Part 3 industry

Part 3

Location Theory• Location Theory – 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

Location ModelsLocation ModelsWeber’s Model-The Least Cost TheoryAlfred Weber, (1868-1958) a German economists, published Theory of

the Location of Industries in 1909. His theory was the industrial equivalent of the Von Thunen Model.

Manufacturing plants will locate where costs are the least.

Three Categories of Costs:

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

Deglomeration-when excessive agglomeration offsets advantage-eastern crowded cities

Location ModelsLocation Models• Hotelling’s Model-Harold

Hotelling (1895-1973) this economist modified Weber’s theory by saying the location of an industry cannot be understood with out reference to other similar industries-called Locational Interdependence

• Losch’s Model-August Losch said that manufacturing plants choose locations where they can maximize profit. Theory: Zone of Profitability

Losch’s Model-Zone of Profitability

Major Industrial Regions of the World before 1950

• First manufacturing belts were close to raw materials & good transportation

• In addition to raw materials other factors: relative location, political situation, economic leadership, labor costs & education and training.

• Four primary industrial regions were Western & Central Europe, Eastern North America, Russia & Ukraine and Eastern Asia

Western Western and Central and Central

EuropeEurope

Western and Central EuropeWestern and Central Europe• Europe’s coal deposits stretch across northern France,

north central Germany, northwestern Czech Rep. & southern Poland.

• Colonial Empires gave France, Britain, Belgium, Netherlands & later Germany capital for industrial development.

• Germany-The Ruhr & the Westphalian coal field, Saxony near Czech Rep. Silesia, now part of Poland.

• Germany is still the leader producer of coal & steel and is Europe’s major industrial power.

• European Coal and Steel Community was the predecessor of the European Union.

Manufacturing Centers Manufacturing Centers in Western Europein Western Europe

• The manufacturing centers in Western Europe extend in a north-south band from Britain to Italy.

• The are centered on coal fields and iron ore deposits and cross roads of transportation.

Western and Central EuropeWestern and Central Europe• The Ruhr, a small tributary

to the Rhine, became the leading industrial region of Europe

• Saxony and its cities of Leipzig & Dresden became known for cameras, textiles and ceramics.

• Destruction of WW II-German factories were rebuilt-competitive edge over older factories of North America

The American Manufacturing BeltThe American Manufacturing Belt• America’s manufacturing belt

extends from the Northeast coast to Iowa and from the St. Lawrence Valley to the Ohio & Mississippi Rivers.

• New England & New York-light manufacturing New York with its large market has a huge skilled & semi-skilled labor force.

• Philadelphia & Baltimore with heavy industry-iron ore was smelted in tidewater steel mills

The American Manufacturing BeltThe American Manufacturing Belt• NYC Port is a break-of-bulk

(cargo shifted from one mode of transport to another) center.

• Buffalo on Lake Erie grew after the Erie Canal was finished-early 19th cent.

• Interior nodes-Pittsburgh, Cleveland, Detroit, Chicago-Gary, Milwaukee, St. Louis & Cincinnati-Appalachian coal & Mesabi iron ore-autos, bulldozers, harvesters, & appliances

Caterpillar manufacturing plant in Aurora, Illinois

Major Manufacturing Regions of North AmericaMajor Manufacturing Regions of North America

Major Deposits of Fossil Fuels in North AmericaMajor Deposits of Fossil Fuels in North America

Open Pit Coal Mine in southern IllinoisCoal train moving across Montana is 1½ miles long. It carries barely a day’s fuel for a large power plant. The US burns

over 1 billion tons of coal a year-has the world’s richest coal deposits-enough to

last 250 years.