Company location

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The company location is the place where a company is located.

Contrary to what is often held in the business literature, the location of the company is not always determined on the basis of rational considerations when a company is founded: New companies are usually created where the founder or founders are based. In the majority of all cases, business considerations only come into play when a company has grown and is looking for new locations. Location planning occurs when a company has reached an expansionary phase .


The choice of a location depends on various influencing factors; this includes in particular the relative proximity of a market for the products or services that the company manufactures or offers.

When it comes to choosing a location for stationary retail companies , the quality of the immediate market environment, i.e. the catchment area, is of decisive importance for the decision to set up a company. In principle, the location factors of demand, purchasing power, traffic, operating space, competition, location image and available qualified personnel must be analyzed as quality indicators . In particular, the presence of retail businesses in the same branch can have a positive location effect for new settlements, the so-called agglomeration effect .

For industrial companies, however, the availability of raw materials and auxiliary materials nowadays plays a rather subordinate role. The availability of labor ( labor market ), labor costs , the connection to transport routes (overall infrastructure ) and tax considerations ( tax policy ) are often more important. "Soft" location factors, such as the cultural offerings in the local community, are also playing an increasingly important role. The extent to which a company orients itself towards the above-mentioned location factors depends on the type of operation (industry) and the economic sector. The choice of location is one of the basic entrepreneurial decisions in addition to the choice of line of business.

Due to globalization and the advance of location-independent Internet communication, the spatial proximity between the company location (headquarters), the manufacturing location and a sales office is becoming less important for many industrial companies.

Due to faster transport options and falling costs, distances are of relatively little relevance. Nevertheless, depending on the goods or services required, there is a maximum distance from which the transport or travel costs exceed the savings. Only when this maximum distance exceeds half the circumference of the earth does a company actually have absolute freedom in choosing a location.

In location research, the question of the optimal location of a company or the optimal locations of its operations is investigated (see also location theories ).

For trading companies, there are also the special features that in addition to the operational location , e.g. for a planned new branch, the internal locations for the spatial arrangement of the goods must be analyzed and optimized as possible and that opportunities that arise from agglomeration effects must be determined .

In addition, the task of retail management is to continuously monitor not only the operational quality of the location, but also the internal quality of the location (which is particularly accessible to psychotactic procedures) in order to be able to make modifications in good time (e.g. change of location, shop renovation, change of space allocation, relocation, multiple placement ).

Location criteria

Location factors depend on the respective business sector. Individual factors are explained below.

raw materials

Some raw materials, such as lignite, cannot be transported economically over long distances, which is why plants that recycle or process these substances are usually located near the conveyor systems. Ore processing plants are also usually located near the corresponding conveyor systems, because much less material has to be transported after processing.


A very good traffic connection of a company is desirable in any case. However, there is a conflict of objectives , since buildings and areas that are in a well-developed location are also more expensive to rent or buy at the same time. For example, office space in the immediate vicinity of a long-distance train station is in any case more expensive than that which is away from major traffic routes.

In the industrial sector, due to the global production chain, well-developed cargo airports are a positive company location factor, provided that it plays a role for procurement or sales of goods. The same applies to freight yards or ports . Which type of infrastructure or which combination of systems is required depends heavily on the type of value chain of the company.

Military aspects

In times of war and dictatorships, military factors also play a role. During the Second World War, for example, industrial plants were relocated underground to protect against air raids, often using existing underground systems, for example from abandoned mines. For reasons of confidentiality, a very remote, barely accessible location may be of interest to military-relevant companies, whereby the employees usually need to build a settlement with infrastructure.


Integration in clusters will be an increasingly important factor for the location of a company or company facility . Clusters try to create synergy effects wherever the value chain is distributed among several companies (hence a chain of suppliers and an end product manufacturer) . In clusters, for example, attempts are made to optimize product development together with suppliers. A cluster gives young and new supplier companies long-term security. It is used in corporate planning and increases the company's creditworthiness .

labour market

Also important for a company is of course the presence of potential employees, without whom a company cannot operate. In general, it can be said that high unemployment in a region lowers the wages a company has to pay.

Another important factor in the labor market is the level of education. Whether a company places more value on academically trained employees or wants to pay the lowest possible wage at a location depends heavily on the value chain at the location. As with the infrastructure, there is a conflict of objectives at this point.


Some locations essentially have a significant prestige value. For example, it is essential for global banks to have a branch in Frankfurt am Main or New York City , even if it does not work profitably due to high rents and operating costs.


An intact environment is generally more important, the more educated a company's employees are. Air and water pollution have a very demotivating effect on employees, especially if the company is partly to blame.

Some industries, such as biotechnology or microelectronics, attach great importance to clean air because heavily polluted air increases the costs for air purification in clean rooms.

Proximity to the sales market

In modern (market-oriented) business administration it is once again prevailing that it does not always make sense to relocate productions to new company locations in other regions (keyword offshoring ). If you stop production on the main sales market because of cheaper locations in other countries, it may well happen that the company experiences a slump in sales. It harms the external image of a company if it is not perceived as a fully-fledged part of the economic cycle in its main market . In the long term, a company location in a country with lower wage costs does not necessarily have to be the optimal solution.

This does not play an insignificant role in the discussion about Germany as a location . The wage costs in Germany are not necessarily too high, but basically the customers elsewhere in many export-oriented companies. In economic terms, this loss of location value represents the cost of a country's export surplus.

For export-oriented companies, it can also be advantageous to relocate parts of production to an existing export market. In the case of government contracts, it may be necessary, or at least increase sales opportunities, if a company can point out that part of the added value is local. In addition, such a shift can be part of natural hedging to hedge against exchange rate risks.

Production close to the sales market can also be useful if the product produced cannot be transported economically over long distances or if it is only used in a single location. An example of this is the final assembly of missiles near the launch site.


Safety aspects can also play a role when choosing a location. In the early days of nuclear technology, reactors and plants that process highly radioactive substances were often built in more remote or windy locations so that in the event of accidents as few people as possible are exposed to increased radioactivity or radioactive clouds are quickly distributed. As a rule, launch sites for rockets are set up in places where the rocket's ascent path leads over uninhabited areas as far as possible.


The state is also a location factor that should not be neglected. The extent to which it subsidizes a company location directly or indirectly ( tax relief ) is often the decisive reason for a location decision. It is also important that the state can guarantee security that ensures the continued existence of the site. This includes maintaining an internal order or fighting corruption . Another important point is the speed and predictability as well as the effort required for public approval procedures. In some cases, a particular state was chosen as the location because the corresponding activity in another state was prohibited. This was particularly the case with private broadcasting and so broadcasting transmitters were built outside the country to be served (Borderblaster). In Europe, Europe 1, RTL and RMC are good examples.


One of the criteria for a suitable location is the climate . However, it does not play a role equally for all types of companies. Climate plays a major role, especially for companies that are involved in agricultural production or are themselves agricultural companies. See the following table:

Climate and industrial location choice
Climatic size Convenient for
Low air temperature Chocolate factories , pharmaceutical industry ,

Breweries , cheese factories , sausage producers, storage rooms for food, beer, wines

Humidity high Wool and cotton spinning and weaving mills, cheese factories
Humidity low Chocolate, confectionery and pasta factories, companies in the fine mechanical, optical and electrical engineering industries, enamelled wire manufacturers, mechanical engineering, and the manufacture of fur products
Air purity high Film factories, chemical-pharmaceutical plants, air liquefaction plants, plants for the production of food and beverages, high-quality paper, electronic components and fine mechanical-optical precision devices
strong air movement Viscose fiber, cellulose, paint production; Chemical industry, dairies, cheese factories, candy factories
Fog-free Chocolate and confectionery industry, film factories and chemical industry,
Extreme fluctuations in
rather unfavorable for all branches of industry
Heavily sloping terrain On the water: hydropower plants
Banks of great rivers Cooling water for steam power plants and the chemical industry

Specific examples

  • Smelting works: large amounts of coal and ore have to be transported to the works. Since ore and coal deposits are usually separate, such a plant is usually built in the vicinity of coal deposits, but sometimes also in the vicinity of the ore deposits. A location in a port city with delivery of coal and ore via the sea is also possible (Nasse Hütte). A location in flat terrain makes it easier to extract exhaust gases.
  • Cement plant: large amounts of limestone have to be transported to the plant and fuel for the cement kiln, whereby the amount of limestone predominates. The plant is often set up in a convenient location near a quarry, which sometimes delivers the limestone to the plant via a belt conveyor or material cable car, in order to enable the fuel for the cement kiln to be delivered.
  • Factory for the production of explosives: a factory for the production of explosives must be kept a minimum distance from residential areas and other industrial facilities for safety reasons. The value of this distance depends on the type and quantity of the explosive being processed. Suitable measures such as protective walls can reduce the necessary safety distance, which is why factories for the production of explosives are often located in disused quarries.
  • Thermal power plant: level, flood-proof place on a river with the most favorable connection to the high-voltage network. Connection to the rail network is almost always necessary. Since high structures often have to be erected, a certain minimum distance to airfields is required. Power plants fired with lignite are only built in the vicinity of conveyor systems for lignite, since the hygroscopic lignite cannot be transported economically over long distances. A location in flat terrain makes it easier to extract exhaust gases.
  • Hydroelectric power station: location on a river with a steep gradient. Location criteria more stringent than for thermal power plants
  • Wind power plant: exposed location in an area with as much wind as possible. Connection to the power grid shouldn't be too complex.
  • Electrodes for high voltage direct current transmission. Area of ​​high soil conductivity . As far away as possible from cables and pipes ( stray current corrosion )
  • Transmitting system for VHF: ideal location high mountain in front of a level, whereby a connection to the power grid that is not too complex is advantageous. Since high structures often have to be erected, a certain minimum distance to airfields is required. The Wendelstein transmitter location is ideal in this respect.
  • Transmitting system for VLF, LW and MW: Location in an area of ​​high soil conductivity, for example in a river valley, a former moor or by the sea. Since high structures often have to be erected, a certain minimum distance to airfields is required. The transmission locations Soelvesborg for the MW transmitter of the Swedish international service and Kalundborg for a medium wave transmitter of the Danish radio are optimally chosen under these aspects
  • Rocket launch site: as free a firing path as possible over uninhabited area, mostly large bodies of water. A location at the equator with a free firing path in an easterly direction is ideal for satellite launches, as less fuel is used due to the centrifugal forces. A level area facilitates the creation of launch sites and traffic routes; humid climate is unfavorable as it leads to corrosion.

Mobile locations

There are also cases in which the production system is not permanently installed, but is installed in a mobile manner, often on a ship for reasons of space, in order to be able to move the system to the optimal location in a short time. An example of this are fishing vessels , which allow the caught fish to be processed on site, which means savings in cooling. Power plants installed on ships are occasionally used in remote areas to provide a temporary backup power supply. In remote, wood-rich regions, ships with sawmills and paper mills were used on board. Another example of mobile production facilities are ocean-going vessels, which are often used by pirate broadcasters. Concrete plants are often built for large construction sites, which can be dismantled into transportable components after completion of the project and used at a new location.

Process of location search and evaluation

The search for suitable locations for economic activities is a constitutive business task. These are highly complex problems. Mathematical optimization processes fail because of the exponentially increasing complexity with an increasing number of criteria as well as the extensive exclusion of the qualitative criteria that are increasingly important in reality.

Due to the mathematical complexity, the existence of qualitative location factors and the limited rationality of the decision makers, the goal of optimization is abandoned in the location theory literature in favor of the search for suitable locations.

The location planning literature advocates a step-by-step approach to selecting suitable locations. In the case of international location decisions, a filter process takes place from the country preselection through the rough planning to the detailed planning and finally the determination of a commercial space, a plot of land or a property.

Influence of the location factors

The systematisation consists of data collection and assessment using a standardized, prepared point catalog (point evaluation procedure). When creating such an examination plan, an initial assessment should be made according to the weight of an individual factor for the specific purpose. The theoretical division into hard or soft location factors depending on the subjective content of the value can be helpful. Subjectively, above all in the sense that the weight of the factor can fluctuate significantly when used differently.

In relation to a property are:

  • hard location factors in addition to the legal situation of a location, the existing development, layout and shape of a property.
  • soft location factors the surrounding social infrastructure, the possible interactions with the environment, the embedding in the environment or, for example, more specifically: the recreational value of residential use.
  • socio-economic factors the population structure, the political investment climate and the general economy

Socio-economic factors can be classified between hard and soft factors in terms of their influence. While these factors have a direct effect on the costs and income opportunities, the influence of the socio-economic factors results from their influence on the risk of a development. Paradoxically, the cost consequences of the soft location factors are often unaffordable, while those of the hard location factors can be viewed as calculable. The timing of the consideration of socio-economic factors can be made dependent on the result of the consideration of the other factors.

Fictional example

This example shows how a location analysis can run sequentially. A benefit analysis is carried out.

  1. Requirements: The relevant factors are listed and weighted. (1–10; 10 = highest priority)
  2. Evaluation: The locations available for selection are evaluated based on the factors. (1–5; 5 = highest fulfillment)
  3. Decision: The weighting per factor is multiplied by the rating per location. The sum of these values ​​shows how the location fares overall.
No. factor weighting Location A Location B Location A Location B
1 Customer proximity 10 5 5 50 50
2 Proximity to competition 4th 2 3 8th 12
3 Rental prices 6th 5 4th 30th 24
4th Expansion options 4th 2 3 8th 12
5 Traffic situation 8th 3 5 24 40
6th Taxes 6th 4th 5 24 30th
7th Attraction of the location 7th 4th 2 28 14th
Total 172 182

Conventional evaluation methods

Optimization models with the aim of finding the optimal location according to the location criteria are rarely used in industrial company practice. They are predominantly used in the logistics sector, with minimizing transport costs being the most important. An example of a quantitative method is the warehouse location problem .

The utility value analysis is widespread for complex location problems where a large number of qualitative criteria have to be taken into account. Most of the experience with location analyzes and most of the theoretical analysis models for in-house and in-house location assessments have long been available for retailers.

Alternative location assessment procedures

A large number of location criteria have an explicit or implicit spatial reference. Socio-economic phenomena are usually clearly localized in space. Spatial and temporal distances exist between them. In addition, many location criteria have a spatial effect, i. H. their relevance goes beyond the immediate location.

Furthermore, the spatial distribution of phenomena must be taken into account. Classical statistical methods are based on the assumption of the spatial uniform distribution of phenomena. This contradicts all observations of reality. Associated with this are the problem of delimitation and the phenomenon of spatial autocorrelation (the manifestation of phenomena correlates positively with spatial proximity).

Conventional methods, such as the utility value analysis , are based exclusively on alphanumeric factual data on location criteria. The spatial reference of the location criteria generally remains unexplored with conventional methods and is excluded from the decision-making process.

These methodological bottlenecks can be overcome through the use of geographic information systems for site assessment. The criteria with their geographic coordinates are recorded in digital databases and can be analyzed and evaluated according to factual and spatial aspects. The results are mapped for interpretation.

Special alternative methods of location analysis have been developed for trading companies . Above all, gravitation models and net present value methods, profile analysis, customer run studies and non-verbal image analysis should be mentioned here.

Practical Practices in Business

When selecting a location, traders generally aim to be as close to the customer as possible and accordingly adapt their external image to the customer in order to ultimately obtain better sales opportunities. For this purpose, a company also uses other statistical data from statistical offices, at federal, state or municipal level, as well as data from associations, institutions and other facilities that collect data on the interests and behavior of the local population. Especially for the commercial sector and especially for the retail sector, there are a number of commercially operating companies that create these complex evaluations for their customers. The basic data that play a role in retailing includes data on the age structure, gender distribution, living conditions and income in the immediate vicinity of the location. This data can be compiled from a wide variety of sources and is only prepared by very few providers in the required complexity and quality. In connection with the establishment of a company, however, location analyzes are sometimes carried out free of charge.

See also


  • Thomas Glatte: The international production site search in the real estate industry context. expert Verlag, Renningen 2012, ISBN 978-3-8169-3086-0 .

Web links

Individual evidence

  1. Hans-Otto Schenk: Psychology in Commerce , 2nd edition. Munich / Vienna 2007, p. 117ff.
  2. See Bernd Falk, Jakob Wolf: Handelsbetriebslehre , 11th edition. Munich 1971, pp. 288-325.
  3. See Lothar Müller-Hagedorn: Retail Marketing. 2nd Edition. Stuttgart / Berlin / Cologne 1993, pp. 110–156.
  4. ^ Hans-Otto Schenk: Location control through non-verbal image analysis. In: Volker Trommsdorff (Ed.): Handelsforschung. Heidelberg 1988, pp. 65-79.