Locational Factors

for
Industries
Factors affecting industrial location
Locational Factors
Physical Factors Human Factors:
Land Labour
Transport
Raw materials
Market
Power / Energy
Technology
Capital
Behavioural factors
Government Policy
Agglomeration
Land
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
• Oil
Electricity
• Natural Gases
Nuclear
Aluminum Smelting as a
Power Oriented Industry
Labour
Cost of Labour – Wage Level
Skills of Labour
Highly skilled, Semi-skilled, Unskilled
Labour Mobility
Highly skilled (highly mobile)
Semi-skilled (fairly mobile)
Unskilled (least mobile
Reputation
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
Transport costs decreasing with increasing distance
Transport
Freight Rates
Transport
Mode of transport
Transport
Long Short
Mode Speed Goods Type
distance distance
Bulky, low value,
Water Cheapest Highest Slow
non-perishability

Rail Cheap High Fast Bulky

Road Highest Cheapest Fair Door to door, light

High value, fragile

Air High ------ Fastest
Perishability
Market
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 ma
rkets
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
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
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
$1000+$800+$640+$512+409.6+……+$m=$5000

$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 devel
opment
Demand for office space in the central city
Suburbanization (population & market)
Nature of industry
Government Encouragement