Proximity to Major Markets When They First

¶ … Proximity to Major Markets

When they first emerged, the economic agents relied their success and profits on the ability to manufacture and deliver the products needed by the population. Gradually however, the success of the business institutions became more sensitive to a wide array of other issues. Today then, it is insufficient for the companies to simply deliver the needed products and services, but they must anticipate and serve new needs, even before the customers themselves become aware of these needs. The companies must also attract their customers through elaborated marketing campaigns and they must embrace, empower and reward their staff members.

Aside from these, the economic agents must also pay close attention to the place where they locate their businesses. The importance of the business location is critical for the final success of the company as it defines the means in which the customers will have access to the company's products and services. For instance, it is necessary for the business to be located in a highly populated area, where a wide number of customers have access to the stores. Then, the location must be easily accessible by various means of transportation.

In these days of intensifying competition, the economic agents are forced to devise points of difference by which to better appeal to their growingly pretentious customer base. The location of the business represents one source of differentiation and creation of competitive advantages and it has been more frequently addressed within the specialized literature.

Les J. Cramer (2006), senior manager at Studley Inc. is one professional who argues on the importance of location. He found that a growingly important criterion in the selection of the adequate location is represented by the proximity to major markets. The starting point of the discussion was represented by the 2005 Annual Corporate Survey which assessed the more important factors in location, as revealed through the lenses of corporate executives.

Comparative to the previous year, the survey revealed some modifications in ranks, the more notable of them being the increasing importance of major market proximity, from the 14th spot to the 9th spot. This change indicates that corporate executives strive harder to locate their operations next to major markets.

"In the latest survey, several ranking changes have occurred -- including the one for proximity to major markets, which has jumped from 14th in 2004 to 9th in importance in 2005. This also represents a 14% increase in weighted significance. The response is very clear: Closeness to market is now of major importance to corporations as they consider where to locate their facilities" (Cramer, 2006).

This evolution of the importance of a proximity to the major markets is the result of changing market features, which in turn, generate changes within corporate decision making efforts. Still, what is also important to note is that the very meaning of the major market proximity is in itself of a changing nature. Specifically, Cramer argues that the proximity to a major market would mean different things to different economic agents. For a manufacturer for instance, major market proximity could reflect a proximity to customers or a proximity to a supplier; in the case of an office however, the major market proximity could refer to the ability of the company to provide services in the same time zone (Cramer, 2006).

Les Cramer then approaches the issue of the role played by the customers in the corporate location decision and finds that this role in indeed critical.

"Although a company's location criteria and business model change over time, it is really the customers who establish broad location strategy. Furthermore, the business model established by most companies will be based on customer preferences -- which also change over time" (Cramer).

This perception is being more commonly accepted throughout the practitioners' and academician's communities. Economists at BBC for instance state that the first and foremost important question to be answered when making a location choice is represented by the convenience of the location for the customers. Unless the clients are easily able to reach the location, its long-term success is unsustainable.

Aside from the convenience of the customers, the BBC editors also place an increased emphasis on staff, services and costs in the making of the location decision. At the level of the staffs, it is necessary for the new location to possess and provide access to a sufficiently large and trained pool of workers. Then, the location to be selected must also provide the company with adequate access to services such as training, support or specialized advice. Finally, the focus falls on the costs of the new location, with concerns being raised over the higher costs of locations placed in central areas. At this specific level, it now assumed that the costs to locating next to major markets are also raising some financial concerns for the executives.

Cramer then moves on to stating that the changing importance of business location has also evolved due to logistics concerns, but that these logistics concerns are pegged to customer expectations; in other words, companies place more emphasis on location in terms of better reaching their customers. The author does not mention at this level that logistics concerns and location decisions have also been influenced by the organizational desires to create cost and operational efficiencies.

Finally, Cramer approaches the controversial issue of offshoring and wonders why, if proximity to customers is so important, companies offshore their operations. The answers once again relies with the customer, who is the one setting the offshoring trend due to demands related to cost.

"These location choices are still driven by customer mandate of product cost, quality, and delivery time. Off-shoring allows for a less costly product and an unaffected delivery time (via electronic transfer), although, in some cases, quality is still under review. In these instances, physical proximity is not expected by the customer" (Cramer, 2006).