Factors to Consider When Locating a Production Unit

Choosing the right location for a production unit is one of the most strategic decisions a business can make. It has direct implications on the company’s operating efficiency, production costs, supply chain reliability, and long-term scalability. In today’s increasingly global and fast-paced markets, this decision goes beyond simply finding affordable real estate, it requires a careful, multi-faceted analysis of economic, logistical, regulatory and environmental factors.

This article explores the critical factors that businesses must evaluate when deciding where to locate their manufacturing or production facility.

1. Proximity to Raw Materials and Suppliers

For businesses developing consumer goods, proximity to key materials and suppliers can significantly improve efficiency and reduce costs. Whether sourcing textiles for soft goods, electronics for tech devices, or plastics for household products, being located near trusted suppliers helps streamline the development process and supports smoother production.

Reducing transport distances lowers freight costs, shortens lead times, and reduces the risk of delays caused by supply chain disruptions. It also strengthens relationships with suppliers through more frequent, in-person collaboration – which is especially valuable during the prototyping and early production phases.

Key Benefits:

• • Lower transportation and logistics costs
  • Faster and more predictable lead times
  • Easier communication and stronger supplier relationships

Real-World Example:
Consumer electronics brands often base manufacturing near key component suppliers in regions like Shenzhen to benefit from local ecosystems of materials, tooling, and assembly expertise. Likewise, soft goods brands may locate near textile manufacturing hubs to access specialist materials more efficiently.

2. Access to Skilled and Affordable Labour

The success of a production unit hinges on the availability of a trained, reliable and cost-effective workforce. This includes not only assembly line workers but also engineers, maintenance personnel and quality control experts.

Regions with established vocational training centres, technical institutes or university partnerships often provide a pipeline of skilled talent. However, you must balance skill availability with labour costs, employment law compliance and potential union activity.

Factors to Consider:

• • Labour availability vs. wage expectations
  • Shift work regulations and overtime costs
  • Local employment culture and turnover rates

Tip: In areas with limited skilled labour, you may need to invest in training programmes or incentives to attract and retain workers.

3. Infrastructure and Utility Support

Infrastructure plays a vital role in ensuring your production unit operates without bottlenecks or delays. Poor road access or unreliable electricity can result in costly downtimes or delivery delays, eroding customer trust and revenue.

You’ll need to assess not only the existing infrastructure but also future development plans in the region. Sometimes, an initially underdeveloped area may be part of a government industrial corridor with upcoming investments in logistics, telecom or utility networks.

Core Infrastructure Needs:

• • Roads, highways, and rail access for freight movement
  • Proximity to airports and seaports for export
  • Uninterrupted power and water supply
  • Reliable internet and telecom connectivity
  • Waste management and drainage systems

Insight: In developing countries, infrastructure readiness can vary significantly even within short distances. A detailed site visit and local stakeholder consultation are essential.

4. Proximity to the Target Market

The location of your production facility relative to your customer base affects logistics costs, delivery times and your ability to scale. If your product has a short shelf life (e.g. food or pharmaceutical products) or is frequently customised (e.g. B2B tooling), proximity becomes even more critical.

In industries with regional sales models, it might be more cost-effective to decentralise production across multiple local hubs rather than centralising in a distant, low-cost area.

Key Considerations:

• • Will the location reduce your ‘time to market’?
  • What are the warehousing and distribution options nearby?
  • Can this site support omnichannel fulfilment (e.g. direct to consumer and wholesale)?

Example: Fast fashion brands often operate factories in countries like Turkey or Portugal to serve European markets rapidly, sacrificing some cost savings for delivery speed.

5. Business Environment and Government Incentives

The regulatory landscape varies between regions and can significantly affect the ease of doing business. Governments often offer financial incentives, such as tax holidays, grants, or relaxed regulations, to attract industrial investment.

However, while these can sweeten the deal, they shouldn’t overshadow other more critical operational factors. Moreover, some incentives come with strings attached like minimum job creation numbers or local sourcing mandates.

Evaluate:

• • What subsidies or grants are available for manufacturers?
  • How easy is it to obtain permits, licenses, or approvals?
  • Are there Special Economic Zones (SEZs) or industrial parks with built-in benefits?

Caution: Regulatory inconsistency or abrupt policy changes (as seen in some emerging markets) can introduce unexpected risks. A solid understanding of local governance and trade agreements is crucial.

6. Cost of Land, Construction and Operational Expenses

While affordability is a key consideration, it must be viewed in context. Cheaper land in remote areas may come with higher transport and employee costs. Similarly, repurposing an old building may save on construction, but it might increase energy costs or limit layout flexibility.

Cost Elements to Analyse:

• • Land price per square metre
  • Zoning laws and construction permit costs
  • Building design and energy efficiency options
  • Ongoing property taxes and utility charges

Strategic Tip: Factor in future expansion, select a site with adjacent plots or modular design potential, especially if rapid scaling is part of your business plan.

7. Environmental and Social Impact

In today’s ESG-driven world, choosing a location that aligns with your environmental goals is no longer optional, it’s expected by customers, investors and regulators. Sites should be assessed for environmental compliance, carbon footprint implications, and community relations.

Environmental Questions to Address:

• • What is the site’s impact on biodiversity and water resources?
  • Can renewable energy be integrated?
  • Are there proper waste disposal and recycling facilities?

Community Considerations:

• • Will the local population support or resist the development?
  • Can you offer community benefits (e.g. jobs, training, infrastructure)?
  • Are there indigenous land rights or historical concerns?

Best Practice: Conduct an Environmental and Social Impact Assessment (ESIA) before committing to any site.

8. Risk Factors and Security

Risk analysis is often overlooked until disaster strikes. Whether it’s natural disasters, political instability, crime, or cyber threats, understanding the potential vulnerabilities of your site is essential for continuity planning.

Risk Mitigation Considerations:

• • Is the area prone to flooding, earthquakes, or drought?
  • What is the local crime rate and emergency response capability?
  • Are there geopolitical risks or history of civil unrest?

Insurance premiums and business interruption risks will also be influenced by your site’s risk profile. Locations with a low-risk reputation often benefit from lower operating costs over time due to fewer disruptions.

9. Connectivity to Global Markets

For export-oriented units, global connectivity matters as much as local access. Proximity to international ports, bonded warehousing, and logistics hubs facilitates faster and more cost-efficient cross-border trade.

Important Trade Factors:

• • Are there free trade agreements that make this location advantageous?
  • How efficient are customs processes at nearby ports?
  • What is the availability of freight forwarding and logistics services?

Example: Companies exporting electronics to the EU often prefer locations in Eastern Europe for their favourable logistics corridors and trade terms under the European Economic Area.

10. Long-Term Strategic Alignment

Finally, the location must align with your long-term business goals. A low-cost site may serve short-term profitability but limit your ability to pivot, innovate, or attract premium clients. Future trends such as automation, sustainability standards, and supply chain digitisation should also be considered.

Forward-Looking Questions:

• • Can this site support future automation and tech upgrades?
  • Does the location align with your brand’s values and ESG commitments?
  • How does this choice affect your company’s ability to scale internationally?

Insight: Tech-enabled manufacturing hubs or smart industrial parks can offer future-proof advantages—like integrated sensors, AI-driven supply chains, and built-in regulatory compliance.