Locational Factorsfor

Industries

Factors affecting industrial location

Locational FactorsPhysical Factors

LandRaw materialsPower / Energy

Human Factors:LabourTransportMarketTechnologyCapitalBehavioural factorsGovernment PolicyAgglomeration

LandLand:

LocationSizeLandformCost

Heavy industries: A large area of cheap low flat land.

Light industries: Small apartments are also OK.

Raw MaterialsRaw materials

UbiquitousWater, Air, Soil……

LocalizedIron ore, coal, gold, tin, ……

Raw MaterialsCharacteristics of Raw Materials

Weight loss or Weight gainDegree of perishabilityValue per unit of weightAvailability of substitute materialsNumber of materials involved in productionSource of supply

Raw materials oriented / Market oriented

Raw MaterialsDecreasing importance of raw

materialsImprovement in TransportImprovement in industrial techniquesOthers:•New raw materials / Substitution•Recycling

Power / EnergyType of Power

Water H.E.P.Fossil fuel• Coal• Oil• Natural

GasesNuclear

Electricity

Aluminum Smelting as a Power Oriented Industry

LabourCost of Labour – Wage LevelSkills of Labour

Highly skilled, Semi-skilled, Unskilled

Labour MobilityHighly skilled (highly mobile)Semi-skilled (fairly mobile)Unskilled (least mobile

Reputation

LabourDeclining in importance

Machines / Robots

Still very attractive for labour-intensive industries

Labour-oriented Industries

TransportImport raw materialsExport finished products

Transport cost was the critical factor affecting industrial location in the past

TransportTransport costs decreasing with increasing distance

TransportFreight Rates

TransportMode of transport

Transport

ModeLong distance

Short distance

Speed Goods Type

WaterCheapest

Highest SlowBulky, low value,non-perishability

Rail Cheap High Fast Bulky

Road HighestCheapest

FairDoor to door, light

Air High ------Fastest

High value, fragilePerishability

MarketMarkets are where the finished products will be finally go.Markets attract many industries to locate

–Good infrastructureTransportation, Electricity supply, water supply, drainage system, communication…….

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

MarketSome industries are more likely to be located near

marketsPerishable 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

TechnologyTechnology is very importance

It change the production process completely

It is a localized factorWays to obtain technology

From advanced countries (developed world)Universities Research Centre

TechnologyIt costs much capital for research

Technology-intensive industry = Capital-intensive industry

BehaviouralGood decisions

Full knowledge of informationRationalObjective

Real World•Incomplete information•Irrational•Subjective

BehaviouralEntrepreneur is not an Economic manEntrepreneur is a Satisficer

BehaviouralDecision Making Process

BehaviouralBehavioural Matrix

BehaviouralImprovement of entrepreneur skill

Government PolicyCycle of industrial development

Government PolicyRationale of government interventionStrategic reasons: eg. China, USAEconomic reasons

Promote overall economic growthPromote the growth of a particular industryDiversify the economyEnsure regional economic balanceEnsure efficient ultilization of resources

Indirect role of governments

Government PolicyIndirect role

Government PolicyEffect of government intervention

Extending Spatial MarginsRegional MultiplierCumulative Causation

Government PolicyExtending Spatial Margins

Government PolicyRegional Multiplier

K = 1 / MPSWhere K is the multiplier MPS is the marginal propensity to save

Example: MPS=0.2; K=1/0.2=5; initial input=$1000$1000+$800+$640+$512+409.6+……+$m=$5000

$5000 is five times of the initial input $1000

Government PolicyCumulative Causation

AgglomerationIndustrial Linkages

Locational choiceContinuing operation of firms at given locationConstraint on movement

AgglomerationTypes 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

AgglomerationForms of Linkages I

Forms of Linkages II

Agglomeration

AgglomerationComplexity of Linkages

AgglomerationReasons 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

AgglomerationIndustrial 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.

AgglomerationReasons for industrial inertia

Costs of movingPresence of a pool of labour• Costly to move a skilled labour• Costly to train unskilled labour

Presence of associated industriesInfrastructure might not be a available in the new areaReputation

AgglomerationDecentralization (Suburbanization of industries)

AgglomerationFactors affecting decentralization

Expansion of firmRedevelopment of inner citiesInner city problems which hinder firms developmentDemand for office space in the central citySuburbanization (population & market)Nature of industryGovernment Encouragement