The entrepreneur must consider certain locational factors with the overall interest of reducing unit cost of production. Such factors include:
(i) Source of raw materials: if the raw material is heavy and its cost of transportation is very high, the entrepreneur may decide to locate his business near the source of raw materials. Examples are cement factories and plywood factories.
(ii) Market Consideration: The ultimate aim of the producer is to sell the final product. A business unit may be sited in areas with high population densities. If the product is fragile, perishable or bulky to transport, the business unit may be located near the market. Examples are production of eggs, fresh milk and bricks.
(iii) Nearness to the source of power supply: Power supply is an essential ingredient to production. The producer may locate his business near the source of power be it coal, electricity or water.
(iv) Labour supply: for labour-intensive form of businesses, adequate supply of labour will be considered for location.
(v) Availability of good transport and communication system: An efficient transportation system is needed to transport raw materials and finished products. Also, a business unit needs an efficient communication system such as telephones and post offices. These may encourage the producer to site the business in places where these facilities are available.
(vi) Favourable natural conditions such as suitable climate and land may determine where one form of agricultural activity or the other will be sited.
(vii) Political factors apart from economic factors may determine location of industries.
(viii) The presence of amenities such as banks, insurance companies, educational institutions, pipe borne water may attract producers to such areas.
