A Level Business: Location and scale (Cambridge 9609) – Revision Notes

These are condensed notes for section 9.1 Location and scale (9.1.1 Location and 9.1.2 Scale of operations) of the Cambridge International AS & A Level Business 9609 syllabus for examination in 2026, 2027 and 2028. It is A Level content within Topic 9, Operations management. For full explanations and worked examples, use the study guide, then try the practice questions. Related questions are in the Topic 9 practice set. Course links: the Cambridge A Level Business hub, the checklist and the free diagnostics.

9.1.1 Location

Key terms

Term	Meaning
Location	Where a business carries out its operations
Relocation	Moving existing operations to a new site
Offshoring	Moving operations (production or services) to another country, in the firm’s own site or a supplier’s
Reshoring	Bringing offshored operations back to the home country
Globalisation	Growing links between countries through trade, investment, finance and communication
Quantitative factor	One that can be costed, such as wages or rent
Qualitative factor	A judgement that is hard to cost, such as reputation or staff morale

Factors that determine location

Factor	Quick reminder
Market	Closeness to customers; essential for perishable goods and many services
Materials	Make near the source if the product loses weight in production
Labour	Cost, skills, availability
Transport and infrastructure	Roads, ports, power, broadband, freight costs
Land and premises	Rent or price, room to expand
Government	Grants, taxes, planning, regulation
Competitors and clusters	Supplier and skills pool against crowding
Owner and image	Personal preference, prestige address

Why relocate, and what it costs

• Triggers: lease ends; costs rise; new market; no room to grow; congestion; rule changes.
• One-off costs: moving, redundancy, retraining, disruption, lost customers, lost staff.
• Test: do the savings outweigh the costs, and over what period?

Local, national, international

	Local	National	International
Scale of network	One district	Whole country	Several countries
Law and currency	One	One	Several, so exchange-rate risk
Supply chain	Short	Longer	Longest, most disruption risk
Main gain	Close contact	Wider market	Cheaper inputs, new markets

Offshoring and reshoring at a glance

	Offshoring	Reshoring
Typical reasons	Lower labour and land cost, skills, nearer new markets, avoid trade barriers, overseas incentives	Rising overseas wages, freight cost, quality problems, long lead times, disruption, automation, “made at home” demand
Gains	Lower unit cost, access to new markets	Shorter lead times, control, brand message
Costs and risks	Freight and duty, exchange rates, weaker control, long lead times, image if home jobs go	Higher labour cost, new plant cost, loss of overseas know-how
Who is affected	Home workers may lose jobs; host economy gains jobs	Home jobs created; overseas workers lose out

Globalisation and location

• Lower trade barriers and transport costs make distant sites practical.
• Global supply chains: stages of production spread across countries.
• Emerging markets give cheap inputs and new customers.
• Overseas competition pushes costs down, which can force relocation.
• Not one-way: protectionism, rising wages abroad and disruption can reverse the trend.

9.1.2 Scale of operations

Factors that influence scale

Market size; finance; type of product (mass versus personalised); technology; owner’s objectives; competition; risk and regulation.

Economies and diseconomies

	Internal (from the firm’s own growth)	External (from growth of the industry or area)
Economies	Purchasing, technical, financial, marketing, managerial, risk-bearing	Skilled labour pool, supplier cluster, better infrastructure, local training
Diseconomies	Communication, coordination, slow decisions, low motivation, duplication	Congestion, wage and land price rises, strained infrastructure, local labour shortage

Must-know distinctions

• Internal economy: firm’s own size causes it. External: the industry or area causes it and every firm in it benefits.
• Offshoring is about country. Outsourcing is about who does the work. They can combine.
• Economies of scale are falling unit costs as output rises. Diseconomies are rising unit costs. Neither is a “profit” or “loss” in itself.
• Scale (size of output and resources) is not the same as the number of sites or staff, though they are linked.
• Relocation moves existing operations; offshoring moves them to another country. A move across town is relocation but not offshoring.

Unit cost (standard form)

unit (average) cost = total cost ÷ output

Method in steps:

1. Find total cost at each output (add fixed and variable costs if given separately).
2. Divide by output.
3. Compare: falling unit cost points to economies, rising unit cost to diseconomies.
4. For percentage change: (new − old) ÷ old × 100.
5. Say what could explain the change, using the case.

Worked reminder: Otterburne Tools

Total cost is 380,000 at 40,000 units and 640,000 at 80,000 units. Unit cost: 380,000 ÷ 40,000 = 9.50; 640,000 ÷ 80,000 = 8.00. Change = (8.00 − 9.50) ÷ 9.50 × 100 = −15.8%. Output doubled but total cost rose only 68.4%, so economies of scale were gained.

If Otterburne relocates at a one-off cost of 450,000 and saves 90,000 a year, it takes 450,000 ÷ 90,000 = 5 years to recover the cost (the simple payback form).

Worked reminder: comparing two sites

Another Otterburne plan makes 40,000 units a year. Home site: variable cost 9.00 a unit, fixed costs 210,000. Overseas site: variable cost 5.50 plus 1.20 freight and duty, so 6.70 a unit, fixed costs 260,000.

• Home total cost = 9.00 × 40,000 + 210,000 = 570,000, so unit cost 14.25.
• Overseas total cost = 6.70 × 40,000 + 260,000 = 528,000, so unit cost 13.20.
• Annual saving = 42,000, which is 7.4% of the home cost.
• If moving would cost 126,000 once, simple payback = 126,000 ÷ 42,000 = 3 years.

Evaluation reminders

• Say which factors matter most for this product and why (perishable, bulky, high value, service).
• Check how long the saving may last: wages, freight and exchange rates change, and a saving that vanishes within a few years is a weak reason to move.
• Weigh the one-off cost and the disruption against the annual saving.
• Add non-financial effects: control, speed, image, staff, risk.
• End with a decision and the condition on which it depends.

Quick self-test

1. Define offshoring.
2. State two qualitative factors that might influence location.
3. A relocation costs 450,000 once and saves 90,000 a year. How long to recover the cost?
4. Total cost is 380,000 at 40,000 units. Calculate unit cost.
5. Unit cost at 80,000 units is 8.00 and at 40,000 units is 9.50. Calculate the percentage change, to 1 d.p.
6. A new college opens near a cluster of welding firms and trains welders for all of them. Is this an internal or external economy? Explain.
7. Give two internal diseconomies of scale.
8. State one difference between a local and an international location decision.
9. Give two reasons a business might reshore.
10. A firm saves 0.75 per unit on 120,000 units by moving. State the annual saving, and give one reason it may be smaller in practice.

Answers

1. Moving some or all operations (production or services) to another country.
2. Any two of: quality of life, reputation or image of the area, owner’s preference, staff morale, community relations.
3. 450,000 ÷ 90,000 = 5 years.
4. 380,000 ÷ 40,000 = 9.50.
5. (8.00 − 9.50) ÷ 9.50 × 100 = −15.8% (a fall of 15.8%).
6. External: the benefit comes from the industry’s growth in the area, and lowers costs for every firm there.
7. Any two of: communication problems, slow decisions, poor coordination, falling motivation, duplicated work.
8. For example, international decisions involve different currencies, laws and longer supply chains; local decisions do not.
9. Any two of: rising wages abroad, higher freight costs, quality problems, long lead times, supply disruption, automation, demand for locally made goods.
10. 0.75 × 120,000 = 90,000. It may be smaller if freight, duty, extra stock or exchange-rate moves add costs, or if wages abroad rise.

Where marks are usually lost

• Listing location factors with no link to the business in the case.
• Comparing wage rates only and ignoring freight, duty, stock and risk.
• Confusing offshoring with outsourcing.
• Giving a reshoring reason that is really an offshoring reason, such as “cheaper labour”.
• Describing economies of scale as “being bigger” without showing unit cost falling.
• Calling an economy “internal” when the cause is the industry or area, or the reverse.
• Quoting a unit cost with no working or no units.
• Dividing a percentage change by the new figure instead of the old one.
• Ending an evaluation with a summary and no judgement about which factor matters most.
• Forgetting that savings can disappear if wages or freight rise, so a decision may not last.

Frequently asked questions

What is the difference between offshoring and outsourcing? Offshoring is about the country: moving operations abroad, either to the firm’s own site or to a supplier. Outsourcing is about who does the work: using another firm. The two can be combined.

What is reshoring? Reshoring is bringing offshored operations back to the home country. Reasons include rising wages abroad, higher freight costs, quality problems and long lead times.

What is the difference between internal and external economies of scale? Internal economies come from the firm’s own growth, such as purchasing or financial economies. External economies come from the growth of the industry or area, such as a skilled labour pool or local suppliers.

What is the difference between quantitative and qualitative location factors? Quantitative factors can be costed, such as wages, rent or freight. Qualitative factors are judgements that are hard to cost, such as reputation, quality of life or staff morale.

Official syllabus

Cambridge International AS & A Level Business 9609 syllabus for examination in 2026, 2027 and 2028, published by Cambridge University Press & Assessment (Cambridge International Education), section 9.1.