Factors Influencing Industrial Location

Generally, location of industries is influenced by economic considerations though certain non-

economic considerations also might influence the location of some industries. Maximization of
profit which also implies cost minimization is the most important goal in their choice of
particular places for the location of industries. There are several factors which pull the industry
to a particular place. Some of the major factors influencing location are discussed below:

1. Availability of raw materials: In determining the location of an industry, nearness to sources

of raw material is of vital importance. Nearness to the sources of raw materials would reduce the
cost of production of the industry. For most of the major industries, the cost of raw materials
form the bulk of the total cost. Therefore, most of the agro-based and forest-based industries are
located in the vicinity of the sources of raw material supply.

2. Availability of Labour: Adequate supply of cheap and skilled labour is necessary for and
industry. The attraction of an industry towards labour centres depends on the ratio of labour cost
to the total cost of production which Weber calls ‘Labour cost of Index’. The availability of
skilled workers in the interior parts of Bombay region was one of the factors responsible for the
initial concentration of cotton textile industry in the region.

3. Proximity to Markets: Access to markets is an important factor which the entrepreneur must
take into consideration. Industries producing perishable or bulky commodities which cannot be
transported over long distance are generally located in close proximity to markets. Industries
located near the markets could be able to reduce the costs of transport in distributing the finished
product as in the case of bread and bakery, ice, tins, cans manufacturing, etc. Accessibility of
markets is more important in the case of industries manufacturing consumer goods rather than
producer goods.

4. Transport Facilities: Transport facilities, generally, influence the location of industry. The
transportation with its three modes, i.e., water, road, and rail collectively plays an important role.
So the junction points of water-ways, roadways and railways become humming centres of
industrial activity. Further, the modes and rates of transport and transport policy of Government
considerably affect the location of industrial units. The heavy concentration of cotton textile
industry in Bombay has been due to the cheap and excellent transportation network both in
regard to raw materials and markets.

5. Power: Another factor influencing the location of an industry is the availability of cheap
power. Water, wind, coal, gas, oil and electricity are the chief sources of power. Both water and
wind power was widely sought at sources of power supply before the invention of steam engine.
During the nineteenth century, nearness to coal-fields became the principal locating influence on
the setting up of new industries, particularly, for heavy industries. With the introduction of other
sources of power like electricity, gas, oil, etc. the power factor became more flexible leading to
dispersal and decentralization of industries.

6. Site and Services: Existence of public utility services, cheapness of the value of the site,
amenities attached to a particular site like level of ground, the nature of vegetation and location

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of allied activities influence the location of an industry to a certain extent. The government has
classified some areas as backward areas where the entrepreneurs would be granted various
incentives like subsidies, or provision of finance at concessional rate, or supply of power a
cheaper rates and provision of education and training facilities. Some entrepreneurs induced by
such incentives may come forward to locate their units in such areas.

7. Finance: Finance is required for the setting up of an industry, for its running, and also at the
time of its expansion. The availability of capital at cheap rates of interests and in adequate
amount is a dominating factor influencing industrial location. For instance, a review of location
history of Indian cotton textile industry indicates that concentration of the industry in and
around Bombay in the early days was mainly due to the presence of rich and enterprising Parsi
and Bhatia merchants, who supplied vast financial resources.

8. Natural and Climatic Considerations: Natural and climatic considerations include the level
of ground, topography of a region, water facilities, drainage facilities, disposal of waste products,
etc. These factors sometimes influence the location of industries. For instance, in the case of
cotton textile industry, humid climate provides an added advantage since the frequency of yarn
breakage is low. The humid climate of Bombay in India and Manchester in Britain offered great
scope for the development of cotton textile industry in those centres.

9. Personal Factors: In deciding location of industrial units, sometimes an entrepreneur may

have personal preferences and prejudices against certain localities. For instance, Mr. Ford started
to manufacture motor cars in Detroit simply because it was his home-town. In such cases,
personal factor dominates other considerations. However, this kind of domination is rare.

10. Strategic Considerations: In modern times, strategic considerations are playing a vital role
in determining industrial location. During war-time a safe location is assuming special
significance. This is because in times of war the main targets of air attacks would be armament
and ammunition factories and industries supplying other commodities which are required for
war. The Russian experience during the Second World War provides and interesting example.

11. External Economies: External economies also exert considerable influence on the location
of industries. External economies arise due to the growth of specialized subsidiary activities
when a particular industry is mainly localized at a particular centre with port and shipping
facilities. External economies could also be enjoyed when a large number of industrial units in
the same industry were located in close proximity to one another.

12. Miscellaneous Factors: Historical incidents also play a dominating role in determining the
location of industries in certain cases. The development of cotton-textile industry
in Lancashire provides an interesting example for this. Further, the size of and industrial unit
would also have much influence in choosing location. This is because the size of industrial units
depends upon the radius of the circle within which they can profitably distribute their goods and
upon the density of population living within the circle.

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Factors affecting plant location decisions and the need for such decisions
Units concerning both manufacturing as well as the assembling of the products are on a very
large scale affected by the decisions involving the location of the plant. Location of the plant
itself becomes a very important factor concerning service facilities, as the plant location
decisions are strategic and long-term in nature.
Plant location decisions need detailed analysis because: Wrong plant location generally affects
cost parameters i.e. poor location can act as a continuous stimulus of higher cost. Marketing,
transportation, quality, customer satisfaction are some of the other factors which are greatly
influenced by the plant location decisions – hence these decisions require in-depth analysis.
Once a plant is set up at a location which is not much suitable, it is a very disturbing as well as
very expensive process to shift works of a company to some other place, as it would largely
affect the cycle of production.
The investments involved in the in setting up of the plant premises .buying of the land etc are
very large and especially in the case of big multinational companies, the investments can go into
millions of rupees, so economic factors of the location should be very minutely and carefully
checked and discussed in order to achieve good returns on the money which has been invested.

The Need for location decisions -

These decisions are needed when a new plant is to be set up or when the operations involved in
the company at the present location need to be expanded but expansion becomes difficult
because of the poor selection of the site for such operations. These decisions are sometimes taken
because of the social or the political conditions engulfing the working of a company.
The way the works of a company have to be performed, largely depends upon the industrial
policies issued by the government. Any change that creeps in the industrial policy of the
government which favors decentralization and hence does not permit any change or any
expansion of the existing plant – requires strictly evaluated location decisions.

Factors governing plant location:

Regional factors: These factors include proximity of the plant to the market and also to the
sources of the raw materials. They also include infrastructural facilities, transportation facilities,
and availability of skilled workers, legislation, the taxation and also the work attitude of the
workers. Robinson was the one who has very clearly and efficiently justified industrial location
concerns using pure materials nearer to the markets or the consumption centers. According to
Robinson, the place of production is likely to be at the place of consumption where the final
product is more expensive to carry because it is more bulky, more fragile or more perishable than
is raw materials.
Community factors: These involve accommodation, education, entertainment and transport
facilities. It also includes attitude of the community, supporting industries and services,
suitability of the land etc.
Examples of plant location (India)

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•Most of the textile mills are found in or near Mumbai and Ahmadabad because of the humidity
conditions that prevail there.
•Sites for nuclear power plants to be located in different parts of the country largely depend upon
environmental, safety, socio-economic and also the engineering factors affecting the construction
and operation of such plants.
•Steel plants are generally located near the Jharkhand, Bengal, and Chhattisgarh and Orissa
regions. This choice of site is mainly because of more economical transport of the finished goods
as compared to basic raw materials.
•Similar case is observed in the plants which manufacture cement; such plants are located near
the lime and the coal deposits.
•Naptha / oil based fertilizer plants at Mangalore, Madras, Cochin have been located near ports,
which act as a great source for the import of the raw materials.
•‘Proximity to market’ forms a major factor which affects plant location decisions in case of
machine tool industries. In case of such industries, sites are scattered over different parts of the
country such as Ludhiana, Pune, Bangalore, Calcutta, Mumbai etc.
•Information Technology/BPO/Software Industries depend largely on availability of skilled
personnel, infrastructure etc… Because of these reasons most of such organizations operate in
urban areas such as Delhi, Chennai, Hyderabad, Bangalore, Pune etc.

Factors responsible for the Localization of Industries

Manufacturing is the second largest type of production after primary production activity 'of
hunting, fishing, mining, lumbering, farming etc. Manufacturing has undergone a big change as a
result of advancement of science and technology. From the making of few simple items, like
handmade cloth, mustard oil, agricultural implements etc. manufacturing to-day involves highly
technical and complex machines, equipments and tools for the assembly of automobiles, ships,
aircrafts, space ships, agricultural machines, computers and so on.

For centuries, manufacturing had been a household work and items like agricultural implements;
weapons etc. were produced on a small-scale. But with the increasing demand due to increase in
population, it took the form of cottage industry and later, large scale manufacturing industries.
Manufacturing is related to processing and altering the raw materials of agriculture, forests and
that of minerals into finished or partially finished products. The agro raw materials which are
transformed into finished products are cotton, wool, jute, sugarcane etc. and that of minerals are
iron ore, copper, manganese, mica etc.

Presently, the most important manufacturing industries are those which bring together
manufactured items of different industries to make complicated machines and equipments
required in means of transportation, agriculture, mining, military warfare etc.Development of
industries is of utmost importance to man. In fact, their development is considered to be an index
of a country's economic prosperity and strength. The location of manufacturing industries
depends upon a number of geographical and economic factors. These factors are known as
factors of localization of industries or agglomeration of industries. The most important factors
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are: (i) Raw material.(ii) Source of Power.(iii) Labour.(iv) Means of transportation.(v) Market.
(vi) Other factors like climate, Government Policies, capital, water, land etc.

(i) Raw Material. Among the factors influencing location of an industry, close proximity to raw
material availability of regular supply of cheap raw material are of utmost significance.
Therefore, industries are set up close to or in the regions where raw material is available in
plenty. This speaks for the localization of jute industry in West Bengal, Sugar industry in U.P
and concentration of heavy industries in the states of Chattisgarh and West Bengal.If the raw
material is heavy and of small value, the industries are set up in the regions of raw material. Iron
smelting, brick making, cement manufacturing are best examples.Iron and Steel Plants at
Jamshedpur (Jharkhand), Rourkela (Orissa), Bhilai (Chhattisgarh) and Durgapur (West Bengal)
have been set up near the sources of raw material i.e., Iron ore.

(ii) Source of Power. All types of manufacturing industries depend upon one or the other
sources of power. It may be coal, oil, electricity, gas etc.In the industries, especially those of
ferrous metallurgy, coal is the main source of power; therefore, these heavy industries are closely
tied down to coal fields. The iron and steel industry of India in the Damodar Valley of
Chattisgarh at Jamshedpur is located near the coal fields of Raniganj and Jharia.

(iii) Labour. Modern industry requires large labour force, both skilled and unskilled. The
availability of cheap labour in a region is an important factor determining the localization of
industries. Different types of industries require different types of labour force. For example,
watch-making, electronics, aeronautics; computers etc. require highly skilled labour, whereas, on
the other hand, cotton textile manufacturing, sugar making, jute textile etc. employ more of
unskilled labour. The development of the plantations in Assam and cotton textiles in Maharashtra
is attributed to the availability of cheap efficient labour. In these regions it has also been seen
that industrial centers tend to attract more industries, because plenty of labour is available in
these centers, for example, Mumbai and Kolkata have become industrial cities of the country
mainly because of availability of plenty of labour in and around these mega cities.

(iv) Means of Transportation. Industries depend upon efficient and cheap transportation
system, which is essential for the movement of raw material as well as the finished products.
They may be rail, road or water. Railway junctions are considered to be the most suitable sites
for the localization of industries. These enjoy benefits of easy transportation from different
directions. Similarly sea ports also develop as industrial centers because of availability of
facilities of water transportation for export and import of products.

(v) Market. Market is an important factor in determining localization of industries. Goods are
manufactured to be sold in the market. Industries are generally set up close to urban centres.
Sometimes, dense population may not prove to be solid market for the disposal of the different
industrial products. If the people are poor, the purchasing capacity also becomes poor.In some of
the Asian countries, where people are poor, industries which are engaged in the manufacturing of
cheap and essential goods like coarse cloth find an adequate market. This explains why under-
developed countries, though densely populated are poor in manufacturing industries.

(vi) Other Factors.(a)Climate: Climate also plays a part in the location of industries. The
stimulating cool temperate climate is more suitable for the development of industries because

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this type of climate adds to the work efficiency of the labour force. This is one of the major
reasons why temperate latitudes have well-developed manufacturing industries rather than the
tropics or the desert or the Tundra regions. Climate plays a significant role in location of cotton
textile manufacturing industries. The cool and humid climate helps in spinning of yarn and
weaving of cloth processes. Development of film industry at Mumbai is due to favourable
climate.
(b)Capital. Development of industries requires a large capital investment. It may come from any
source, local or foreign. Banks and other financial institutions play an important role in the
growth of industries from time to time.
(b) Government Policy. In order to give boost to industries in the country, the government gives
certain guidelines, tax exemptions, electricity at concessional rates, subsidies, rail link etc., if
these are set up as per government plan.Mohali; an industrial town near Chandigarh has come up
on the industrial map of India because of Government policies. Thus Government Policy plays a
significant role in determining place of location of an industry. If the Government bans import of
foreign cars, the automobile industry is bound to flourish in that country.
(d)Early Start. There is a tendency to set up new units in the area, where that industry is already
much developed. It is because the area has been enjoying benefits of developed means of
transport, financial institutions, banking facilities, availability of skilled labour and marketing
ease. Hosiery industry got concentrated at Ludhiana can be cited as one example of role of early
start.
(e) Personal Preferences. Personal whims, prejudices of an entrepreneur and preferences also
matter sometimes in the setting up of an industry in an area, ignoring all the economic and
commercial considerations. In a democratic set up, sometimes political matters also initiate the
establishment of certain heavy industries in certain regions. The setting of a Railway Coach
Factory at Kapurthala in Punjab has been set up due to political interests rather than economic
considerations. Construction of oil refinery at Bhatinda is another example of a political
decision.

Localization of industries at a place gives rise to a number of problems also. These are:(i) High
cost of living.(ii) Shortage of living space.(iii) Sky high land prices.(iv) Traffic jams.(v)
Pollution.(vi) Growth of slums.

Some of the industries are highly localized in the country. These are due to combination of a
number of geographical and socio-economic factors already discussed above. The examples are:
Sugar Manufacturing: U.P. and Bihar.. Jute Textiles: West Bengal.. Cotton Textiles: Maharashtra
and Gujarat. Cement Industry: M.P. and Rajasthan.. Iron and Steel: Jharkhand and Orissa..
Cinematography Mumbai. Leather goods: Kanpur, Agra.. Hosiery: Ludhiana.. Sports goods:
Jalandhar.. Computers: Bangalore, Hyderabad, Gurgaon