industrial location theories 2

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C L U S T E R I N G O F I N D U S T R I A L A C T I V I T I E S I N A P A R T I C U L A R A R E A

INDUSTRIAL AGGLOMERATION

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FORMS OF INDUSTRIAL AGGLOMERATION

•Enlargement of an industrial plant•clustering of same/related industries•clustering of unrelated industries

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ENLARGEMENT OF INDUSTRIAL PLANT

iron smelting steel making steel rolling

iron an steel plant

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INTERNAL ECONOMIES OF SCALE

• Greater possibility of specialization• mass production • bulk purchasing • special transport rates• more efficient use of machines and labour• lower production cost

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CLUSTERING OF RELATED INDUSTRIES

engineering ship-building car making

iron and steel plant

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EXTERNAL ECONOMIES OF SCALE

• Inter-plant transport saving• access to common pool of skilled labour • presence of special training institutions• presence of ancillary services• research and development of collective facilities• sharing cost of certain operation

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CLUSTERING OF UNRELATED INDUSTRIES

engineering ship-building metal fabricating car making

iron and steel plant

Chemical plant Textile industry Electronics

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ADVANTAGES OF CLUSTERING

• Enjoy an already well-developed infra-structure• enjoy a common pool of skilled labour and

expertise• enjoy cheaper supplies of material inputs and

ancillary services

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An industry set up in an area

Same industries move in Related industries move in

A number of unrelated industries move in

An industrial district consisting different types of factories forms

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AGGLOMERATION

Types of Linkage

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

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AGGLOMERATION

Forms of Linkages I

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AGGLOMERATION

Forms of Linkages II

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AGGLOMERATION

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

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AGGLOMERATION

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.

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AGGLOMERATION• 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

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AGGLOMERATION

Decentralization (Suburbanization of industries)

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AGGLOMERATION

Factors affecting decentralization• 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

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AGGLOMERATION ECONOMIES

• Savings an individual enterprise derived from locational association with a cluster of other similar economic activities…

• Multiplier Effect: The cumulative processes by which a given change sets in motion a sequence of further industrial employment and infrastructure growth.

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AGGLOMERATION ECONOMIES

• Work to minimize transaction costs (“Hidden costs”)• Agglomerations caused by:

Localization Economies• Needs sufficient demand to justify or allow support

networks to emerge. • Presence of skilled labor - attracts skilled labor to migrate• Technological spillovers - “being in the loop.” Ex. Silicon V.Urbanization Economies - Larger cities offer larger markets

and offer business services• Others - Just-in-Time Manufacturing/Delivery

• Allows producers to shift quickly and easily to differing levels of output (due to demand).

• Eliminates need for large warehouses to store parts• Causes clustering of related industries

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LEAN PRODUCTION / JUST IN TIME