INDUSTRIAL

LOCATION
THEORIES
P L A N 2 0 1 - B T H E O RY O F P R A C T I C E & P L A N N I N G
PRESENTED BY ANGELI M ARZAN , M ASTER OF ARTS IN
URBAN AND REGIONAL PLANNING
OUTLINE

I. Industrial Revolution III. Locational Interdependence

II. Least Cost Theory A. Origin
A. Origin B. The Hotelling Beach
B. Definition C. Assumptions & Example
C. Categories of Cost IV. Zone of Profitability
1. Bulk-Gaining A. Origin
2. Bulk-reducing B. Definition
D. Limitations C. Assumptions & Example
E. Example V. Summary
INDUSTRIAL REVOLUTION
• The Industrial Revolution was a transformation of human life circumstances that occurred
in the late eighteenth and early nineteenth centuries.
• The Industrial Revolution was characterized by a complex interplay of changes in
technology, society, medicine, economy, education, and culture in which multiple technological
innovations replaced human labor with mechanical work, replaced vegetable sources like wood
with mineral sources like coal and iron, freed mechanical power from being tied to a fixed
running water source, and supported the injection of capitalist practices, methods, and
principles into what had been an agrarian society.
LOCATION THEORIES
• Predicting where a business will or should be located.
• Location of an industry is dependent on economic, political, cultural features as
well as whim.
• Location Theory Considers:
– Variable costs-energy, transportation costs & labor costs
– Friction of distance-increasing distance =increased time & cost
LEAST COST THEORY

• Alfred Weber (1868 –1958)

• German economist, geographer, sociologist
and theoretician of culture whose work was influential in the
development of modern economic geography.
• Economic geography is the study of the location, distribution
and spatial organization of economic activities across the world.

Manufacturing plants will locate where costs are the least.

 LEAST COST THEORY
Manufacturing plants will locate to places with lowest costs of:
• Transportation-the most important cost-usually the best
site is where cost to transport raw material and finished
product is the lowest
• Labor-high labor costs reduce profit-location where there
is a supply of cheap, non-union labor may offset
transportation costs
• Agglomeration-when a group of industries cluster for
mutual benefit-shared services, facilities, etc.-costs can be
lower
ALFRED WEBER FORMULATED A THEORY OF INDUSTRIAL
LOCATION IN WHICH AN INDUSTRY IS LOCATED WHERE THE
TRANSPORTATION COSTS OF RAW MATERIALS AND FINAL
PRODUCT IS A MINIMUM.

BULK-REDUCING industry BULK-GAINING industry

 BULK-REDUCING BULK-GAINING
• Final product weighs less than inputs • Product gains weight/volume during
• Factory is located near source of production
heaviest input (raw materials) • Factory is near Market
TRANSPORTATION: BREAK OF BULK POINTS
The location where transfer among
transportation modes is possible
• Trucks- Cheapest; for short distances
• Trains- More expensive, but more efficient for long
distances without stops
• Ships- Slower than land transportation, but can load
heavy and large materials across bodies of water
• Aircrafts/Airplanes- Most expensive but more
efficient in moving high-value /or small bulk items
quickly
LABOR: MODERN PRODUCTION
Outsourcing – Offshore –
Moving individual steps in the production Outsourced work that is located outside of
process (of a good or a service) to a the country.
supplier, who focuses their production and
offers a cost savings.
AGGLOMERATION/DEAGGLOMERATION
• Agglomeration refers to the
advantages or cheapening of cost
production due to the
concentration of an industry
• Deagglomeration is the opposite of
agglomeration which arises due to rise
in the cost of production and leads to
decentralization of industries.
LIMITATIONS AND CONSIDERATIONS
Limitations of the Theory: Additional Contemporary
• There are geographic variations in Considerations:
market demand • Access to capital
• There are terminal costs • Access to technology
• Transport costs are becoming less of a • Friendly regulatory environment
factor • Political stability
• Labor is mobile and does not exist in • Land cost
unlimited quantities
• Inertia
• Plants often produce a variety of
outputs for many markets

Industries:
• Avon Products Mfg, Inc.
• Calamba Shinei Industry Phil.
• Milo – Nestlé
• Lux Manufacturing, Inc.
• L & K Industries Philippines, Inc.
• Frescano Food Int'l, Inc.
• Mold Parts Manufacturing Asia
Inc.
• Nanax Philippines, Inc.
• Shin Heung Electro Digital, Inc.
• Yeon Ho Philippines, Inc.
• Samsung Electro-Mechanics
Philippines Corp.
CALAMBA
PREMIERE
I N T E R N AT I O N A L
PA R K ( C P I P )
The Calamba Premiere International Park or
CPIP is one of the pioneer industrial parks in the
Philippines established in the year 1999. It is a
comprehensively-planned industrial estate located
at Batino, Barandal and Prinza in Calamba,
Laguna and it provides a workplace for technology-
based, light and medium industries.
Other Industrial Parks in Laguna in parternship
with CPIP:
• Carmelray Industrial Park 1(More than 43
companies)
• Carmelray Industrial Park 2 (Around 13
companies)
LOCATIONAL
INTERDEPENDENCE
• Harold Hotelling (1895-1973)

• American mathematical statistician and an

influential economic theorist, known
for Hotelling's law, Hotelling's lemma,
and Hotelling's rule in economics, as well
as Hotelling's T-squared distribution in statistics

• Market area analysis is concerned with profit

maximization, not cost minimization.

Industries choose locations based upon where their

competitors are located.
THE HOTELLING BEACH

• Originally locate near customers – but will gravitate to each other to

maximize profits
• The costs for some customers will be greater if the 2 sellers cluster –
further to walk. Also fewer customers aware of service. But can’t
move for fear of losing customers.
ASSUMPTIONS:
• Production costs are uniform,
• Product selection is uniform,
• Demand is uniform
ZONE OF
PROFITABILITY
• August Losch (1906-1945)

• German economist, known for his seminal

contributions to regional science and urban
economics.

• Losch's approach is considered the most

important market area analysis

Manufacturing plants choose locations where they can

maximize profit.
LOSCH’S MODEL
The correct location of a firm lies where the
net profit is greatest. The net profit is the
difference between sales income and
production costs.

Due to distance decay the zone on the left and

right will be deemed as unprofitable, therefore
firms will attempt to avoid the margins of
those zones although other businesses may be
able to alter the configuration of that zone.
ASSUMPTIONS:
• Isotropic plain
• Population evenly distributed
• Identical preferences among population
• Consumer paid cost of shipping product
(as distance rose, so did cost)
• People acted economically
rationally
• New production plants could enter
market if profitable,
SUMMARY:

Weber’s Model
Manufacturing plants will
locate where costs are
Hotelling’s Model
the least (least cost Location of an industry
theory) cannot be understood
Theory: without reference to Losch’s Model
other industries of the
Least Cost Theory same kind. Manufacturing plants
choose locations where
Costs: Transportation, Theory: they can maximize profit.
Labor, Agglomeration Locational Theory:
interdependence
Zone of Profitability
 QUESTIONS?
( W A G M A H I YA N G M A G TA N O N G )