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Contents 1 Factors affecting Industrial Location 1.1 Raw Materials 1.2 Power Supply 1.3 Transport 1.4 Markets 1.5 Labour Supply 1.6 Capital 1.7 Government Policy 1.8 Land 1.9 Environment 1.10 Chance Factors 2 Industrial Location Models 2.1 Weber’s Model – Classical Location Theory 2.1.1 Least Cost Location 2.1.2 Spatial Distribution of transport Costs 2.2 Effect of labour costs and agglomeration Economies 2.2.1 Labour costs 2.2.2 Agglomeration Economies 2.2.3 Criticisms of Weber’s model 2.2.4 Benefits of the model 3 Smith’s area of Maximum Profit 3.1 Spatial margins of profitability 3.1.1 Problems 3.1.2 Benefits 3.2 Behavioural Models 3.2.1 Behavioural Matrix 3.3 Structuralist Models 4 Also See 5 Comments

Factors affecting Industrial Location

• Accessibility – Good in & out e.g. motorway access
  • Access for workforce
  • Access to airports to be global
• Land – Cheap & flat
  • Room for expansion
• Availability of skilled workforce
• Location of raw materials
• Services- power & water i.e. Infrastructure
• Cost- tax, land costs, rates etc.
• Government policy – influence location of industry.

Raw Materials

• Near to raw materials due to immobility – transport inefficient
• Today industry is footloose – grater efficiency and parts may be made elsewhere.
• Industries with heavy, bulky materials & low costs locate near raw materials.

Power Supply

Early industry needed to be near power supply, however now more efficient. Often locate along transport routes. With the National Grid power is transported cheaply and easily over the whole country. Some industries may use HEP for cheap power e.g. Aluminium production in Canada.

Transport

Once a major consideration. Transport now more efficient with the use of containers. It now doesn’t really matter where located due to ease of transport to markets. 2 types of transport costs:

1. Terminal costs – Time & equipment needed to store goods.
2. Long haul costs – Cost of actually moving goods.

Markets

Pull of markets now very important. Locate near new markets if

• Bulky products and many linking industries
• Perishable goods
• Market is very large
• The market is wealthy

Labour Supply

The cost of labour in the UK is high therefore mechanisation used. Labour generally immobile & expect industry to come to them. Industry tries to locate where there are specific skills. Mechanisation means they are freer to locate. Often locate near unskilled labour or high skilled for R&D. May want to locate in a good environment to attract high-skilled, well-paid workers e.g. SE England. This is particularly true for quaternary industry e.g. Microsoft in Seattle.

Capital

• Working Capital – money from profits, shareholders etc. Doesn’t usually affect location.
• Fixed capital – Buildings & equipment. Not mobile.
• Social Capital – Houses, shops, hospitals etc. which may attract industry.

Government Policy

Aim to even out differences in employment e.g. regional assistance in the UK. Try to encourage industry to areas of high unemployment and restrict others. Offer grants by exemption from rates. Government may control industry completely.

Land

19th C – Large areas of flat land needed. Today prefers cheap, uncongested land with better accessibility. Government is trying to attract to inner city areas.

Environment

People want to work in better environment so look for smaller towns near the country.

Chance Factors

E.g. Industries begun by individuals in their home town.

Industrial Location Models

2 main approaches to location theory in a “free market” or Capitalist system

• The industrialist seeks the Lowest Cost Location – Weber
• The industrialist seeks the area which will give the highest profit – Smith

Weber’s Model – Classical Location Theory

Weber was a German spatial economist who created his model in 1909.

Assumptions made: -

• There was a uniform transport system, culture, climate, economic & political situation
• Not all materials were evenly distributed across the plain
  • Ubiquitous – were evenly distributed
  • Localised – not evenly distributed, may be gross or pure
• Size and location of markets fixed
• Transport costs were a function of mass & distance moved.
• Labour found at fixed locations with the same rates and skills
• There was perfect competition so no industry would influence prices and revenue would be similar

The best site would be 1 with minimal production costs – Least Cost Location

MI = material Index

MI > 1 – weight loss in manufacture

Raw materials said to be gross

Locate near to raw materials

MI < 1 – Weight gain in manufacture

Locate near markets

MI = 1 – Raw materials must be pure as its weight remains constant.

Can locate near market, raw materials or anywhere in between.

Least Cost Location

Types of raw material (RM)	LCL at raw material	LCL at market	LCL at intermediate point
MI = material index	-	-	-
1. One gross localised RM,MI>1	yes	-	-
2. One raw material gaining weight or 1 ubiquitous RM MI<1	-	yes	-
3. One pure localised RM MI=1	-	-	yes
4. 2 ubiquitous RM (pure or gross)	-	yes	-
5. 2RM (1 ubiquitous, 1 pure)	-	yes	-
6. 2 RM (1 ubiquitous 1 gross)	any site depending on weight	-	yes
7. 2RM (both pure)	-	yes	-
8. 2RM (1 pure, 1 gross)	yes(if big weight loss)	-	yes(if small weight loss)
9. 2RM (both gross)	yes (at RM with greatest weight loss)	-	yes (equal weight loss)

Spatial Distribution of transport Costs

Isotim – A line joining all places with equal transport costs for moving either the raw material or the product.

Isodapane – A line joining all places with equal total transport costs. (The sum of the costs of transporting raw materials and products)

Effect of labour costs and agglomeration Economies

There were also factors that influence production costs in the Weber model.

Labour costs

This considered whether moving to an area of cheaper labour would offset the increase in transport costs. He introduced the critical isodapane at the point where savings on labour costs equalled the loss by greater transport costs. If cheap labour was within the critical Isodapane then it would be worth moving there.

Agglomeration Economies

It would be profitable for 3 firms to locate within the intersection of their 3 isodapanes. However, it would not be profitable to agglomerate if none of the isodapanes overlapped.

Criticisms of Weber’s model

• The model no longer relates to modern conditions e.g. improvements in transport, the changing organisation of industry.
• Different countries may be at different stages of economic development
• The material index is crude and only works for primary industry or where there is a very high or low index
• There are misconceptions in the assumptions
  • Price and demand change over time
  • There is no perfect competition
  • Decisions are not always rational
  • Transport costs vary
• Weber over-emphasised the importance of transport costs.

Benefits of the model

• Many TNCs seek cheap labour
• Iron & steel industries are in LCLs
• Agglomeration occurs in hi-Tec industry e.g. Cambridge Science Park
• The global importance of TNCs creates a rational being (maximising profits.)

Smith’s area of Maximum Profit

Put forward by Smith in 1971, suggesting profits are made anywhere where total revenue exceeded total costs. There would therefore be a wider area where production is profitable. Firms rarely locate to LCL but usually between the profit margins. Firms choose a sub-optimal location because they don’t have perfect knowledge and don’t always act rationally. These are also called spatial margins. Often people want satisfactory profits in exchange for better working conditions so are within the profit area.

Spatial margins of profitability

• Variable sales, constant production costs.

• Variable costs, constant sales.

• Variable costs, variable sales

Problems

• The model may be too simple
• It is possible to define perfect knowledge and ability
• Can behaviour be due only to ability and knowledge?

Benefits

• Areal distribution – spatial margins are lines within which production is profitable.
• Considerable value in predicting the constraints on locational choice where information on spatial variations in cost and revenue are limited.
• Used to show the effect of government legislation on industrial location.
• Focuses on limits of freedom of locational choice for planners with imperfect ability and knowledge rather than a point of maximum profit.

Behavioural Models

Location is explained as much by social & cultural factors as by economic factors.

Criticises Least Cost Location as people’s behaviours vary. E.g. some want maximum profit; some want a good standard of living. Some people aim for satisfactory location as they obtain “psychological income”.

Behavioural Matrix

Consists of two axes.

• 1 indicating ability
• The other the quantity and quality of information available.

With increasing knowledge and ability the decision-maker is more likely to make the right decisions. Behavioural matrix accounts for the behaviour of the entrepreneur rather than the location so there may be deviations from the LCL

Structuralist Models

Location is explained by the underlying structures of society. Therefore location is driven by changes in the National & World economy.

Also See

Other ‘Economics Systems’ revision notes at A Level:

• Motor Vehicle Industry
• The Global Economyand and Multinational Corporations
• The Rise of Manufacturing in NICs
• Location Models
• Stages of Economic Development
• Taiwan
• The Iron and Steel Industry
• Nike – A TNC
• Product Life Cycle Theory
• World Trade

Comments

These notes were originally written by F1_fanatic and posted here on TSR Forums. They are suitable for people studying for geography at A Level.