Basic Location Strategies
The bottom line of an economic activity is the relationships between
the costs of its inputs and the revenue from the sale of its outputs;
profit. A location can have an impact on the price of both inputs and
outputs, so the choice of a location can be important to insure the
profitability of an activity. Two major location strategies can be considered:
Both strategies can be reconciled in a profit maximization
perspective where both costs and income varies according to location.
Under such a perspective, the optimal location could be different (03).
- Costs minimization mainly considers location problems
where income (sales) is generally constant and costs vary. This
is particularly the case for manufacturing and resources that tend
to service large markets. Thus, a computer manufacturer is likely
to have similar sales, wherever its location, but its production
costs are likely to vary depending on its location. The goal is
consequently to find an optimal location (O1) that minimizes costs
and maximizes profits. Such a location can be "bounded", implying
that a certain geographical area, due to its lower costs, would
incur profits for an activity wherever its location within this
area. There is a potential positive feedback effect as a low cost
location enables to increase profits, which can be passed down the
supply chain and likely improve the market share, demand and income.
- Revenue maximization on the other hand deals with constant
costs, but varying income. This is particularly the case for retail
activities whose inputs tend to be constant (such as labor), but
whose income (sales) can increase at locations that are more accessible
to potential customers. There is an optimal location (O2) insuring
the highest access to customers which can be bounded.