DETERMINING

THE RIGHT
LOCATION
Chapter 11

One of the most important decisions the

SBO has to make is choosing the right
location for his business. The wrong
location will make it very difficult for the
SBO to achieve his business objectives.

The preliminary concern should be the lost

opportunity to make profits

It is very clear that the right location is a

prerequisite to business success

What is the Right Location

One will be situated on the extreme side of the right

location. Another will be on the extreme side of the
wrong location. Those in between the extremes may be
classified as nearly right or nearly wrong

Right Location refers to that one which will bring the

highest possible benefits to the firm. Wrong Location is
the one which will bring the most disadvantages to the
small business.

The right location for one firm, however, may be the

wrong location for another firm and vise versa.

General Criteria for Selecting a Business Location

Different types of small business need to use different sets
of criteria in determining the right business location. These refers to
those which concern the region, the province and the city/town.

Selecting Region
Statistical reports on the growth patterns and economic performance
of the nations different regions will reveal that some regions are
more desirable areas of investment than others. Some regions like
Metro Manila, Central Luzon and Southern Luzon have higher rates
of population growth and average family income. Most prospective
investors consider such information as plus factors.

Selecting the Province

The following factors must be considered when identifying which
province the small business will be located.

1.
2.
3.
4.

Proximity to markets
Proximity to supply of raw materials
Labor supply
Business climate

Proximity to Markets. Small businesses must be as near to

their markets as possible. This is most specially true if the cost of moving
the products to its customers is high in relation to their value. Bakery firm
is an example.
Service and retailing firms need to be situated in sites within the areas of
Their respective target markets.

Proximity to Supply of Raw Materials. When the raw material

requirements of a small firm are voluminous and frequent acquisitions are
made. The company must consider locating in the province where the raw
materials are sourced to have an advantage of reducing considerably its
raw
material acquisition costs.
Labor Supply. The small business must be located in the province
where its labor requirements will be supplied efficiently. Labor requirements
That are classified as (1) managerial, (2) specialists, and (3) skilled
Laborers, must be available.
Business Climate. Small businesses are expected to thrive in
places where they transact business more efficiently. Some provinces are
more business friendly than others because they provide certain incentives
for small business like tax holidays, lower fees, minimum restrictions, etc.

Mode

Criteria

Selecting the
Region

Population growth
Average annual income of
families

Selecting the
Province

Proximity to markets
Proximity to supply of
raw materials
Labor supply
Business climate

Selecting the
City or Town

Population trends
Local laws and regulations
Competition
Compatibility with the community
Transportation
Public services
Police and fire protection
Reputation of the location

Selecting City or Town

After identifying the province where the small business will be
located, the specific city within the province must be selected.
The following must be considered in choosing a specific city or
Town.

1.
2.
3.
4.
5.
6.
7.
8.

Population trends
Local laws and regulations
Competition
Compatibility with the community
Transportation
Public services
Police and fire protection
Reputation of the location

Population Trends. Things to consider are the following:

1.
Population size and density
2.
Growth trends
3.
Family size
4.
Age breakdowns
5.
Education
6.
Income levels
7.
Sex
8.
Religion
9.
Ethnic groups
Towns or cities with large population size are likely candidates for
locating many types of small businesses.

Population growth trends indicate whether the city is growing or

dying. Growth trends are useful in determining the ranks of the
cities or towns in terms of growth.

Data on family size will be very important to small business dealing

with products or services offering the need of big families.
Ex. Double decks for bug families

Age breakdowns provide better insights to the small business

investor in making location decisions.
Ex. Products for elderly - prefer a city with sufficient number of elderly

The level of education of a city or towns population will be relevant

factor for a small business producing educational tools.
Ex. Books, newspaper, calculators, computers, magazines

The income level of the population of a city or town will provide the
Small business investor with data on purchasing power.

Although the population of most cities and towns are more or less
evenly distributed between the sexes, it is sometimes important for
some small businesses to be assured that this is so.

Religious beliefs of a citys population sometimes affect the way a

small business operates.
Ex. A small business manufacturing images of saints will be more
appropriate located in city populated by Catholics.

Different ethnic groups exhibit dissimilar needs.

Ex. Some prefer to spend more on glamour products while some
concerned with saving money.

Local Laws and Regulations. The small business investors must

compare the local laws and regulations of the different towns within the
province of his choice.
Ex. Some impose lower business taxes
Competition. If the small business investor finds a town under
consideration with too much competition in his line of business, he
should shift his attention to another town.
Ex. Tricycle service business in Cabanatuan City is not a good idea.
Compatibility with the Community. The small business must be
compatible with the community where it will be located.
Ex. Selling health foods in a city where people care about their health.

Transportation. It is very important that the firm should be located in a

town with adequate and reasonably priced transportation services.
Police and Fire Protection. Towns or cities that do not provide
adequate police and fire protection should be ruled out in choosing
a location.
Public Services. Towns or cities which provide adequate services like
those on water and sewerage, trash and garbage collection, among
others, must be regarded as plus factors in choosing location.
Reputation of the Location. Cities like Makati, Cebu and Davao lend
their reputations to business located in their area. In a way, prospective
customers are easily swayed to pay attention to whatever message
small business would want to convey to them.

Steps in Selecting a Business Location for Retailers

Some location criteria are uniquely applicable to retailers. They
may be derived through three major business location selection
steps namely:
1.
2.
3.

Choosing a viable community

Selecting the trading area
Evaluating the specific site.

Choosing a Viable Community. Is one that has capacity to provide an

adequate and profitable volume for the small business.
Three general factors used to determine the best geographic area
for the business.
1.
2.
3.

Economics
Population
Competition

Economics. Areas with a stable economic base must be chosen by the

SBO rather than those without a stable economic base. An
economically stable area is one which has a balanced mix of business
establishment.
Population. Information about the characteristics of the population
relevant to the location decision must be obtained. Important population
aspects are the following
1.
2.
3.
4.

Size of population of the area under consideration

Growth trend of the population
Average income of the potential customers
Population changes in recent years

Competition. If too many of the same types of business are located in

one area, they may have difficulty in obtaining the sales volume they
desire.
Selecting the Trading Area. Trading area is the geographic area from
which a business draws its customers. Aspects that must be consider in
trading area analysis are the following:
1.
The demographic and socioeconomic characteristics of
consumers.
2.
The focus of promotional activities
3.
The determination of whether the proposed location will service
new customers or take away business from existing competitors
4.
The determination of the number of outlets that can be operated;
the geographic weaknesses of the proposed trading area
5.
Other factors like competition, availability of financial firms,
availability of labor, location of suppliers, legal restrictions and the
like.

Composition of the Trading Area.

1.
Primary trading area - this is were 50-60 percent of the retailers
customers come from. Its is closest to where the retailing firm is
located and possesses the highest density of customers of the
firm.
2.
Secondary trading area- this is where 20-25 percent of the firms
customers come from
3.
Fringe trading area this is where the remaining customers of
the firm come from.

Types of Location. Location may be classified as follows.

1.
2.
3.

The central business district

The shopping center
The free-standing location

The Central Business District

The central business district (CBD) refers to an unplanned

shopping area around the geographic point at which all public
transportation systems converge.

In a typical provincial city, the center of the CBD is the public

market which is surrounded by bus and jeepney stations.

Adjacent to these stations are the traditional departments stores,

grocery stores, minimarts, and some specialty shops.

Advantages of locating in the CBD

1.
Easy access to public transportations
2.
Wide product assortment
3.
Variety in images, prices, and services
4.
Proximity to commercial activities

Disadvantages of Locating in the CBD

1.
Inadequate parking
2.
Older stores
3.
High rents and taxes
4.
Traffic and delivery congestion
5.
Potentially high crime rate
6.
The generally decaying conditions of CBDs in many cities

Neighborhood Business Districts (NBDs)

Secondary Business Districts (SBDs) shopping area smaller

than a CBD and which revolves around at least one department or
variety stores at a major street intersection.

Are that evolves to satisfy the convenience-oriented shopping needs.

The Shopping Center

The shopping center refers to a centrally owned and/or managed

shopping district which is planned, has a balanced tenancy (stores
complement each other in merchandise offerings), and is
surrounded by parking facilities.
Advantages
1.
Heavy customer traffic resulting form wide range of product
offerings
2.
Nearness to population
3.
Cooperative planning and sharing of common costs
4.
Access to highway and availability of parking
5.
Lower crime rate
6.
Clean, neat environment
7.
More than adequate parking space.

Disadvantages
1.
Inflexible store hours
2.
High rents
3.
Restrictions as to the merchandise the retailer may carry
4.
Inflexible operations
5.
Possibility of too much competition
6.
Dominance of smaller stores by the lead (or anchor) store.

Procedure in Selecting a Business Location for Retailers

TO DETERMINE
TO DETERMINE
TO DETERMINE

Viable
Community

Trading
Area

Specific
Site

1. list and
evaluate
2. make final
choice

1. list and
evaluate
2. make final
choice

1. list and
evaluate
2. make final
choice

considering
the following
factors

considering
the following
choices

considering
the following
factors
Pedestrian traffic

Economics
Population
Competition

Central
Business
District
Shopping
Center
Free standing
location

Vehicular traffic
Parking facilities
Transportation
Store composition
Specific site
Terms of occupancy

The Free-standing Retailer

Generally located along major traffic arteries without any

adjacent retailers selling competing products to share traffic.
Advantages
1.
Lack of direct competition
2.
Generally lower rents
3.
Freedom in operation and hours
4.
Facilities that can br adapted to individual needs of retailers
5.
Inexpensive parking
Disadvantages
1.
Lack of drawing power of complementary stores
2.
Difficulties in attracting customers for the initial visit
3.
Higher advertising and promotional costs
4.
Operating costs that cannot be shared with others

5. Possible cash outlays in constructing the store instead of renting

6. Zoning ordinances that may restrict some activities.

Selecting Specific Site

First, a listing of possible specific sites must be made.

This will be followed by evaluation of the listed sites considering

the following : pedestrian traffic, vehicular traffic, parking
facilities, transportation, store composition, internal
characteristics of the specific sites, and terms of occupancy.

A site that has more people passing by is preferable over one with
less traffic.

The internal characteristics of proposed site must be evaluated.

Among those that must be considered are:

1.

Visibility of the site

Placement in the location
Size and shape of the lot
Size and shape of the building
Condition of the lot and building

2.
3.
4.
5.

The terms of occupancy of the site must also be evaluated. The

following must be scrutinized:

1.

Ownership and lease options

Operations and maintenance costs
Taxes
Zoning restrictions
Voluntary restrictions like uniform store hours and cooperative
security forces.

2.
3.
4.
5.

Locating the Small Manufacturing Firm

Big cities are desirable locations because of proximity to a bigger
percentage of the population. However, zoning laws implemented in big
cities are more restrictive than those imposed by small towns. To avoid
the said difficulty, some manufacturing firms locate in a small town just
outside the boundary of the city.
Even if some manufacturing firms wanted to be near their market,
they cannot afford to be situated away from the source of their raw
materials. This may be because of the following:
1.
2.
3.
4.

The factory produces must waste in processing the materials

The raw materials are perishable and so the factory should be
situated close to the source of materials
The raw materials such as iron and stone are very bulky
Distribution methods or expenses make one site more costeffective than another

Procedure in Locating a Small Manufacturing Firm

Steps Recommended:
1.
Determine if the proposed area allows the type of manufacturing
under consideration
2.

3.

Determine the following

Adequacy of shipping facilities
Types of buildings available for lease or rent
Distance from factory to market and resulting shipping costs
Determine the availability of the following:
Cheap fuel
Power and water
Skilled labor (if required)
Financing facilities

Locating the Service Firm

Service firm are those specifically sought by customers. If the
customers are satisfied with the services they provide, they will be
continuously patronized even if a competitor is more accessible.

The choice of a location for service firms will depend on the traits of
the target customer.