Factors of industrial location Types of industries v

Factors of industrial location

Types of industries v Primary industry v Secondary industry v Tertiary industry v Quaternary industry v In this section, we are only confined with the “manufacturing industry”.

v Primary industry usually known as handicrafts. v It is estimated that in Asia, Africa, and the Middle East, some 80 - 85 % of the industrial workers are employed in handicraft industry.

Manufacturing industry can be seen as ”system”. v Various inputs (factors of production) such as raw material, labour, and power are brought together in the production process from which produce an output -- the product.

v Frequently, the output of one manufacturing industry becomes input of the raw materials of another. v e. g. steel is used to make car bodies and therefore one of the inputs needed by automobile industry. v It can be divided into heavy industry and light heavy

Manufacturing industries can be also divided into: v a. Processing industries : - A material may undergo a change in physical state, chemical composition, volume or mass, in creating a product more useful to man. - e. g. Steel making is one of the example. It change state during process.

For reference, can see this site : v http: //www. nucor. com v http: //www. posco. kr

Two kinds of processing industry : 1. Initial Processing industries : - A single raw material is converted into a more concentrated or useful form. For example: (1)sugar milling (2)dairy processing (3)fruit and vegetable canning (4)meat packing (5)grain milling (6)brewing and wine making etc.

v In some cases, the output of the processing factory becomes available for immediate consumption, e. g. butter, cheese, wine, beer and canned fruit. v In other cases, some treatment of mineral ores, the output must pass through other manufacturing for processing before a final product results.

2. Complex processing industries : v Some types of processing involves more than a single raw material inputs. v Raw materials are frequently obtained from several different sources, and often subjected to a series of lengthy and complex processes that involve a high degree of organisation and advanced technology. v In some cases, the complex processing industries may result in a product available for immediate consumption, or the required further processing or fabricating, e. g. steel making, aluminium production, petroleum refining, sugar refining. v

b. Fabricating industries : v Fabricating involves a change in the physical form but not the state of the raw materials used. v Fabricating is basically the assembly of finished or semi-finished product from other primary or secondary manufacturing industries v e. g. steel making industry, to produce a finished products.

v Examples : the manufacture of automobiles, aeroplanes, ships, all other types of machinery, furniture, and clothing are examples of fabricating industries.

INDUSTRIAL LANDSCAPE: Some Basic Problems of Industrial Location Distribution Pattern Not evenly distributed around the earth, with some manufacturing industries typically concentrated in certain localities. 1.

The reasons for the Contemporary Pattern of Location And the Cause for Dynamic Change of Location: 1. differences in scale or level of study: v micro level or firm level – individual firm v meso level – an industrial district v macro level – an industrial area or a whole industry

2. differences in the types of industry v e. g. light industry such as textiles make strong demands for labour. v Heavy industry such as oil refining and petroleum results little labour but much capital.

3. differences in special needs: v - need to be close to other industries v - need to lower transportation costs by cheap sea transport v - others

4. differences in the motives of the individual entrepreneur in choosing a location: v some are likely to be motivated by a desire to maximise profits and will take risks in doing so. Other may want simply “satisfactory” profit and safe existence.

Despite these diversifying factors of location, there are common requirements to all industrialists: v 1. the purchase of raw material or semi- processed materials v 2. the processing or assembling of these raw materials or semi-processed materials whereby value is added to them. v 3. the sale of the finished products.

v 4. the payment of transportation costs involved in the assembly of the raw materials or semi-processed materials and the distribution of the finished products. v 5. labour supply v 6. energy resources v 7. capital

II. The Factors affect Industrial Location:

1. Role of Raw Material v The degree of attraction exercised by raw materials varies according to nature of the materials themselves. Raw materials can take many forms: v 1. products from a primary industry, e. g. agriculture, mining, forestry or fishing.

v 2. semi-processed (semi-finished) products from an initial processing or complex processing industry, e. g. raw sugar, steel plates. v 3. semi-processed products from a fabrication industry, e. g. electricity circuits, car engines.

In term of spatial distribution, raw materials can be classified into 2 broad types: v 1. Ubiquitous raw material – which are found practically everywhere, e. g. water, sand, atmospheric gases v 2. Sporadic or localized raw materials – which are found only at specific sites and are of many types, e. g. coal, petroleum, iron ore, bauxite, rubber.

v Ubiquitous raw material cannot exert strong locational tie or influence on industrial location as can localised / sporadic raw materials. v Historically, many manufacturing industries had a tendency of locating very close to their raw materials – raw-material oriented.

A. If the lose a great deal of weight or bulk during the production process, the factories will be attracted to sources of raw materials because transport cost can be saved. e. g. sugar is only 1/8 of the weight of sugar cane v Goldsmith: one tonne pf raw material produce a few grams of metal. v Alumina refining – which uses about 4 tonnes of bauxite to produce 2 tonnes of alumina.

b. If the materials are perishable v e. g. fruits canning, vegetable and food preservation, palm oil refining, meatpacking, they have to locate themselves near their sources of raw. v Initial processing has to be carried out on the site before the raw materials can be sent and arrive in fresh forms at the market.

c. High value of raw materials per ton v If material of high value per ton (e. g. wool), then it can bear a heavier cost of transport and plants will be found further away from sources of materials. v Materials of low value per unit of weight, e. g. copper ore will attract industries near them.

d. Possibility of using substitute materials: v Where materials are substitutable, the pull of any one of them is reduced, e. g. either pig-iron or scrap can be fed into the converter so steel production may not be set up nearer to the iron smeltery.

e. Number of materials involved: v Attraction of one material in ONE direction may be counteracted by pull of another in a different direction, e. g. iron and steel industry employs several types of raw materials and location based on access to both coal and iron ore can be found.

f. Influence of freight rate: v If the materials are costly or difficult to handle, then raw material supply plays a very important role in location decision.

g. hazardous or dangerous materials which require to travel long distance v These may include the generation of nuclear electricity and making of nuclear armaments.

A marked decline in the locational pull or attraction of raw materials on industrial location because of: 1. improvements in transport technology – which allow raw materials to be transported over longer distances at lower costs (cheapening of transportation).

2. advances in production techniques – which allow the same amount of products to be produced forma reduced amount of raw materials. 3. greater attractiveness of the market location. 4. advantages of agglomeration of manufacturing industries.

Examples: v A. Sugar milling (case study)

Physical requirements : v 1. alluvial flat land with deep and well- drained soils of volcanic origin. v 2. completely (frost-free) - mean monthly temperatures (should not fall below 18 ℃ for optimum growth. v 3. annual rainfall: 2000 mm per annum but it is also necessary to have a slightly dry period (75 mm)

Processing cane into raw sugar : 1. crushing the cane to extract juice. (The remaining cane fibber is a dry material called 'bagasse'. This is used as fuel. 2. cleaning dirt out of juice in settling tanks. 3. boiling juice twice to form syrup-coated sugar crystals. (糖漿) 4. spinning off syrup from crystals.

5. A thick syrup, called molasses (糖蜜)is also spun off in this final centrifuging and this is then sent to distilleries to be made into industrial alcohol, rum (酒) 6. It is also sold to farmers for stock feed and fertilizer.

Raw material (case study) : 1. Perishability of harvested cane transshipment must be avoided. 2. Cane, is an extremely bulky, and cumbersome crop of low specific value, i. e. 'value per unit weight is low.

v For example, an average yield of cane is 84 tonnes per hectare, compared to less than 2. 5 tonnes per hectare of wheat and other cereals. v As a result, cane is difficult and costly to be transported.

v Therefore, the transport system focusing on each mill has to be both fast and capable of handling very large quantities. v Also, it is more economical to keep the haul as short as possible. Thus, mills have to located in the midst of their assigned cane areas.

3. Weight lose material: v Each 7 tonnes of cane brought in from the fields yields only 1 tonne approximately of raw sugar in the milling process. v Thus, the overriding consideration in siting sugar mills is to locate them as close as possible to the fields with efficient bulk transport system

B. Copper processing (Case Study) Highly concentrated into a few major mining centres : v a. interior south-western U. S v b. the Ural (烏拉爾)and Caucasus regions of USSR(高加索山脈) v c. Zambia and Zaire in south-central Africa( 桑比亞、扎伊爾)

v d. east-interior Canada v e. central and northern Chile v f. Peru, the Philippines

v Most of these regions are in relatively isolated, sparsely settled and underdeveloped parts of the earth distant from the major consuming regions.

Distribution of consuming regions In the advanced nations (industrial regions) North-eastern part of the USA and Canada, the-west coast of the USA, western Europe, European USSR and southern Japan.

2. Locational Factors: v High weight loss ratio - Large amounts of worthless waste material except for the small quantities of recoverable gold, silver, lead, zinc etc are mined with copper ores. v In other words, for every 100 tonnes of copper ore mined, only 1 or 2 tonnes Of pure copper are yielded.

v Thus, the weight loss ratio is very high (97 - 98%). v Therefore, it is desirable to upgrade the ores at the mine in order to reduce the transport costs associated with moving huge quantities of bulky materials of low specific value. v Therefore, strong materials orientation

3. Copper manufacturing : (case study)

1. Concentrating the ore The purpose of this stage is to upgrade the crude ore by removing most of the waste material. The concentration mills convert each 100 tonnes of ore into about 2 or 3 tonnes of copper concentrate. v In order to save transport cost, nearly all concentrating mills are found within a few kilometres of the mines that supply them. v thus, copper concentration is an excellent example of a materials oriented initial processing industry. v

2. Smelting the concentrate (regarded as part of the initial processing) - The concentrate from the mills has only about 30 to 40% copper content. - therefore, the purpose of smelting is to remove the remaining worthless impurities. - From 2 or 3 tonnes of concentrate, the smelters produce about 1 tonne of blister copper, which is over 99% pure. Thus this stage has weight loss ratio of approximately 60%.

v Because of this fairly high ratio, smelters tend to locate close to the concentrators, or at some point convenient to several mills.

3. refining the blister copper The blister copper is 99% pure, but is still unsuitable for the manufacture of electrical wiring and other items. v Hence, it must be refined by electrolysis to remove the impurities - gold, silver, zinc, lead etc. This very low weight loss ratio and the valuable nature of the by-products, mean that electrolytic refining is not tied to the mining regions. v In fact, the high specific value of the blister copper means that it is economical to transport it to markets, where power and labor factors are usually more favorable. v

Role of Market v 1. An outstanding locational influence on modern manufacturing as a whole. A market location is attractive to many kinds of industries, particular consumer goods industries, and likewise many capital goods industries.

v a. Consumer goods – Industries which are producing goods for consuming markets in large urban areas. v Textiles and many kinds of processed food are good examples, with their raw materials sources widely spaced from their market-based factory plants. v It is clear that consumer goods industries have to be sited in densely populated regions such as cities and conurbations.

v b. capital goods industries - which sell their products to be further processed or fabricated by other plants, are less dependent upon distribution of population. v However, since their products are very often sold to the consumer goods industries, many capital goods industries are likewise attracted to urban-based and market-based locations. v Good example include the production of car tyres and the assembly of motor vehicles, etc.

Industries have become market-oriented for the following reasons : a. The market will exert a strong pull on industry if: (i) Bulkiness of the products: v If there is an increase in weight (weight-gaining products), in order to save on transport cost. e. g. breweries, soft drink manufacturing (coca-cola), bottling plant are all market oriented.

v ii. Perishability of the products, e. g. bakery v iii. Fragility of the product e. g. glassware, camera iv. If the industries require close personal contact between producer and consumer. E. g. newspaper v v. If the product is relatively cheap (low value, but bulky) and transport cost will increase the cost substantially e. g. cement-making v vi. If a market is a concentrated and specialized one. e. g. farm machinery industry in US is located near to mid-west while the cotton picking machine is produced in the south. v

MARKET, therefore, IS GETTING MORE AND MORE IMPORTANT IN INFLUENCING THE LOCATION DECISION OF ENTREPRENEURS. v Market is population centre v Concentration of industry will create market v The distribution cost is higher than procurement cost

EXAMPLES: The Changing Pattern of Oil Refinery from raw material to market location (case study)

v 1. The high proportion of wastes meant that it was uneconomical to transport crude oil very far before refining. It is natural that refineries established in the early days were at the source areas. v 2. Near the turn of the century came the first big demand for petrol owing to the development of the motor vehicle, and this meant that a substantial proportion of former “waste” became an important market product.

v 3. The proportion of waste was further diminished by the development of the cracking process. Cracking is, however, an expensive process but only a limited amount of waste is produced. v 4. The overall result of these changes in demand is that today up to 95% of crude oil can be made to yield marketable products. v One of the main reasons, therefore, for the location of refineries at source, a high proportion of waste has disappeared, and it is no accident that in recent years we have seen a marked shift to market location.

5. Market refineries are more flexible in the sense that they can accept the crude oil from competing regions, while source refinery is virtually tied to using oil from a single source. v In the Suez Crisis, for example, when the supplies of oil from the Middle East to Western Europe were interrupted, British refineries were able to switch to Venezuelan oil.

v 6. Skill man are more easily to found in developed countries (market) than at the underdevelop countries (raw material) v In developed territories where the danger of "civil strike and political instability is at minimum.

v It is therefore surprising that political and strategic refineries have encourage the development of market-oriented refineries in the post-war years. This is a notable trend for modern industry to seek a market location, and this is true of the oil-refining industry. The strength of the attractive power of the market should be in no doubt to anyone.

3. Role of Transportation v Terminal costs: are incurred because of the costs due to loading, unloading and temporary storage, and the cost of preparing shipping documents v Haulage costs: are related to the distance of the journey covered, and include fuel costs, labor costs, maintenance costs and depreciation on the means of transport vehicle concerned.

v Most modern industries find it necessary to bring in raw materials from a large number of sources, and to distribute their finished products to a large number of markets. v Usually manufacturing industries prefer locations with good transport infrastructure (e. g. road, railways, harbors and airports)

v 1. coastal ports e. g. Sydney, London, Rotterdam. v 2. railway centers e. g. Chicago (with 27 rail lines converging upon it), Paris. v Ports, canals, roads, railway, and airports have all, at different times and to different degrees, been important influences on industrial location. Thus, industrial location and technological change in transport are linked together.

Advantages: v (i) Water transport offers the lowest cost per tonne per km for long hauls. v (ii) It is the cheaper means. It usually have very large cargo capacities and the natural water route, (rivers, seaway and oceans )needs little maintenance.

Disadvantages : v (i) Sea transport much slower than other means of transport. v (ii) It may be disturbed easily by storm and other adverse weather conditions. v (iii) Deep-water harbors well sheltered from strong wind must be available, or else heavy investment may be necessary artificial harbor improvements. v (iv) Heavy capital investment are required for the construction of container terminals.

R I M

1. At either R or M, only 1 set of terminal costs is incurred. 2. At any intermediate site I between R and M, 2 sets of terminal costs are incurred, one for the procurement of raw materials and one for the distribution of finished products. 3. Since a lot of terminal costs could be saved, it would be cheaper to locate the manufacturing plant at either R or M than at any intermediate point I.

Case 2 : v Location at the break-of-bulk point (transhipment location) - for manufacturing plants the consignment of which requires transhipment, i. e. transfer from one carrier to another, e. g. from railway to sea transport).

v The place where transfer from one carrier to another occurs is referred to as a break-of-bulk point or transshipment point. v Here, the terminal costs are unavoidable, and hence the step-up in the procurement cost curve moving towards the market, and the step-up in the distribution cost curve moving towards the material source. v A market orientation or materials orientation will incur these additional terminal costs, which push up the total transport costs at either location.

v However, if the manufacturing takes place at the transshipment point, some of the reloading terminal costs may be avoided, especially if the manufacturing process results in some weight reduction and/or bulk reduction. v Break-of-bulk locations are frequently least cost location for manufacturing plants which process bulky raw materials arriving by sea, e. g. sugar refining, oil refining, steel milling.

Case 3 :

v 1. the finishing products are bulkier or more fragile than the new material. v 2. the finished products may require special handling facilities, e. g. refrigeration. v 3. raw materials can be carried in bulk carriers and trains whereas the finished products cannot. e. g. furniture-making/ manufacture of washing machines, processing of agricultural products into chilled/frozen foods.

v As a result of lower assembly costs relative to distribution costs, such industries tend to be located at or near their market.

4. The role of Labour is needed to operate any industrial plant but the type and amount vary from industry to industry. In some industries, labour input is a large cost item while other may be of minor importance.

v Labour is relatively immobile factor, difficult to move to new areas or to new jobs. Largely for this reason, labour-intensive industries may be attracted to areas that have a surplus of labour.

v For these industries labour costs, form a very high proportion of total costs and, if costs vary from place to place, may exert a strong locational influence. v a. i. quantity of labour Labour intensive ratio = number employed /value of shipment from factory

b. Labour varies spatially in quality and quantity. v Labour costs are determined by 3 main consideration: (i) (iii) payments to workers: educational level of workers and costs of training workers Stability of labour force

5. The role of capital a. Fixed 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). b. 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)

The location effect of capital: v - Fixed capital is much more immobile, difficult and costly to move. This is the reason for geographical inertia. v Money capital can be obtained from investment of manufacturers, sale of shares to private investors, loan from banks, insurance companies and government. More mobile.

6. The Role of Power Resources v a. Cost of energy varies over space: A known resources may not be used because of its inaccessibility, e. g. oil in Siberia.

v b. There is also time variation in demand and supply. v Technological advances may make formerly useless to be valuable and desired.

v The fuel and power resources obtained from modern industries are coal, natural gas, petroleum, water power and nuclear energy. v The fuel can be directly or indirectly, that is, the fuel is converted to energy in another form usually easier for transport e. g. coal to produce electricity.

7. The Role of Government / Government Influence

v Government influence is increasing felt in the development of industries in many developed and developing countries, whether they have a free enterprise economy (i. e. laissez-faire), mixed or planned economy.

v In particular, government influence on manufacturing location is most marked in the planned economies in socialist countries. Government exhibits influence through - infrastructure v - government spending v - legal framework v - education and training facilities v

In free economic local government: v a. On a local scale, conflict of interest (the problem of noise, dirt, smoke, offensive smell, danger and traffic congestion) between industrial landuse and other e. g. residential, educational, recreational has led the city government to introduce zoning laws.

v b. Government may set up regulations controlling the maximum hours of work, the minimum age of work, minimum wages etc. to protect the labors from the capitalists' exploitation. v c. To encourage dispersion by offering cheap land, industrial estates, better transport system and all infrastructure.

Ways of government intervention or influence v Traiffs v Quotas v Subsides & bounties v Government ownership v Lease restriction v Loans v Strategic consideration v Tax concessions

Some possible measures of government intervention include: v 1. Provision of infrastructure in areas established for industrial development v 2. Provision of land (often cheaper and more extensive land) for industrial use. e. g. Tai Po and Fo Tan Industrial Estates in the N. T, Hong Kong

3. Establishment of manufacturing industries in depressed regions and new industrial areas (a) In countries of planned economies, e. g. China, the Chinese government has established a large petroleum refinery and petrochemical works at Urumqi in Xinjiang in order to achieve regional economic balance and industrial dispersion. (b) In countries of mixed economies, e. g. Britain and France, the governments can establish nationalized plants in depressed regions and rural areas. v

e. g. The British government has established new factories such as Ford at Halewood (near Liverpool), British Leyland at Bathgate (near Edinburgh), etc. v 4. Introduction of favourable terms of trade to industries in order to attract foreign investment and the establishment of technology-intensive industries e. g. By granting tax concessions (low rates on profit taxes) v

v 5. Protection of the country's own-industries and/or new industries e. g. By imposing tariffs on imported finished products or raw materials; and imposing quotas on imports

v 6. At city or regional levels, governments may adopt zoning policies which specify the site of industries in various industrial districts v (e. g. Tai Po Industrial Estate for industries not possibly accommodated in the inner city's multi-storey buildings) and/or industrial regions. e. g. Metropolitan Sydney, Australia

v 7. Setting up of training institutions for industries in specified industrial estates or regions v 8. Introduction of anti-pollution laws and traffic control regulations to reduce pollution and other environmental problems in existing problem areas.

9 Town planning measures and strong central planning These may : (a) limit the establishment of repulsive industries (e. g. leather tanning)and environmentally dangerous industries (e. g. chemical works) to some specified regions (b) encourage the development of “cleaner” industries and force the manufacturers to adopt sewage treatment of their waste products before discharge/disposal v

Case Study (1) : CHINA'S IRON AND STEEL INDUSTRY AFTER 1949 Case Study(2): Government influence on industrial location in Australia Please refer to the online notes

8. The Role of Technology Change v Technology as a factor of manufacturing location is needed in the production, transport and marketing of the finished products. v In particular, technological advances in various aspects affect considerably the location of manufacturing industry.

v Firms tend to be located at the site where the total costs are minimized. Changes in technology at any state of production will alter the least cost point and induce a locational shift.

9. Climate and Water Supply

a. Climate: v certain agriculture raw materials are limited by the climate, e. g. equatorial climate rubber for processing. v availability of water may influence the location of textile industry. v cost of heating, cooling, humidifying and dehumidifying. v types of demand may depend on the climate e. g. heater in cold environment.

b. Water supply: v water can serve as raw materials e. g. soft drink, wine v washing and cooling e. g. textile, paper making

10. Land Space a. The increasing scale of manufacturing factory demands for a more spacious site. A lot of industries take a sub-urbanized location, e. g. motor vehicle assembly, oil refinery While smaller labour-intensive industry are in residential buildings or flatted-factory building. b. Physical demand of the industry e. g. ship building demands a water frontage.

v c. Cost of the land Land prices vary from region to region. Rental will normally decrease from the city center. But, it is determined by the market Mechanism.

11. Personal Factors: Behavioral and Random factors for decision making v a. Geographical inertia – many industries are located at the place where they were set up even though the favourable factors have been faded out.

v b. In making decision on the location of plants, most of the industrial entrepreneurs do not have complete knowledge about the various factors of production and the general business conditions. v Accordingly, industries can rarely hope to be sited at places with minimal costs, i. e. optimal locations. Personal consideration may influence the final decision on a location.

v c. Economic factors are seldom the only factors considered in the building of a factory plants; non-economic factors also enter the consideration in many locational decisions. v Many industrialists would be satisfied with a high level of profits; profit maximization is a motive more applicable to large manufacturing plants than to small and medium size manufacturing firms.