11.7: Business Geography
- Page ID
- 213952
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\(\newcommand{\avec}{\mathbf a}\) \(\newcommand{\bvec}{\mathbf b}\) \(\newcommand{\cvec}{\mathbf c}\) \(\newcommand{\dvec}{\mathbf d}\) \(\newcommand{\dtil}{\widetilde{\mathbf d}}\) \(\newcommand{\evec}{\mathbf e}\) \(\newcommand{\fvec}{\mathbf f}\) \(\newcommand{\nvec}{\mathbf n}\) \(\newcommand{\pvec}{\mathbf p}\) \(\newcommand{\qvec}{\mathbf q}\) \(\newcommand{\svec}{\mathbf s}\) \(\newcommand{\tvec}{\mathbf t}\) \(\newcommand{\uvec}{\mathbf u}\) \(\newcommand{\vvec}{\mathbf v}\) \(\newcommand{\wvec}{\mathbf w}\) \(\newcommand{\xvec}{\mathbf x}\) \(\newcommand{\yvec}{\mathbf y}\) \(\newcommand{\zvec}{\mathbf z}\) \(\newcommand{\rvec}{\mathbf r}\) \(\newcommand{\mvec}{\mathbf m}\) \(\newcommand{\zerovec}{\mathbf 0}\) \(\newcommand{\onevec}{\mathbf 1}\) \(\newcommand{\real}{\mathbb R}\) \(\newcommand{\twovec}[2]{\left[\begin{array}{r}#1 \\ #2 \end{array}\right]}\) \(\newcommand{\ctwovec}[2]{\left[\begin{array}{c}#1 \\ #2 \end{array}\right]}\) \(\newcommand{\threevec}[3]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \end{array}\right]}\) \(\newcommand{\cthreevec}[3]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \end{array}\right]}\) \(\newcommand{\fourvec}[4]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \\ #4 \end{array}\right]}\) \(\newcommand{\cfourvec}[4]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \\ #4 \end{array}\right]}\) \(\newcommand{\fivevec}[5]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \\ #4 \\ #5 \\ \end{array}\right]}\) \(\newcommand{\cfivevec}[5]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \\ #4 \\ #5 \\ \end{array}\right]}\) \(\newcommand{\mattwo}[4]{\left[\begin{array}{rr}#1 \amp #2 \\ #3 \amp #4 \\ \end{array}\right]}\) \(\newcommand{\laspan}[1]{\text{Span}\{#1\}}\) \(\newcommand{\bcal}{\cal B}\) \(\newcommand{\ccal}{\cal C}\) \(\newcommand{\scal}{\cal S}\) \(\newcommand{\wcal}{\cal W}\) \(\newcommand{\ecal}{\cal E}\) \(\newcommand{\coords}[2]{\left\{#1\right\}_{#2}}\) \(\newcommand{\gray}[1]{\color{gray}{#1}}\) \(\newcommand{\lgray}[1]{\color{lightgray}{#1}}\) \(\newcommand{\rank}{\operatorname{rank}}\) \(\newcommand{\row}{\text{Row}}\) \(\newcommand{\col}{\text{Col}}\) \(\renewcommand{\row}{\text{Row}}\) \(\newcommand{\nul}{\text{Nul}}\) \(\newcommand{\var}{\text{Var}}\) \(\newcommand{\corr}{\text{corr}}\) \(\newcommand{\len}[1]{\left|#1\right|}\) \(\newcommand{\bbar}{\overline{\bvec}}\) \(\newcommand{\bhat}{\widehat{\bvec}}\) \(\newcommand{\bperp}{\bvec^\perp}\) \(\newcommand{\xhat}{\widehat{\xvec}}\) \(\newcommand{\vhat}{\widehat{\vvec}}\) \(\newcommand{\uhat}{\widehat{\uvec}}\) \(\newcommand{\what}{\widehat{\wvec}}\) \(\newcommand{\Sighat}{\widehat{\Sigma}}\) \(\newcommand{\lt}{<}\) \(\newcommand{\gt}{>}\) \(\newcommand{\amp}{&}\) \(\definecolor{fillinmathshade}{gray}{0.9}\)Business Geography
Setting up a new business, or expanding existing operations is an expensive proposition. Even slight mistakes in locating a new store can result in the loss of millions of dollars. Even more money is lost by companies that do a poor job locating factories or warehousing facilities. Geography offers many protections against costly mistakes. Geography is also a key element of strategies aimed at expanding customer bases for companies that engage in marketing geography, a growing field that overlaps with advertising and business informatics.
Economic Base Analysis
One of the most useful methodologies available to business geographers is called economic base analysis, a technique devised to determine whether or not any particular economic activity functions as a basic or non-basic industry. A standard mathematical formula, called the location quotient is most often used to identify economic bases for places at various scales. In other words, you can learn which industries in the local economy are bringing in money from outside, and which serve mostly a local population. By mapping the location quotient, you can identify which counties, cities or even ZIP codes specialize in specific industries. You can also use the location quotient formula to map locations saturated with specific industries/businesses, as well as places with a deficit of specific industries or businesses. It’s a good first step for anyone interested in opening a new business because it helps identify locations with too much competition.
Location Quotient
Say, for example, there are 10 hotels in your town and 100 total businesses. Ten percent of your town’s businesses are hotels. However, in your entire state, there are 3,000 hotels and 50,000 businesses. Statewide, 6% of all businesses are hotels, which is less than the ratio in your town. The location quotient for hotels in your town is therefore equal to 1.667. (.10/.6 = 1.667). Any location quotient greater than 1.0 indicates concentration. Therefore, you could argue that the hotel industry is stronger in your town than one would expect based on statewide trends. This might indicate that your town’s tourism industry is doing well. It might mean there are too many hotels in your town, and that some are destined to go out of business. You could repeat this calculation for every town in the state and then repeat it for things like restaurants or other tourism-related industries. You could get a clear picture of where tourists are spending money, and where business opportunities may arise.
Sometimes the most useful statistics are the simplest ones because they are easy to use, which makes them available to lots of people, but simple statistics are also easier to understand. There’s less chance of a simple statistic being cast into the “lies, damn lies, and statistics” category. Of course, there are criticisms of the location quotient, and more sophisticated analyses are possible, but this is a great starting point for those wanting to do geography. Besides, there are numerous uses for this simple formula because it can show concentrations of just about any phenomena across space.
Figure 12-25: Location Quotient Formula.