Theory of Industrial Location

Introduction:

A German Economist Alfred Weber developed this theory explaining the location of industry. The basis of this theory is the study of general factors which pull an industry

towards different geographical regions. It is based on the least cost principle which is used to account
for a location of a manufacturing industry. The basis principle is that firm would choose location where costs are the least.

Assumptions:

1.     Location of raw material is fixed.

2.     Markets are found only in specific places.

3.     The condition and size of consuming centers are known.

4.     There is perfect competition.

5.     Labor is found only in certain location with unlimited quantity.

6.     There is isotropic plain by physically, socially, politically and culturally.

7.     Some raw materials are found everywhere.

Factors influencing Industrial Location

1. Primary Factors

a. Transportation Cost

It is influenced by the weight to be transported and distance to be covered. Weber has proposed the condition in which the location and nature of raw materials.

Condition 1: One Raw Material and One Market

It gives rise to the three situations:

i. Raw Material is available everywhere

The industry should be located at the market.

ii. Raw Material is Fixed and Pure

The industry will be located either at the market or the source.

iii. Raw Material is Fixed and loses weight while processing

The industry will be located at the source of raw material

Condition 2: One Market and Two Raw Materials (and  )

i. Both and  are available everywhere

The industry will be located at the market.

ii. is fixed,  is available everywhere and both are pure.

The industry will be located at the market.

iii. Both  and  are fixed and pure

The industry will be at market.

iv. Both  and  are fixed and gross

                                                             M

 

                                                                                             

This is a complex situation for which Weber introduced the " Location Triangle". Base line of triangle ( and ) represents the places where fixed raw materials are found.

M= Market is at the apex of the triangle

P= Industrial Location

If the industry is located at the raw material source  then raw material  must be transported to industrial location  and the finished products must be transported to the market M which causes more transportation costs. Likewise, the same thing happens when industry is located at .

If the industry is located at M, then  and must be transported to M which results more transport costs. If the industry is located at the halfway between R1 and , then the transport cost to bring the raw materials from R1 and R2 is equal. Transport cost involved in transporting the finished goods to the market decreases because of the small distance to the market. In the final analysis, the transport cost for raw materials to the industrial location P and the finished products to market M from P together is the least when industry is located at P. There is thus a chance for increased profit for the industry.

b.  Labor Cost

It also affects the location of industries. If transportation costs are favorable but labor cost is unfavorable then the problem of location becomes difficult to have solution. Industries want to get located at the place where labor costs are low but labor and transportation costs should be low for an ideal situation. The labor costs may differ due to the difference in the wage rates and difference in the level of efficiency. To determine the role of locational pattern of labor force on manufacturing location, Weber's locational triangle is placed in concentric pattern of rising transportation cost outwards from the center. It is assumed that the labor force is dispersed outwards from the center represents savings of labor cost decreases and a point L comes where the savings on labor cost overcome the handicap of rising transportation cost. This is more profitable location transportation cost.

2. Agglomerative or Degglomerative Factors (Secondary Factor)

Agglomerative factor makes industry centralize at a particular place. Eg: bank, insurance, etc

Degglomerative factors make industry to decentralize. Eg: rent of land, labor cost, transport cots

Criticism:

1.     It is simple, unrealistic and imaginary.

2.     Transportation cost excludes land topography.

3.     Excludes important cause of transportation like climate, capital

4.     It is artificial and unnatural.

5.     It is not a deductive theory.