Locational Factors for Industries Factors affecting industrial location

Locational Factors for Industries

Factors affecting industrial location

Locational Factors Physical Factors Land Raw materials Power / Energy Human Factors: Labour Transport Market Technology Capital Behavioural factors Government Policy Agglomeration

Land: Location Size Landform Cost Heavy industries: A large area of cheap low flat land. Light industries: Small apartments are also OK.

Raw Materials Raw materials Ubiquitous Water, Air, Soil…… Localized Iron ore, coal, gold, tin, ……

Raw Materials Characteristics of Raw Materials Weight loss or Weight gain Degree of perishability Value per unit of weight Availability of substitute materials Number of materials involved in production Source of supply Raw materials oriented / Market oriented

Raw Materials Decreasing importance of raw materials Improvement in Transport Improvement in industrial techniques Others: • New raw materials / Substitution • Recycling

Power / Energy Type of Power Water H. E. P. Fossil fuel • Coal Electricity • Oil • Natural Gases Aluminum Smelting as a Nuclear Power Oriented Industry

Labour Cost of Labour – Wage Level Skills of Labour Highly skilled, Semi-skilled, Unskilled Labour Mobility Highly skilled Semi-skilled Unskilled Reputation (highly mobile) (fairly mobile) (least mobile

Labour Declining in importance Machines / Robots Still very attractive for labour-intensive industries Labour-oriented Industries

Transport Import raw materials Export finished products Transport cost was the critical factor affecting industrial location in the past

Transport costs decreasing with increasing distance

Transport Freight Rates

Transport Mode of transport

Transport Mode Long distance Water Short distance Speed Goods Type Cheapest Highest Slow Bulky, low value, non-perishability Rail Cheap High Fast Bulky Road Highest Cheapest Fair Door to door, light ------ High value, fragile Perishability Air High Fastest

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

Market 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 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

Technology It costs much capital for research Technology-intensive industry = Capital-intensive industry

Behavioural Good decisions Full knowledge of information Rational Objective Real World • Incomplete information • Irrational • Subjective

Behavioural Entrepreneur is not an Economic man Entrepreneur is a Satisficer

Behavioural Decision Making Process

Behavioural Matrix

Behavioural Improvement of entrepreneur skill

Government Policy Cycle of industrial development

Government Policy Rationale of government intervention Strategic reasons: eg. China, USA Economic 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 Policy Indirect role of governments

Government Policy Effect of government intervention Extending Spatial Margins Regional Multiplier Cumulative Causation

Government Policy Extending Spatial Margins

Government Policy Regional Multiplier K = 1 / MPS Where K is the multiplier MPS is the marginal propensity to save Example: MPS=0. 2; K=1/0. 2=5; initial input=$1000+$800+$640+$512+409. 6+……+$m=$5000 is five times of the initial input $1000

Government Policy Cumulative Causation

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

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

Agglomeration Forms of Linkages I

Agglomeration Forms of Linkages II

Agglomeration Complexity of Linkages

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

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.

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

Agglomeration Decentralization (Suburbanization of industries)

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