Proximity to labour and materials

Proximity means closeness. Proximity to labour means being close to an available supply of suitable workers, including people with the skills the business needs. Proximity to materials means being close to raw materials, components or suppliers.

Close to labour

Being near a good supply of workers makes recruitment easier, because more suitable people can apply without moving house. Staff turnover can be lower too: workers who live locally are less likely to leave over a long commute and do not need to relocate. The business can also compare local skill levels and wage rates when it chooses a site: an area with plenty of workers who already have the right skills keeps training costs down, while an area with lower wage rates can cut the pay bill.

For example, a studio that makes computer games needs programmers, artists and sound designers. It sets up in a city with universities and colleges that teach games design, so it fills vacancies quickly and spends less on training.

Close to materials

Being near materials and suppliers reduces transport costs and delays. This matters most when materials are heavy, bulky, perishable or expensive to move, because haulage bills are higher and a late delivery can stop production.

For example, a workshop making garden benches from thick timber planks locates beside a timber merchant. The planks travel a short distance, so haulage is cheaper and deliveries arrive quickly.

When it matters less

Proximity to materials matters little for service businesses, which use few physical materials — a tutoring company needs tutors, not timber. It also matters less when materials are small, light or cheap to move, such as the tiny parts used by a phone repair shop, so that business can locate near its customers instead.