Factors Affecting Plant Location | Industries

Decision with regard to location of an industrial unit involves a careful study of many factors. Proper and right
choice of location is instrumental in future success of the business. The various factors are

1. Nearness to Raw Material:

It will reduce the cost of transporting raw material from the vendor’s end to the plant. Especially those plants,
which consume raw material in bulk, or raw material is heavy, is cheap but loses a good amount of its weight
during processing (trees and saw mills), must be located close to the source of raw material.

2. Transport Facilities:A lot of money is spent both in transporting the raw material and the finished goods.
Depending upon the size of raw material and finished goods, a suitable method of transportation like roads,
rail, water or air is selected and accordingly the plant location is decided. One point must be kept in mind that
cost of transportation should remain fairly small in proportion to the total cost.

3. Nearness to Markets:It reduces the cost of transportation as well as the chances of the finished products
getting damaged and spoiled in the way (especially perishable products). Moreover a plant being near, to the
market can catch a big share of the market and can render quick service to the customers.
4. Availability of Labour:Stable labour force, of right kind, of adequate size (number), and at reasonable rates
with its proper attitude towards work are a few factors which govern plant location to a major extent. The
purpose of the management is to face less boycotts, strikes or lockouts and to achieve lower labour cost per
unit of production.
5. Availability of Fuel and Power:
Because of the wide spread use of electric power, in most cases fuel (coal, oil, etc.) has not remained a
deciding factor for plant location. Even then steel industries are located near source of fuel (coal) to cut down
the fuel transportation costs. It is of course essential that electric power should remain available continuously,
in proper quantity and at reasonable rates.

6. Availability of Water:Water is used for processing, as in paper and chemical industries, and is also required
for drinking and sanitary purposes. Depending upon the nature of plant, water should be available in adequate
quantity and should be of proper quality (clean and pure). A chemical industry should not be set up at a
location which is famous for water shortage.

(7) Nearness to adequate Banking and credit facilities:

For the efficient and smooth running of the business and for meeting working capital requirements, banking

facilities play an important role. Nearness to banks and other financial institutions is an important

consideration now-a- days in deciding location of an industrial unit.This is because banking has become

indispensable part of modern business. In case of rural and small scale industries, banks and financial

institutions play an important role and provide invaluable service in order to cater their financial needs.
(8) Facilities of Repairs:In order to maintain uninterrupted production, facilities with regard to repairs of
machinery, plant and other components (in case of breakdown), must be kept in mind before setting a factory.
A large scale concern can afford to install its own repair workshops, whereas small concerns may rely on
various repair shops working near the factory.
(9) Fire fighting facilities:In order to protect the factory against the risk of fire, adequate fire fighting facilities
must be provided. Internal arrangements pertaining to fire extinguishers, sand buckets and other firefighting
equipment must be arranged. In case there arises the necessity of calling fire brigades, proper preparations
must be made for the same.
(10) Soil, Climate and Topography of a place:Soil and climatic conditions are very important for the
establishment of various type of industries like tea, coffee, rubber and tobacco. On account of this factor, jute
industry developed in West- Bengal and tea industry in Assam. Similarly topography (e.g., hilly or rocky
surface) of a place also influences location of an industry.Areas which are frequently subjected to earthquakes
and other natural calamities may not attract many industries. Climate of a place also considerably affects the
efficiency of workers. Efficient workers are found in cool climatic regions.
(11) Govt, policies and regulations:Industrial Development and Regulation Act of 1951 laid down clearly
certain rules, regulations and formalities to be complied before setting up an industrial unit. Prior permission
and licence is necessary under the Act before the setting up of a new industrial unit. Certain cash incentives
and concessions are also given by Govt, in order to promote a particular industry in a particular region.
(12) Availability of research facilities:

The main aim of any industrial undertaking is to have maximum production with minimum cost. Constant

research and experimentation is undertaken to develop products and improved methods of production.Large

concerns can afford to have a separate research department to meet this end, but in case of small and medium

industrial units such facilities may be provided by specialised scientific and research institutions. Existence of

such specialised institutions must be kept in mind before starting an industrial unit.

13. Possibilities of future expansion:The area for location should be such as to provide all possible
opportunities for future development and expansion of the industrial unit without involving extra cost. Every
industrial undertaking is established with the aim to expand in future.

Tastes and preferences of. people:Before establishing an industrial unit in a particular region, buying habits,
tastes, likes and dislikes of people in that area must be taken into consideration. Purchasing power of the
people and composition of population in that region should be carefully studied. These studies and surveys
render valuable information which is greatly helpful in establishing and industrial unit in particular region.