Review: Site and Situation
Site:
The site is the actual location of a settlement on the earth and is composed
of the physical characteristics of the landscape specific to the area. Site
factors include things like landforms (i.e. is the area protected by mountains
or is there a natural harbor present?), climate, vegetation types, availability of
water, soil quality, minerals, and even wildlife.
Situation:
Situation is defined as the location of a place relative to its
surroundings and other places. Factors included in an area's situation
include the accessibility of the location, the extent of a place's
connections with another, and how close an area may be to raw
materials if they are not located specifically on the site.
Factors in Industrial Location (The “Why There?” of Industry):
•Proximity to raw materials
•Proximity to cheap and/or skilled labor
•Proximity to transportation conduits (rivers, canals, rail lines, roads, ports,
airports)
•Proximity to markets/consumers for your product
•Availability of cheap power (electricity, coal, etc..)
•Availability of cheap land (factory has to go somewhere)
•Availability of capital (still counts even in age of electronic banking)
•Agglomeration advantages
Which of these are “site” characteristic, and which are “situation”
characteristics?
Site: Any location factors at the potential site of a factory. The key
site factors considered when chosing where to put a factory
(industrial location) are:
•
•
•
•
Land
Labor
Capital, and
Agglomeration Advantages
Situation: Any location factors related to transportation of materials
into and from a factory. These are:
• Proximity to inputs including raw materials and energy (coal, cheap
electricity, etc.)
• Proximity to markets
Weber's Least Cost Theory
• Weber's Least Cost Theory attempts to describe and predict the
location of manufacturing industries based on three factors:
transportation costs, labor cost, and the benefit of agglomeration
(clustering with similar, interdependent businesses).
• Of these, he considered transportation costs to be the dominant
factor in determining where an industry would chose to locate.
• Mnemonic device for Weber’s Least Cost Theory:
Weber was TALL (Transportation, Agglomeration, LLabor
(I actually have
no idea if he
was tall or not.)
1. Weber's Least Cost Theory is based on two site factors (labor and existence of
similar industries in the vicinity (agglomeration) and one dominant situation factor:
transportation costs.
2. Bulk-reducing industries such as steel or paper production in which the final
product is easier to transport than the raw materials that go into their production
will be located as near as possible to the raw materials (more expensive to
transport inputs than the product).
3. Bulk-gaining industries, such as soft drink bottlers or automobiles in which the
final product is more difficult to transport than the raw materials that go into their
production will be located as near as possible to the customers (more expensive
to transport the product than the inputs).
4. Weber realized that in some cases, savings from low cost labor or benefits from
agglomeration (sharing skills, talents, and facilities with similar nearby industries)
might convince an industry to locate farther from inputs or markets despite higher
transportation costs. But in this model, transportation costs are the dominant
factor in describing or predicting the location of manufacturing industries.
Hotelling’s Model of Locational
Interdependence
(aka “why are gas stations and coffee shops always right
next to each other?”)
Model of the locational interdependence of industry
developed by Harold Hotelling stressing that the
location of industries can't be understood without
reference to the location of other industries of like
kind. Used ice cream vendor on beach example.
Two ice cream vendors on the
beach. What is the optimal
location for each to optimize sales
1. Each vendor sets up so that
their market shares are equal.
2. Vendor A realizes if he moves
next to vendor B, he will sell to
all of the customers to his left,
capturing 75% of the market.
3. The next day, both vendors
realize that setting up in the
center of the beach is the only
way of keeping the other
vendor from “stealing” part of
their market share.