Location factors can be subdivided into three general functional categories, each related to a scale of analysis:
- Socioeconomic environment. Specific macro-geographical characteristics that can apply to jurisdictional units, such as the nation-state, the state/province, or the municipality. The nation-state is the most common unit that offers consistency in the socioeconomic environment. The location factors consider capital availability, (investment capital, venture capital, exchange rates), subsidies and incentives, regulations, taxation, and available technology. A firm looking at global expansion is evolving at this scale of analysis to seek suitable locations to allocate its production and distribution assets as well as the potential demand for its output.
- Accessibility. Include a number of opportunity factors related to a location, mainly labor (average wages, availability, level of qualification), materials (mainly for raw materials dependent activities), energy, markets (local, regional, and global), and accessibility to suppliers and customers (important for intermediate activities). These factors tend to have a meso (regional) connotation and will be the focus of a firm looking at national expansion.
- Site. Specific micro-geographical (local) characteristics of the site, including the availability of land, basic utilities, visibility (for activities related to retail or prestige such as head offices), amenities (quality of life), and the level of access to local transportation (such as the proximity to a highway or a public transit station). These factors affect the costs associated with a location and are the priority for firms looking at local expansion strategies.
The suitability of each factor depends on the nature of the activity for which locational behavior is being investigated. This explains the highly diverse locational behavior of firms in the global economy. Firms involved in the gathering and processing raw materials will tend to locate close to the sources of these materials or next to major transit points such as ports. Firms involved in high added-value activities, namely information technologies, will tend to cluster around suppliers and institutions providing qualified labor (e.g. universities and technical colleges). Each locational decision results from different criteria, not always apparently rational. This is particularly where non-visible incentives are provided, such as taxation abatement.
Most firms, such as retail stores, are of small size and tend to be solely concerned with local considerations by finding a suitable site. As a firm grows and seeks expansion, it will then likely look at regional location factors offering additional opportunities and suitability. A few firms can achieve a global expansion strategy that will need to adapt to different socioeconomic conditions.