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The cost of starting a new business in a rural area is linked to the nature of the investment you want to start .
Mostly you need to consider how far is the distance between the rural area and basic services ,
you need also to consider the mobilization and Demobilization costs ,
some project could be more activate in rural area due to the materials availability ,,,
It all depends on the type of business you want to start in a rural area. A diary farm in the city would not be very welcome, nor would an ad agency in the village. There are certain costs of licencing and incorporation that are relatively simple. Issues come with acquisition of land, site, machinery, tools, etc. Finally what sort of people would you need, farmers aplenty in villages, not so mnay CPAs.
The cost of starting any business is less relevant then how quickly you can deliver goods and services to your market and generate a profit. An inexpensive startup in a low potential market will do worse then a high investment startup in a high potential market.
It is obvious that cost of starting a new business in a rural area set up is depending on locations, available infrastructures, available business opportunity, cost of materials & cost of living standard of working people. It is also to be noted that expending cost on each of the required constitutes is also depend on location i.e. rural or urban. There are number of pros & cons in setting of business in both areas and ultimately more facilities in urban incurring more cost. In one sense that there might be limited business opportunities in the rural area but startup cost is definitely lesser than business setup in urban area. It is prudent to consider all these factors while estimating the business setup cost in both the areas.
Selection of a rural area for operations or project should be based upon achieving the business case or objective which mandates rural location and not by choice with a view of saving costs.
Costs of starting a new business in a rural area are best estimated when the high level plans are prepared taking into consideration the business case, scope of work, stakeholder requirements, risks and contingencies based upon which the roughorder estimates are made using historic data, expert opinion etc.
The capital required for starting a business in rural area is less compared to starting a business in urban area. You can estimate the cost for the same by making a feasibility study of your chosen business.
As a general rule, the most important item in such a businessis the distance from the ready infrastructure facilities like electricity, water, main road, ...
Many business decisions has to be made on the cost arbitrages. Rural area may give cheaper real estate. May give abundant raw material. But may lack in good quality human resources. May lack good environment of other support industries etc. Cost of the project will depend on many factors and hence its impossible to say business in a rural area will be cheaper or more costly
it's all depends up on the nature of business and certain important elements like infrastructure and raw material availability.
of course the land will be cheaper in rural area compared to urban and industrial areas. But if there is no basic infrastructure available then it will cost you initially a huge amount of investment in the form of transportation and set up of factories. the other factor you have to consider is the availability of raw materials, if it has to be imported, the landing cost will be higher as the ports are located far.
But if the raw materials are locally available in the urban area very cheap, we can consider the following.
1. because of least cost of raw material, if we are able to recover the initial investment with in 2/3 years it will be feasible.
2. If there is any exemption in duty or any relief from govt .
3. if our products have 20 - 25 % demand in urban area itself.
Then the proposal to set up a factory in urban area will be feasible.
the answer to this question is "It Depends".
The factors to consider in estimating costs are:
Type of business
Access to resources ( Human Capital, Raw Materials, Consumables, Transportation, e.t.c.)
Location of target customers
Land use charges or rent, e.t.c.
Other costs that may not be easily identified.
For resource based businesses that depend highly on cheap labor, access to raw materials e.t.c ( e.g. farming) it is more likely to for this to be cheaper in the rural area since it is best to minimize cost of production to remain competitive.
For service-based businesses that require access to clients, electricity, good roads, talent and potential new business ( e.g a law -firm) it would cost you less on the long run to remain in the city that to locate to the rural areas.
To estimate the cost of the project, articulate the sum all fixed costs and potential recurrent expenses for a 1 year period. You may also want to consider the opportunity cost of such investment to determine the true cost of the project. If the opportunity cost of executing the project is higher than the project cost, then the true cost of the project is the "lost forgone alternative".
Selection of business depends many factors like Market potential, source of material, qualified manpower & logistice availaibility.
To start with depedning on business needs a geographical location to be choosen which also takes in account cost feasibility of a project.
Business case is prepared with Market potential & capex requirement; a IRR will qualify start of business.
Most important is required qualified manpower is available in choosen location.
To be competative in market material availibility with minimum inventory & logistic is vital & will decide feasibility of business.
Over & above all there will be a need of well developed infrastructure like road / rail connectivity, power & water availibility in choosen location.
