on costs are located near the markets. ‘Ancillary industries are located ng the parent company which is the main . Industries are near the market not only to minimize transportation Cost but alsy maintain close contact with the customers, adjust production Acorig to demand and also to provide after sales service, (©) Availability of labour : ‘Availability of labour is an important fag, influencing the location of industry: e where the right type Of labo, Industry would be started in that place w ; ' (skilled, semi skilled or unskilled) is available, in the right quantity the right time and at the right price. The availability of labour depend on the population growth, ‘educational facilities, demand for labour ang wages offered in other industries. For e.g. Textile machinery manufacturers, pump manufacturers anf ancillary unit Manufacturers are located in Coimbatore because of availability of skilled labour. Increased mobility of labour, mechanization etc have reduced the ‘nuence of labour on location in recent times. China is said toe become the factory of the world because of its infrastructure along with 5 abundant and productive labour force. 2 ansportation facilities are requied fe (@ Transport facilities : T and distributing finished products. While assembling raw materials Selecting the location, availability of adequate transport facilities (mad rail, sea, air etc.) is an important factor. In the words of Benham, "Tt location of manufacturing industries may be influenced by many fos but often the dominant influence is that of transport cost." Guia Ambuja Cement enjoys the lowest transport cost among all the cemett companies in the India. It is because it uses sea transport fot transporting both raw materials and its finished goods. Many automobile companies (Hyundai, Ford etc) have set up factories in Tamilnalt because it has port facilities facilitating exports. (0. Communication cies : Communications sud tobe te iOS of business. Businesses require information regarding the OU, supply ofraw materials, prices of raw materials and finshed produc different places, labour market situation ete Intemet, video one and telecommunication facilities have become necessities businesses. Many industries have not been set uP in Us of the lack of adequate communication facilities. aa Fuel and power : Uninterrupted and adequate supply of adhd isan important factor influencing the location of industries Lace _ and power result in stoppage of production and ide time: sree XG= 93 Business such as Punjab, Assam, Bihar, Tripura, Mizoram, Jammu and Nagaland etc. and therefore industrial development in very low jn, areas. Se (e) Personal Factors : Personal preferences and prejudices Dlay important role in the choice of location. Henry Ford set up hig manufacturing plant in Detroit because it was his home town, Me entrepreneurs start their initial ventures in theirhome state, foreg TW group - Tamil Nadu, Reliance - Gujarat, Ajantha Group (manufaciny of Ajantha quartz clocks, Orpat calculators etc.,) - Gujarat etc, Fut expansion in the same location is dependent on infrastructure ang, th facilities. Cost considerations : Cost of materials, labour, land and servic facilities also influence the location. Many new companies now prejy to set up new offices in non metros such as Gurgaon (Delhi), Mar Chingleput, Coimbatore (Tamil Nadu), Mysore (Karnataka), Pun (Maharashtra) etc because of lower labour, rental and other costs, (@ Government incentives : The state governments provide variow incentives and assistance to businessmen to set up enterprises in ther state. They also provide additional incentives for setting up industial units in backward areas. For example the TN government had providel land at concessional rates and tax holidays for attracting Hyundi (Sriperumbudur), Ford (Maraimalainagar), Saint Gobain (Sriprerumbud) etc. to set up their units in backward regions in the state. The govemmma incentives, policy measures and quality of infrastructure influent businessmen to set up units in particular states. () Social and Religious factors : Social and religious factors m4 a influence the establishment and growth of certain industries in a The places of pilgrimage specialize in the manufacture of those which are generally demanded by pilgrims. National Considerations w National considerations also play a role in the location of an indir og government promotes balanced regional development. The Ind opt Resolution, 1956 focussed on bringing about balanced economic deve mt through developing backward areas, The Industries (Developme Regulation) Act, 1951 provides for setting up of industries in beck Government offers several incentives such as tax holidays, concess! tax, loan at cheaper rates of interest, provision of infrastructural fact ‘ land at concessional rates etc, The goverment has set up induer (Ambattur and Guindy Industrial Estates in Tamil Nadu), free .%@ ‘Availability of alternative raw materials or alternative sources of;,.~ (©) Changes in government policies. (© Improvement or decline in infrastructure facilities. (@ Mobility of labour, @) Depletion of exhaustible resources (coal mines, gold mines, lignite ey etc). The following are some of the instances of factors influencing change in plant location (@ Due to the increased mobility of labour and concessions offered by different governments and improved transportation facilities, ay industries (cement, iron and steel, cotton, paper chemicals, etc) x getting dispersed. o&) Bagasse is a by-product in the sugar production process. Since bagasy has been identified as a raw material for the paper industry, pape manufacturing plants are now being located near sugar mills. (©) Multi national companies now require their suppliers to locate ther plants very near to their factory. This is done to reduce the cost ai time of transportation and to enable the supplier to adjust producite according to the MNC's requirement. For: example Sundaram Fasteaes (producer of automobile fasteners) has set up its plant overseas me General Motors car factory to ensure quick supplies. @ Many industrialists were reluctant to set their plants in West Bag fearing labour problems, poor work culture and lack of goveranel support. But the present government under the Chief Minister, B Bhattacharya is encouraging industrial investment. ‘Due to gover support many industries are planning to set up their industries in ™ Bengal. AGGLOMERATIVE AND DEGLOMERATIVE FACTORS ” Agglomeration refers to concentration. In the words of we ive factor is an advantage of a cheapening of production" which results from the fact, production is carried on to some consi i) at one place, while a deglomerative factor is a cheapening of ql results from the decentralization of production." bee ‘Agglomeration refers to the benefit of reduced production °O8° concentration of industries, The agglomerative factors are: (a) availability of skilled labour. &) repair, maintenance and service facilities.0 Firm : An optimum firm is on whi ‘i . ich which its productive resources are most efiientva nddatie, al cost per unit. Any expansion beyond this size would othe diseconomies of scale and its average cost per unit would han a Every firm is interested to expand in order to achieve ‘bint of scale. But there is a certain level beyond which expansion would lead to inefficiencies. The point beyond which expansion leads to inefficiency and increase in average costs is the optimum size and the firm operating at that level is known as the optimum firm. In the words of Prof. Haney, "According to a pretty definite conditions within and without the industry, there is a certain size of establishment which will give the maximum efficiency of production and towards this size all establishments tend." According to Prof. Robinson, "By the optimum firm, we must mean that firm which in existing conditions of technique and organizing ability has the lowest average cost of production per unit, when all those costs which must be covered in the long run are included.” going through the above definitions, the points to be noted are : @ The factor that has to be considered in deciding the size of the optimum size is the average cost of production per unit. The point beyond which i average cost pert unit starts to increase is known as the optimum size. _ ©) The concept of optimum firm dynamic and not static in nature. With the improvements in technology, changes in market conditions, increased access to finance etc the optimum size is subject to change. With the technological advancements the size of optimum firm in every industry has undergone changes, Therefore businessmen must aim to achieve the optimum size keeping in mind the change in different factors influencing industry size." ofremuneration and benefits have to be pot would be able to offer such high Tahaan using their ability and skills can enone ye pusiness in various spheres. But there is » limit ny eet the it can grow the organization, As Prof, Jia expert rife attempts to manager more, he must either came connec ‘dse become no more than a rubber stamp. And so the bie mean Sf wheels within wheels, an elaborate hierarchy in which even desenns res the consulting of this man, the referring to every decision ission of the third, the agreement of a fourth so that edd become endlessly delayed”. ‘isions Financial forces : Investors have more confidence i 0 Begs hy peer taverns elec id ea of the possibility of earning high returns. Investors generally do not to invest in new or small firms because they feel that such investment is risky and the possibility of earning high returns is also Jess. Therefore large firms are able to raise required financial resources easily. Banks also come forward to lend loans at cheaper rates of interest and therefore cost of funds is also less for large firms. Incase of financial difficulties they can transfer funds from one division to another. Though a large firm is able to raise resources from outside resources, there is also a limitation. There may be interference in the management of the firm by outsiders. The Board of directors are answerable to shareholders, and financial institution such as IFCI, ICICI or IDBI which advance loans might require that their representative should be in the Board of directors. This sort of interference will result in management losing its independence, delayed decisions, disharmony and loss of efficiency. @ Marketing forces : A large firm can enjoy economies of buying and selling. Since it buys raw materials in bulk quantities it can enjoy the benefits of quantity discounts. It can employ experts for purchase. They would be able to source quality raw materials at cheaper prices. | Similarly experts can be employed for marketing their products. In case | alarge firm has multiple products the salesforce can market the entire Tange of products. Advertisement time in media can be bought in bulk at cheaper rates. The organization can employ reputed market research. agencies to know te changing needs and preference of consumers and produce products Accordingly. But the large firm cannot have close contact with theDesire to increase demand, q) Desire to overcome competition, ‘Desire to achieve monopoly status, i) Desire for achieving long term profitability, oflarge scale production following are the merits of large scale production: Latest machinery: Organisations engaged in production invest in the latest machinery. These Saurav aE to produce better quality products in large quantities. Since they operate at high they are able to produce in very short time. The cost of production is low and quality is high. Division of labour: Large scale units which are characterized by ation adopt division of labour. Division of labour results in jalization. Workers are able to produce more in less time. The quality of production is high and workers might also suggest methods to further reduce time and costs. Lower cost of purchases: large scale unit buys raw materials and components in bulk quantities. The orders from large scale units are also regular in nature. Therefore they are able to enjoy quantity raw materials because ders. This results in discounts. Suppliers would also supply quality they do not want to lose the regular and bulk o1 Jower cost of purchases. customer satisfaction: A large scale firm can produce a variety of products and satisfy needs of different buyers. It can supply products without any delay. Since its cost per unit is less it can sell at lower costs. [All these factors lead to high levels of customer satisfaction. Lower overhead charges: Overheads such as rent, interest, salary remain same whether production is in ‘small or large quantities. If production is in large quantities, the cost is ‘over a number of units. Therefore the overhead cost per unit is less. For e.g. assume an organization incurs Rs.10,000 as rent. If it produces 10,000 units, the rental cost Per unit is Re-1, whereas ifthe production is 10, 00,000 units, the rental cost per unit is just Ipaise. Innovation: A large scale firm has substantial resources. Itcanallocate part of the resources to research and development. Investment in fee may result in innovation of new prod _ Anorganization might capture a huge portion 0} Ee innovative products. Investment in research by Motorola10.17 the development of the cell phone; investments by Sony pioneering products like Walkman, Playstation ete. (®) Benefits from advertisements: A targe firm can afford to spend| on advertisements. It can hire the best is effective ads and release the ads in various media (e.g. HLL, Cathay Pepsi, Coke etc). This would help it to retain and attract Increased demand from customers results in improved wiley profitability. z : fe scale firm has capacity to recruit g gigas drab to cover te ete mata sales force. The sales force wor ag satisfy the needs of the customers and dealers. They would be abe, communicate to the company the changing needs of customers. Th ‘would help the company to produce products according to consin, tastes. @ Attracting best talent: A large scale firm has the capacity to pay hig salaries and provide. attractive perks. It would beable to attract qualities experienced and skilled employees. ‘Such employees would contribuy tb the further growth of the organization. @ Utilisation of by-products: Large scale business would be able outlx its by-products in a productive manner. Large scale sugar factorie: (Rajshree Sugars, Bajaj Hindusthan, EID Parry etc.) use their by-podu molasses to generate power or sell them to alcohol producers. Anotie: by-product ethanol is sold as fuel. Similarly large scale paptt manufacturers (ITC, JK Mills, TNPL etc.) are using bagasse (aby product) to generate power. (i) Risk bearing capacity: A large business has higher risk bearing cape? when compared to small enterprises. Since it has substantial resourtes it can withstand risks and bear losses in a better manner. ) Growth and expansion: A large scale business can grow and eel its business in different countries and markets (Sony, Nike, Re Nokia, Tata group, Birla group, Videocon etc.) . Itcan of products to meet customer requirements in different co benefit from exports. ’ (m) Access to finance: A large scale business would be able © get a cheaper rates of interest from banks and financial institutions | gt Reliance borrows money at 7 per cent whereas small firms ar “et higher interest, They can also issue shares or debentures 10!" to raise the required amount of finance. a vuntries.027 @ © 9 ) Business (Q) Low innovation capaci sale phar He cannot afford to inve money on research and deve}, Therefore the innovation ca,,acity of small units is very less, That not able to come out with new products or modify their ty according to current requirements. rag Less scope for division of labour : Division of labour can be Pract when there are high levels. ‘of mechanization and more workers. tn sng scale units the level of mechanization is less and therefore divig, l labour cannot be implemented. Small scale units are denieg ihe advantages of division of labour such as high productivity, beter qui and reduced time for production. High overhead charges: The number of units produced is less, Fy costs are spread over a limited number of units. Therefore the overhea, cost per unit is high. Difficult to survive during depression : A large scale enterprise woulj be able to survive in adverse economic conditions. A small sa entrepreneur would find it very difficult to survive during periods of recession and depression. Many small scale units face closure during adverse economic situations. Difficulty of finance: A small scale entrepreneur faces great difficulty in sourcing the required finance. Banks are reluctant to fund small enterprises because of the high rates of default and failure. Invesos may not be interested to invest in small firms. Difficulty of attracting talent : Small scale enterprises find it difficultio attract talent. They do not have the financial capacity to pay high eves of salary and provide other benefits. Therefore they are not able ® attract talented employees. Inability to compete: Small scale units are not able to compet lange scale units in terms of costs or quality. Large scale units 8 latest technology, employ skilled workers and enjoy the avant specialization. These advantages are not available to small scaleut Wastage of by-products : Since scale of production is small 'he of by-products generated is less, ated they are not able oe their by-products in a productive manner, ist High cost of purchase : Small scale units buy raw materiels en components in small quantities, Therefore they are not ba Ca quantity discounts. The credit period allowed to them '* Therefore their cost of purchases is higher.