/skills, supplier/market distance, infrastructure, grants/tax and inter-site network |
| International country | Tariff/trade agreement, currency/political/legal/cultural risk, market entry, IP, language/time zone and cross-border supply |
Relocation is moving all/part of operations. Compare current versus option over the relevant horizon: forecast revenue/service/capacity benefits minus land/labour/logistics/tax/inventory/quality/coordination and one-off move/redundancy/training/duplication/downtime costs; then test risk, reversibility and stakeholder effects. A phased dual-site pilot can reduce transition risk.
| Choice | Reasons | Possible impact |
|---|---|---|
| Offshoring: moving an activity to another country (whether owned or outsourced) | Labour/input cost, skills, market access, tax/trade and 24-hour operations | Lower cost/market proximity but longer chain, inventory, quality/IP, currency/political/ethical and coordination risk |
| Reshoring: bringing an offshore activity back to the home country | Automation/productivity, wage/logistics changes, resilience, speed, quality/control, reputation or policy | Shorter lead time/control/local jobs but investment, higher some costs, lost offshore expertise/market access and transition risk |
Globalisation broadens markets, suppliers, skills and comparable sites and improves digital coordination, while raising exposure to global competitors, supply shocks, tariffs/geopolitics, currency, carbon/ethics and regulation. It can favour distributed networks, nearshoring or regional hubs rather than one globally cheapest site.
Do not select on one visible wage/rent figure. Use total delivered cost and value, capability, transition, resilience and strategic control. Offshoring describes location; outsourcing describes ownership/provider, so they are not synonyms.
Scale lowers or raises unit cost through specific economy and coordination mechanisms
Scale of operations is the size/capacity at which a business produces or delivers output. Economies of scale are factors that reduce average/unit cost as scale/output increases; diseconomies raise it. Average cost = total cost ÷ output, so name the cost or productivity mechanism—not growth alone.
Scale choice depends on forecast market size/growth/variability, objectives and owner risk, finance/cash and minimum efficient scale, capital/technology/capacity, labour/manager/supplier availability, competition, product variety/customisation/quality, location/distribution and ability to coordinate. Capacity should not be expanded merely because funding exists.
| Internal economy (caused by one firm's growth) | Unit-cost mechanism | Possible internal diseconomy |
|---|---|---|
| Purchasing | Bulk/negotiating power lowers input price or order cost per unit | Complex supply/quality, excess inventory or supplier dependence |
| Technical | Indivisible specialist machinery, automation and capacity spread fixed cost / raise output per input | Overcapacity, breakdown/system risk and inflexibility |
| Managerial | Specialist managers improve decisions/processes | Extra hierarchy, bureaucracy, slow/distorted communication |
| Financial | More collateral/reputation/options lower borrowing/raising-finance cost | Debt/agency/control complexity and risky expansion |
| Marketing | Campaign/research/brand/distribution cost spread over more units; bargaining power | Remote market knowledge, brand dilution or coordination waste |
| Risk-bearing/portfolio | Products/markets diversify cash-flow risk and shared capability | Complexity, cross-subsidy and weak accountability |
| External effect from growth of an industry/cluster | Mechanism for firms |
|---|---|
| Economies: specialist suppliers/services, skilled labour/training, infrastructure, finance and knowledge spillovers | Better availability/productivity or lower input/recruitment/logistics/innovation cost |
| Diseconomies: congestion, pollution/regulation, scarce labour/land/input bidding and overloaded infrastructure | Higher wages/rent/transport/compliance/input cost and delay |
Greater purchasing scale may lower recycled-paper input cost, reducing unit cost; the business can raise margin or lower price, which may increase sales if demand responds. Technical scale may raise output per worker. But long-distance communication after expansion can slow decisions/rework, reducing output per input and raising unit cost. Compare net effects and time horizon.
Measure unit cost, capacity utilisation, productivity/quality/lead time, overhead, service and coordination before/after; separate scale effects from technology, input prices and product mix. Economies may dominate until complexity passes the firm's managerial/system capability; managers can redesign structure/process rather than assume diseconomies are inevitable.
A fixed cost does not literally shrink: it is spread over more output. External economies arise from industry/cluster growth, not the firm's own scale. More output, revenue or product range is not itself proof of efficiency or lower unit cost.