Locational Factors

for
Industries

Factors affecting industrial location

in the real world

Locational Factors
Physical Factors
Land
Raw materials
Power / Energy

Human Factors:
Labour
Transport
Market
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
Natural
Gases
Nuclear

Electricity

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
Semi-skilled
Unskilled

Reputation

(highly mobile)
(fairly mobile)
(least mobile

Labour

Declining in importance
Machines / Robots

Still very attractive for labourintensive 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
Mode

Long
distanc
e

Short
distanc
e

Speed

Goods Type

Water

Cheape
st

Highest

Slow

Bulky, low value,

non-perishability

Rail

Cheap

High

Fast

Bulky

Road

Highest

Cheape
st

Fair

Door to door,
light

------

Fastes
t

High value,
fragile
Perishability

Air

High

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
markets
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 = Capitalintensive 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
development
Demand for office space in the central
city
Suburbanization (population & market)
Nature of industry
Government Encouragement