Location, Location, Location
Site vs. Situation
• Review
• Situation factors: involve transporting
materials to and from a factory
– Minimize cost of transporting inputs to the
factory & finished goods to the consumers
• Site factors: related to the costs of factors
of production inside the plant
– Land, labor, capital
Situation factors
Basic Concepts of Spatial
Interaction
1. Complementarity: There must be some
form of Supply and Demand
Caused by variations in world resources
2. Transferability: Factors = the Cost of
moving a particular item and the ability of
the item to bear the cost
Least Cost Theory
•
1909
•
Alfred Weber’s model – owners of
manufacturing plants seek to
minimize costs through:
– 1) Transportation, and
– 2) labor
– 3) agglomeration
•
Whatever is costing you the most
money – reduce the costs!
Least Cost Theory
–
–
Weight-losing case:
•
final product weighs less than raw materials; - it costs money to
transport the product, the heavier the costlier. So if the product
becomes lighter as it goes through the manufacturing process then
put the factory close to the raw materials. That way you are driving
the finished (lighter) product a longer distance. The choice becomes
should the factory be close to the raw material or the market?
•
location closer to source
Copper industry:
•
only 0.7% of mined is copper, When you mine copper, most of the
stuff that comes out of the ground will be discarded. Only 0.7% is
kept, so do you want to pay to transport 1 million pounds of stuff a
long way to a factory? Or do you want to go through the stuff close
by and drive 0.7% of a million pounds to the market
•
rest is waste (gangue)
•
Then concentration process (crush, grind, mix, filter, dry) results are
about 25% copper
•
Then smelting to reduce impurities
Least Cost Theory
– Aka Bulk-reducing industry examples
• steel
• Timber mills
– Where should the factories be in relation
to the source and the customer?
Least Cost Theory
• Bulk-gaining industry – as the parts come
together through the manufacturing process, the
product gets heavier or more difficult to move
–
–
–
–
fabricated metals
cars,
refrigerators
Soft drink bottling (Empty cans or bottles, Syrup
concentrate, Water = finished product)
• Where should the bottler be located in relation to
the can manufacturer and the customer?
Perishable Products
• An exception – Perishable goods Must
locate near market
• But not an issue of bulk-reducing or bulkgaining – It is a spoil before getting to the
market issue.
Labor Intensive Industries
• Industries which require a large workforce,
so a place with cheap labor
• Textiles
• Jewelry
• Toys
• Sawmilling and planing
• Footwear
Energy Intensive Industries
• Industries which take a lot of energy so
locate near a cheap energy source – like a
large, quick moving river for cheap hydroelectric power
• Aluminum
• Fertilizer
• Cement
• Pulp and paper
Footloose Industries
• Labor, Transportation nor Energy are an
issue – so it doesn’t restrict location. May
as well locate someplace desirable
• Micro-chip
• Software design
Break-of-Bulk Points
• The location where transfer among
transportation modes is possible
• Costs rise each time cargo has to be
loaded and unloaded
– Ship – the cheapest
– Rail – next cheapest
– Truck, or
– Air – most expensive (usually only use for
perishable products like cut flowers)
Site factors
Location Models
Weber’s Model
Manufacturing plants will
locate where costs are
Hotelling’s Model
the least (least cost
Location of an industry
theory)
cannot be understood
Theory:
without reference to
other industries of the
Least Cost Theory
same kind.
Costs: Transportation,
Theory:
Labor, Agglomeration
Locational
interdependence
Losch’s Model
Manufacturing plants
choose locations where
they can maximize profit.
Theory:
Zone of Profitability
Hotelling’s Model
• Harold Hotelling (1895-1973)
• Locational Interdependence
• Originally locate near customers – but will gravitate
to each other to maximize profits
• So if you have a cluster of people at A and another
cluster of people at C then A and C are both good
places to put your ice cream stand. If A then will
have all possible business at A. But if you move
closer to B then can have all of A and part of C. So
C is forced to move closer to B to get part of A
market.
Losch’s Model: Zone of Profitability
• This is just stupid – Businesses should be
placed where cost are lowest and profits
highest – duh!
Changing Markets
• Outsourcing – moving a job from being handled within
the company to an outside company
• New international division of labor
– Moving industry to low-cost labor – putting the outsources jobs in
a country which is better suited to do the work
• Just-in-time Delivery – Factories only keep enough parts
for a few hours of assembly. Suppliers constantly bring in
more parts. This saves money due to little storage. And
makes manufacturing more flexible – if need to change
product then don’t have a lot of old parts in storage
• Post-Fordist system – more flexible, less mass produced
(time-space compression) – see above
• deindustrialization
Outsourcing BMW Style
• High tech corridors – area designated by
local or state government to benefit from
lower taxes and higher technology
infrastructure (Silicon Valley)
• Technopole – area planned for high tech
where agglomeration built on synergy
among tech companies occur (from Dulles
Airport – DC has AOL, MCI, Orbital
Sciences)
• Formal economy – all money earned from work
and product sales which are reported to the
government
• Informal economy – Money earned which is not
reported to the government – of course includes
illegal drug money – But also all work earned
that is not reported for taxes like babysitting,
selling vegetables at a farmer’s market, really
almost any one that is paid in cash. Sometimes
in LDCs, a lot of money is earned in the informal
economy.