Industrial Activity &
Geographic Location
Locational Decisions in
Manufacturing
• Manufacturing involves the assembly and
the processing of inputs and the
distribution of outputs
• Raises the question of where processing
should take place
• Multiple answers
Locational Decisions in
Manufacturing
• Must consider a wide range of industrial
pulls and attractions
• Influence of physical, political, economic,
and cultural constraints
• In practice and theory locational factors are
complexly interrelated and change over
time
Principles of Location
• Principles that are assumed to operate
under all economic systems
• Can also be thought of as “ground rules”
of a location; what is looked at when
choosing where to locate
Principles of Location
• Generalized statements about location
tendencies of industries
• Relative weight varies among industries and
firms
• Significance depends on how much purely
economic considerations dictate location as
opposed to political or environmental
Principles of Location – does a location have…
• Spatially Fixed Costs: relatively unaffected in
their amount or relative importance no matter
where the industry is located within a regional
or national setting
Principles of Location – does a location have…
• Spatially Variable Costs: show significant
differences from place to place
• Will influence locational choices
Principles of Location
Profit Maximization
• Perfect Competition: the profit objective is
achieved at the least total cost location
• Imperfect Competition: sales and market
may be more important than production
costs
Principles of Location
• Industrialists base the location decision with
respect to the minimization of variable costs
• Location determinant is typically the cost
that is both an important component of total
cost and spatially variant
Principles of Location
• Transportation
Charges: the
accumulation of inputs
and distribution of
outputs are high
variable costs
• May become the
locational determinant
Principles of Location
• Individual establishments rarely stand alone
• Interdependence increases as the complexity
of industrial processes increases
• Creation of industrial agglomerations
• Agglomeration
–
Occurs when certain conditions are met:
1) When a cluster of activities create enough demand
for support services
2) Activities needing access to information & control
tend to concentrate (e.g. face-to-face is better, no
matter how rapid other forms of comm. are (e-mail,
phone,…)
3) When cultural institutions (schools, hospitals,…)
are attracted to the area
Deglomeration = too many activities (of the wrong
type); traffic, pollution, capital shortages, inc. land
prices,…
Basic Assumptions in Location DecisionMaking
• People are economically rational
• Producers and sellers are intent on maximizing
profit
• Best economic decisions result from market
mechanisms:
– Price of land, labor, raw materials, energy,
transportation
– Price is a function of supply and demand
Factors of Industrial Location – what
factors decide where an industry locates?
Raw Materials
• Very few industries use raw materials
• Most manufacturing is based on the further
processing and shaping of materials already
treated in some fashion
• Transportation costs affect industry location
Power Supply (Energy)
• Power supplies that are immobile or of low
transferability my attract activities
dependent on them
• Current technology made less important
• Industries requiring large amounts of energy
still situated near the power source
Labor
• Spatial variable affecting location decisions and
industrial development
• 3 major traditional considerations
– price, skill, and amount
• Labor Flexibility: highly educated workers able to
apply themselves to a wide variety of tasks and
functions
Market
• Goods are produced to supply a market
demand
• Size, nature, and distribution or markets is
important in industrial location decisions
• Ubiquitous industries
Transportation
• Unifying thread of all factors of industrial location
• Modern industry is immediately tied to
transportation
• Use many different forms of transportation media
• The Location Decision
– Primary industries – located near
raw materials
– Secondary industries – less
dependent on resource location
– Economic models assume:
• 1) People will try to maximize their advantages
over competitors,
• 2) They will want to make as much profit as
possible,
• 3) They will take into account variable costs –
energy, transportation, labor,…
– Friction of distance – the increase in time and
cost that usually comes w/ increasing distance
– Distance decay – the impact of a function or
activity will decline as one moves away from its
point of origin
Alfred Weber
• Created the classical model of industrial
location theory : Least-Cost Theory (1909)
• Explains the optimum location of a
manufacturing establishment in terms of
minimizing three basic expenses
– Transportation cost, labor, agglomeration
– Owners of manufacturing plants try to
minimize these costs
Least-Cost Theory
• Transportation costs are the major
consideration
• However, labor and agglomeration can
greatly alter the locational cost of
production
5 Controlling Assumptions
1. Area is uniform physically, culturally,
and technologically
• Uniform or Isotropic plain assumption
5 Controlling Assumptions
2. Manufacturing involves a single product
to be shipped to a single market whose
location is known
3. Inputs involve raw materials from more
than one known source location
5 Controlling Assumptions
4. Labor is infinitely available but immobile
in location
5. Transportation routes connect origin and
destination by the shortest path and
directly reflect the weight of the items
shipped and distance moved
Least-Cost Theory
• Model attempts to diagram the
consequences of fixed locations of
materials and market and of movement in
any direction given weight of commodity
• Searching for the optimum point of
production
Least Cost Theory (1909): A manufacturer
will locate at the source or the market
–
–
Weight-losing case: final product weighs less than raw materials;
location = source
Weight-gaining case: final product weighs more (or takes more space)
than raw materials (e.g. addition of water); location = market
Weber’s Theory of Location (Least Cost Theory)
• Alfred Weber, German economist
• General theory (1909) is applicable to any
economic, political or cultural system.
• Goal is minimum cost location
• Three categories of variable costs:
– Transportation
– Labor
– Agglomeration
Weber’s Theory of Location
• 5 Assumptions:
– Isotropic plain: uniform topography, climate,
technology, and economic system.
– One finished product with one market
– Fixed location of raw materials and market site
– Labor is fixed, but available in unlimited quantities
at production site
– Transport is uniform and costs are a function of
weight and distance
Weber’s Theory of Location
Transport costs:
 Single market and single source:
• Ubiquitous material results in location at the market
• Pure material allows processing at market, source, or an
intermediate location
• Weight-losing material will be processed at the source to
avoid transporting waste material
Weber’s Theory of Location
Transport costs:
 One market and two sources:
• Equal distance and shipping costs dictates a market
location
• Two weight-losing materials results in an intermediate
location
Weber’s Theory of Location
Labor Costs:
Location chosen always has least combined
costs
• A location may have higher transport costs, but less
expensive labor
Weber’s Theory of Location
Agglomeration:
 Weber recognized that clustering will result in a
per unit savings
• Shared benefits
•
•
•
•
•
Facilities
Labor force
Infrastructure
Services
Raw materials
Weber’s Theory of Location
Limitations of the Theory:
•
•
•
•
There are geographic variations in market demand
There are terminal costs
Transport costs are becoming less of a factor
Labor is mobile and does not exist in unlimited
quantities
• Plants often produce a variety of outputs for many
markets
• Some argue Weber’s model doesn’t adequately
account for variations in costs over time (e.g.
taxation, consumer demand)
• Substitution principle – decreases in certain costs
can offset increases in others
Weber’s Theory of Location
Additional Contemporary Considerations
•
•
•
•
•
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Access to capital
Access to technology
Friendly regulatory environment
Political stability
Land cost
Inertia
Location Theory – Key Terms
• Material-oriented manufacturing
– Weight loss or perishability
• Market-oriented manufacturing
– Weight gain or perishability
• Footloose
– Industry that can be sited in any of a number of places, often
because transport costs are unimportant. Such industries may have
raw materials that are commonly available, for example a bakery,
or use components from a wide range of suppliers, for example the
electronics industry. High-tech industries, needing a highly qualified
workforce, may appear footloose, but in practice they tend to locate
close to universities, research establishments, and motorways
• Industrial inertia
– the continuing presence of industry in an area, or at a location, after
the initial locational factors have ceased to apply.
Review
What is Weber’s theory of location?
• What are the three factors of location?
• What are the assumptions of Weber’s theory?
• Explain how the three factors relate to the
theory.
• Are there any drawbacks to the theory?
Ullman’s Conceptual Frame:
•
•
•
•
Forms a basis for understanding the volume & timing of
the flows of goods between locations; 3 main concepts:
1) Complementarity – refers to the needs of one
region matching the products of another (copper from
AK to manufacturing cities)
2) Intervening opportunity –
reduces attractiveness of
more distant locations
3) Transferability – refers to
the ease w/ which products
can be moved
Kennicott Copper Mine
Harold Hotelling Model (2-dimensional)
– Locational interdependence – the location of
industries can’t be understood without reference to
the location of other industries of like kind
– Two vendors located on pts. A & C, eventually
gravitate toward pt. B (moving from this pt. will only
hurt profitability)
– A third vendor complicates this (spatially)
Christaller’s Central Place Theory
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•
•
Distance affects the marketing
strategies of enterprises
Businesses identify one location,
possess a monopoly
Hexagons display a
nesting pattern;
Christaller’s theory is
not as accurate
today (diminishing
specialization)
• August Lösch
– Profit-maximization: firms will identify a zone of
profitability (not just a point)
– Other businesses can come in and change the
configuration of that zone
– Agglomeration can give the entire area a
competitive advantage
Factors of Industrial
Location (review)
•
•
•
Open-air laundry in Mumbai, India
Raw Materials-e.g. Japan
has few, but grew into an
ind. giant b/c of skilled
labor & low wages
Labor-e.g. 1994 – wages
in Shanghai’s Pudong dist.
= 1/40 Japan, 1/30
Taiwan
Infrastructure-banks,
transportation,
communication, social
services,…
Late 20th Century &
Beyond: New
industrial locations
– “Four Tigers”: South
Korea (Seoul), Taiwan
(Taipei), Hong Kong,
Singapore (industrial
powers)
– China – rapidly
growing in influence
– Japan is losing its
dominance
Pusan, South Korea
-
N. Hemisphere Ind. Zone: U.S. – Europe – Former
USSR – E. Asia
Secondary Regions – Mexico, Brazil, S. Africa, Egypt,
India, Australia,…
– World Cities: John Friedmann (1980s)
– Dominant in terms of their global-political economy;
centers of control of the world economy, not the largest
in terms of pop. or ind.
–Examples: N.Y.C., London, Tokyo, Sao Paolo,…