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148 CHAPTER 4 • CAPACiTy sTRATEgy
Resource costs – energy

Those operations that use large amounts of energy – for example, aluminium smelting –
may be influenced in their location decisions by the availability of relatively inexpen-
sive energy. Low-cost energy sources may be direct, as in the availability of hydroelectric
generation in an area, or indirect, for example, a low-cost coal area that can be used to
generate inexpensive electricity.
Resource costs – transportation
Transportation costs are clearly spatially variable because the operation’s resources
need to be transported (or transport themselves) from their point of origin to the
operation itself. In many operations, also, goods and services (or the people who
perform the services) need to be transported from the operation to customers. Of
course, not all goods and services are transported to customers. In operations such
as hotels, retailers and hospitals, customers visit the operation to receive their ser-
vices. In these cases we treat the ease with which customers access such services as
a demand-side or revenue-influencing factor (or customer service factor in not-for-
profit operations).
Proximity to sources of supply dominates location decisions where the cost of trans-
porting input materials is high. So, for example, food processing or other agriculturally
based activities are often located close to growing areas. Similarly, forestry and mining
operations could only be located close to their sources of supply. Proximity to custom-
ers dominates location decisions where the transportation of products and services to
customers is expensive or impossible. So, for example, many civil engineering projects
are constructed where they are needed; similarly, accountancy audits take place at cus-
tomers’ own facilities because that is where the information resides.

Community factors
The general category of community factors is those influences on an operation’s
costs that derive from the social, political and economic environment of its location.
These include
● government financial or planning assistance;
● local tax rates;
● capital movement restrictions;
● political stability;
● language;
● local amenities (schools, theatres, shops etc.);
● history of labour relations, absenteeism, productivity etc.; and
● environmental restrictions and waste disposal.
Community factors can be particularly influential on the location decision. Some
issues obviously affect the profitability of the operation, such as local tax rates, which
can clearly affect the viability of a new location. Others are less obvious. For exam-
ple, the European country that has had the most inward investment from Japanese
companies is the UK. Some investments, especially the early ones, were influenced by
the UK Government’s generous financial support and tax concessions. Other factors
included a relatively cheap but well-educated workforce. Yet a less obvious, but equally

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