Locational Factors for Industries
Post on 03-Jan-2016
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Locational Factorsfor
Industries
Factors affecting industrial location
Locational FactorsPhysical Factors
LandRaw materialsPower / Energy
Human Factors:LabourTransportMarketTechnologyCapitalBehavioural factorsGovernment PolicyAgglomeration
LandLand:
LocationSizeLandformCost
Heavy industries: A large area of cheap low flat land.
Light industries: Small apartments are also OK.
Raw MaterialsRaw materials
UbiquitousWater, Air, Soil……
LocalizedIron ore, coal, gold, tin, ……
Raw MaterialsCharacteristics of Raw Materials
Weight loss or Weight gainDegree of perishabilityValue per unit of weightAvailability of substitute materialsNumber of materials involved in productionSource of supply
Raw materials oriented / Market oriented
Raw MaterialsDecreasing importance of raw
materialsImprovement in TransportImprovement in industrial techniquesOthers:•New raw materials / Substitution•Recycling
Power / EnergyType of Power
Water H.E.P.Fossil fuel• Coal• Oil• Natural
GasesNuclear
Electricity
Aluminum Smelting as a Power Oriented Industry
LabourCost of Labour – Wage LevelSkills of Labour
Highly skilled, Semi-skilled, Unskilled
Labour MobilityHighly skilled (highly mobile)Semi-skilled (fairly mobile)Unskilled (least mobile
Reputation
LabourDeclining in importance
Machines / Robots
Still very attractive for labour-intensive industries
Labour-oriented Industries
TransportImport raw materialsExport finished products
Transport cost was the critical factor affecting industrial location in the past
TransportTransport costs decreasing with increasing distance
TransportFreight Rates
TransportMode of transport
Transport
ModeLong distance
Short distance
Speed Goods Type
WaterCheapest
Highest SlowBulky, low value,non-perishability
Rail Cheap High Fast Bulky
Road HighestCheapest
FairDoor to door, light
Air High ------Fastest
High value, fragilePerishability
MarketMarkets are where the finished products will be finally go.Markets attract many industries to locate
–Good infrastructureTransportation, Electricity supply, water supply, drainage system, communication…….
–Large population size–Large labour force–Skilled labour–Obtain advanced technology –Industrial agglomeration
MarketSome industries are more likely to be located near
marketsPerishable 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
TechnologyTechnology is very importance
It change the production process completely
It is a localized factorWays to obtain technology
From advanced countries (developed world)Universities Research Centre
TechnologyIt costs much capital for research
Technology-intensive industry = Capital-intensive industry
BehaviouralGood decisions
Full knowledge of informationRationalObjective
Real World•Incomplete information•Irrational•Subjective
BehaviouralEntrepreneur is not an Economic manEntrepreneur is a Satisficer
BehaviouralDecision Making Process
BehaviouralBehavioural Matrix
BehaviouralImprovement of entrepreneur skill
Government PolicyCycle of industrial development
Government PolicyRationale of government interventionStrategic reasons: eg. China, USAEconomic reasons
Promote overall economic growthPromote the growth of a particular industryDiversify the economyEnsure regional economic balanceEnsure efficient ultilization of resources
Indirect role of governments
Government PolicyIndirect role
Government PolicyEffect of government intervention
Extending Spatial MarginsRegional MultiplierCumulative Causation
Government PolicyExtending Spatial Margins
Government PolicyRegional Multiplier
K = 1 / MPSWhere 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 PolicyCumulative Causation
AgglomerationIndustrial Linkages
Locational choiceContinuing operation of firms at given locationConstraint on movement
AgglomerationTypes 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
AgglomerationForms of Linkages I
Forms of Linkages II
Agglomeration
AgglomerationComplexity of Linkages
AgglomerationReasons 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
AgglomerationIndustrial 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.
AgglomerationReasons for industrial inertia
Costs of movingPresence of a pool of labour• Costly to move a skilled labour• Costly to train unskilled labour
Presence of associated industriesInfrastructure might not be a available in the new areaReputation
AgglomerationDecentralization (Suburbanization of industries)
AgglomerationFactors affecting decentralization
Expansion of firmRedevelopment of inner citiesInner city problems which hinder firms developmentDemand for office space in the central citySuburbanization (population & market)Nature of industryGovernment Encouragement
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