factors affecting industrial location

FACTORS AFFECTION INDUSTRIAL LOCATION

By Aaditya Nagpal

4011070012nd year

Industrial Engineering

A HISTORICAL NOTE ON HOW PLANT LOCATION IS AN IMPORTANT FACTOR

It was the decade of 1880s. The dense forests of the Central Provinces teemed with tigers, elephants and other wildlife. A thin line of travelers wove its way through the jungles. In front on horseback, was PN Bose, followed by his family and a camel loaded with tents and chattels. Atop the camel were the servants of the party. Every ten or fifteen miles the travelers would stop for the man at the head to spend four or five days on field survey searching for iron ore, coal, mica and other minerals.

Pramatha Nath Bose was a first graded officer in the Geological Survey of India. He discovered iron ore in the Chanda and Durg districts of Central India. On his retirement he was requested by the far sighted Maharaja of Mayurbhanj to explore the mineral deposits of the state in northern Orissa which he successfully did.

MAN OF DESTINY About the same time, as Bose

was braving the jungles of Central Provinces, on the west coast of India, a highly successful textile magnate was flipping through the pages of a report “THE FINANCIAL PROSPECTS OF IRON MAKING IN THE CHANDA DISTRICT”. The 43 year old industrialist was Jamsetji Nusserwanji Tata.

FOUNDER OF THE TATA GROUP

In 1882, Von Schwarz report titled "Report on the financial prospects of iron-working in the Chanda district" stated that the most important and the best-situated deposits of iron ore in the Chanda district were at Lohara. Warora nearby had coal – which after testing was found unsuitable. The mining terms offered by the government were too restrictive.

IT WAS NOT EASY TO FIND HIGH GRADE COAL AND IRON ORE

On 24th February 1904 a letter from P.N. Bose to J.N.Tata spoke of good quality iron ore available in Mayurbhanj state and gave information about availability of coal in Jharia. After acceptance of Mayurbhanj as a base for their mining operations, the Tatas started looking for a site with railway connections and proximity to the Bengal coal fields. It was decided that the railway station and the town of Sini on the Nagpur-Bengal Railway line would be the site of the new steel works. But later on the Tatas were greeted with the news that the proposed reservoir at Sini, which they were counting on, had proved impractical. The place had to be abondoned for lack of water.

LACK OF WATER

DISCOVERY OF SAKCHI The Surveyors mounted their horses at Sini and took to the river

bed. And after a few hours down stream they came across a site : a black trap-dike, crossing the river diagnolly, and making an almost natural pick-up weir. This was the meeting point of the two rivers, and would never run dry. They were close to a village called Sakchi. There was even a railway station called Kalimata a few miles away. Finally this was chosen as the site for the TATA IRON AND STEEL COMPANY(TISCO) (now TATA STEEL) and the city was called JAMSHEDPUR.

Thus, this example shows that how a combination of various

factors like land, raw materials, government policy, water, transportation etc are important for the establishment of industry.

Jamshedpur is the first planned industrial city of India. Jamshedpur

is a major industrial centre of East India. It houses companies like Tata Steel, Tata Motors, Tata Power, Lafarge Cement, Telcon, BOC Gases, Tata Technologies Limited, Praxair, TCE, TCS, Tinplate and many more. It is home to one of the largest industrial zones of India known as Adityapur which houses more than 1,200 small and medium scale industries

JAMSHEDPUR INDUSTRIAL AGGLOMERATION

Flowchart Depicting Various Factors Affecting Industrial Location

PHYSICAL FACTORS• LAND• RAW MATERIALS• POWER/ENERGY

HUMAN FACTORS

• LABOUR• TRANSPORT• MARKET• TECHNOLOGY• CAPITAL• GOVERNMENT POLICIES• AGGLOMERATION

LAND

• Location• Size• Landform• Cost

Heavy industries: A large area of cheap low flat land.Light industries: Small pieces of land are also fine.

1. UbiquitousWater, Air, Soil……

2. LocalizedIron ore, coal, gold, tin, wood..

RAW MATERIALS

POWER/ENERGY

Type of Power– Water H.E.P.– Fossil fuel

• Coal• Oil• Natural Gases

– Nuclear

Electricity

Essenti al for Modern Industry

•Cost of Labour – Wage Level•Skills of Labour

Highly skilled, Semi-skilled, Unskilled•Labour Mobility

• Highly skilled (highly mobile)• Semi-skilled (fairly mobile)• Unskilled (least mobile

•Reputation

LABOUR

• Declining in importance– Machines / Robots

• Still very attractive for labour-intensive industries

TRANSPORT

Transport cost is a critical factor affecting industrial location in India.

Transportation link is a major advantage for any region to be industrialized. It is important to make available the raw materials and for the supply of finished goods to the markets.

MODES OF TRANSPORT

CHOSING THE CORRECT MODE OF TRANSPORT

ModeLong distance

Short distance Speed

Goods Type

Water Cheapest Highest Slow

Bulky, low value,non-perishability

Rail Cheap High Fast Bulky

Road Highest Cheapest FairDoor to door, light

Air High ------ Fastest

High value, fragilePerishability

Markets are where the finished products will be finally go.

Markets attract many industries to locate– Good infrastructure

Transportation, Electricity supply, water supply, drainage system, communication…….

– Large population size– Large labour force– Skilled labour– Obtain advanced technology – Industrial agglomeration

MARKETS

The scene of the busy Crawford Market of Bombay.

Some industries are more likely to be located near markets– Perishable products: eg. Bread, cakes….– Fragile products: eg. Bottled drinks, porcelain…..– Bulky and low value products: eg. Brick-making…..– Labour intensive industries: eg. Toy-making, electrical goods….– Keep close contact with consumers: eg. Jewellery, printing…– Involve large quanities of raw materials: eg. Electric

Appliance..– Specialized products:

eg. Automobile parts manufacturers located near auto making centre

TECHNOLOGY• Technology is very importance

– It change the production process completely

• It is a localized factor• Ways to obtain technology

– From advanced countries (developed world)– Universities – Research Centre

Products which are highly specialized and involve high levels of technology are usually manufactured in developed countries.

DEVELOPING AND THIRD WORK COUNTRIES USUALLY HAVE INDUSTRIES WHICH REQUIRE

LESS TECHNOLOGY AND CAPITAL INVESTMENTS

Apparel Industry of India Bicycle Industry in India

CAPITALFIXED CAPITAL – land, construction of factory building, machinery for processing and social capital (social services) of the area, including public housing, school, hospital. It also include physical infrastructure (e.g. road, railways). Fixed capital is much more immobile, difficult and costly to move. This is the reason for geographical inertia.

WORKING CAPITAL - It is needed to finance the costly factory system, to pay wages, purchase stock of material, component parts, finished product not yet sold and money (money capital). Money capital can be obtained from investment of manufacturers, sale of shares to private investors, loan from banks, insurance companies and government. It is more mobile.

GOVERNMENT POLICY

Rationale of government interventionStrategic reasons: eg. China, USAEconomic reasons• Promote overall economic growth• Promote the growth of a particular industry• Diversify the economy• Ensure regional economic balance• Ensure efficient ultilization of resources

GOVERNMENT DEFINITELY PLAYS AN INDIRECT ROLE

AGGLOMERATIONThe clustering of several similar or related activities at the same location. Many industries have firms that tend to agglomerate, that is, locate very close to one another, leading to geographic concentration.

AGGLOMERATION LEADS TO INDUSTRIAL LINKAGES

Industrial Linkages• Locational choice• Continuing operation of firms at given location• Constraint on movement

Material Linkages (Tangible)• Process Links• Sub-contract Links• Service Links• Marketing Links

Information Linkages (Non-tangible)• Banks, stock-brokers, telephone and face

to face contact between firms

TYPES OF LINKAGES

FORMS OF LINKAGES I

FORMS OF LINKAGES II

COMPLEXITY OF LINKAGES

REASONS FOR AGGLOMERATION(External Economies of Scale)

• Transport savings• Access to skilled labour• Presence of ancillary services. • Possibility of internal economies• Infrastructure savings• Attract investment• Research and development

INDUSTRIAL INERTIA/GEOGRAPHICAL INERTIA

Once a factory has been built on a particular site, it will tend to remain there even though the original factors no longer exist.

It is a very important factor for hindering the movement of industries.

REASONS FOR INDUSTRIAL INERTIA

• Costs of moving• Presence of a pool of labour

• Costly to move a skilled labour• Costly to train unskilled labour

• Presence of associated industries• Infrastructure might not be a available in

the new area• Reputation

FACTORS FOR DECENTRALISATION

• Expansion of firm• Redevelopment of inner cities• Inner city problems which hinder firms

development• Demand for office space in the central city• Suburbanization (population & market)• Nature of industry• Government Encouragement

SPECIAL ECONOMIC ZONE (SEZ) It is a geographical

region that has economic and other laws that are more free-market-oriented than a country's typical or national laws. "Nationwide" laws may be suspended inside a special economic zone.

India was one of the first countries in Asia to recognize the effectiveness of the Export Processing Zone (EPZ) model in promoting exports, with Asia's first EPZ set up in Kandla in 1965. In order to overcome the shortcomings experienced on account of the multiplicity of controls and clearances; absence of world-class infrastructure, and an unstable fiscal regime and with a view to attract larger foreign investments in India, the Special Economic Zones (SEZs) Policy was announced in April 2000.

FIGURES AT A GLANCE Exports from Indian SEZ totaled INR 2.2

Trillion in 2009-10 fiscal. It grew by a stupendous 43% to reach INR 3.16 Trillion in 2010-11 fiscal. Indian SEZs have created over 840,000 jobs as of 2010-11. Despite all odds, exports through Indian SEZs grew further by 15.4% to reach INR 3.64 Trillion (roughly US$ 66 billion). As of 2011-12 fiscal, investments worth over US$ 36.5 billion (INR 2.02 Trillion) have been made in these tax-free enclaves. Exports of Indian SEZs have experienced a phenomenal growth of 50.5% for the past eight fiscals from a meager US$ 2.5 billion in 2003-04 to about US$ 65 billion in 2011-12 (accounting for 23% of India's total exports).

The objectives of SEZs can be clearly explained as the following:-

• Generation of additional economic activity• Promotion of exports of goods and services• Promotion of investment from domestic and

foreign sources• Creation of employment opportunities • Development of infrastructure facilities

Currently, there are about 143 SEZs (as of June 2012) operating throughout India and an additional 634 SEZs (as of June 2012) that have been formally/principally approved by the Government Of India.

The major incentives and facilities available to SEZ developers include:-

• Exemption from customs/excise duties for development of SEZs for authorized operations approved by the BOA.

• Income Tax exemption on income derived from the business of development of the SEZ in a block of 10 years in 15 years under Section 80-IAB of the Income Tax Act.

• Exemption from minimum alternate tax under Section 115 JB of the Income Tax Act.

• Exemption from dividend distribution tax under Section 115O of the Income Tax Act.

• Exemption from Central Sales Tax (CST).• Exemption from Service Tax (Section 7, 26 and Second

Schedule of the SEZ Act).

GUJARATTHE INVESTMENT DESTINATION

Gujarat emerges to be an Industrial hub with India’s most Industrialized State. Gujarat pays a 27% tax of India. With Vibrant Gujarat Summits, it is evident that Gujarat has the highest success rate of projects implemented in the Country.

WHY BUSINESS IS VIBRANT IN GUJARAT?

• Business is a way of Life and Inherited Entrepreneurial Spirit• The SEZ –Growth engines that can boost manufacturing,

augment exports and generate employment• SME Backbone of the economy. Sector playing a key role in

shaping the manufacturing industry• PPP – Public Private Partnership. A winning combination for

Investments• World class infrastructure in terms of road network and ports• Government felicitates, encourages investment and holistic

growth• Gujarat is a power surplus state• Least Labour problems in the country

INDUSTRIAL PARKS HAVE BEEN SET UP

The Industrial Parks Scheme came to existence in Gujarat in the year 2002. This Scheme is known as ‘Industrial Parks Scheme 2002’ through Private Agencies. The Industrial Policy of Gujarat emphasize on creating more opportunities in Industrial, Commercial and Service Sectors to accelerate the flow of Industrial Investment. Three types of parks have been set up :

1. Investment Oriented Parks 2. Export Oriented Parks 3. Eco Industrial Parks

PORTS IN GUJARAT

Gujarat State has got the longest sea coast of 1600 km in India. Other important ports in Gujarat are the Port of Navlakhi, Port of Magdalla, Port Pipavav, Port of Porbandar and the privately owned Mundra Port.

These help in easy export of the goods produced in the state.

Kandla Port is one of the largest ports serving Western India.

OTHER FORMS OF TRANSPORTROAD NETWORK : Gujarat has a well developed road network. The Golden Quadrilateral and East West Corridor pass through the state.

RAIL NETWORK : Gujarat comes under the Western Railway Zone of the Indian Railways. Vadodra Railway Station is the 4th busiest Railway Station in India. It is situated on the Delhi-Mumbai Link. Gujarat is well connected to all parts of India through Rail Network.

AIR LINK : Gujarat has a full-fledged international airport Sardar Vallabhai Patel Airport (Ahmadabad). Many domestic and international flights operate from here. The state also has several other domestic airports.

Industries in Punjab

The state has essentially an agrarian economy with a lower industrial output as compared to other states of India. A prominent feature of the industrial scenario of the Punjab is its small sized industrial units. There are nearly 194,000 small scale industrial units in the state in addition to 586 large and medium units. Ludhiana is an important centre for industry.

WHAT LED TO THE DECREASE IN GROWTH OF INDUSTRIES IN PUNJAB?

TERRORISM : The terrorism in the 1980s and 1990s caused a

big dent in the Industrial growth of Punjab. In the 1980s there was a chance of a Hero

Honda and Maruti Suzuki plant to be set up in Ludhiana but due to some circumstances of terrorism it was cancelled.

Large scale industries have stayed away from Punjab since then.

POWER : About 27% of the total energy of the state is provided by the Ropar

Thermal Plant while the Bhakra Nangal complex provided 20.3% of the total power for the state and the Guru Nanak Thermal plant at Bhatinda accounts for about 21% of the energy to the state. Other important sources of power are the Dehar Power plant (13%), Shanan Power house at Joginder Nagar (5%), Pong Power project (4%) and UBDC power houses (2%) Mukerian Hydel Project3%.

Over the years the power production has not kept pace with the requirement. No new capacity has been added. Apart from this shortage of coal and lack of water in the Hydel Plants adds to the woes.

Thus, the industry has to face power cuts sometimes even for 2 days

in a week.

SCARCITY OF SUITABLE OF LAND : Punjab is one of the most fertile regions of the

world. Thus, land prices in the recent years have gone up drastically. It is not viable to buy vast amounts of land to set up large scale industries.

LACK OF CONNECTIVITY :Punjab being a landlocked state doesn’t have a port. Goods need to be transported long distances by road or rail before they can be exported. Moreover proper air connectivity is missing in the state. Ludhiana being a major industrial town lacks an operational airport.

CONCLUSION…

The various factors which affect the location of industry are now known to us. We know that for the development of our country, we need to develop and expand large scale industry in our country. We as Industrial Engineers should make sure that industries are run sustainably and wherever they are located, the industries should be sensitive to the environment and towards the local people residing in that region.

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