There are a number of factors, which pull an industry to a particular location. The entrepreneur must weigh several factors and find out the best possible location.
The factors that are to be considered while selecting a suitable location can be discussed under the following two heads:
- Primary factors, and
- Secondary factors.
Primary Factors influencing Location of an Industry
Primary factors exert considerable influence on the selection of location, which can be further classified into five heads viz.,
- Raw material,
- Fuel and power, and
1. Access to Raw Material influence location of an Industry
The nature of raw material required for the proposed product is of great importance. But it is not necessary that all the firms should be located nearer to the sources of supply of raw materials, in order to minimize the transport costs. The influence of raw materials on selecting the type of location depends on the size of raw materials required.
According to Weber, the raw materials are of two types namely,
- Ubiquitous materials, and
- Localized materials.
Ubiquitous materials are those materials which are available at all places and so they have no marked influence on the selection of location, whereas localised materials are available only in certain localities and such materials exert a great influence on the location of the plant.
Localized materials can be further divided into 2 types:
- Gross or Weight losing materials, and
- Pure materials.
1. Gross Materials
Gross materials are those materials, which lose their weight in the manufacturing process. So the final product can be sent to the market at a comparatively cheaper transportation cost. Hence the pull towards the sources of materials would be higher in the case of industries requiring gross materials.
2. Pure Materials
Pure materials do not lose the weight in the process of production say cotton textiles and silk fabrics. No significant changes in the transport costs can be effected whether they are transported as finished goods or as raw materials. Hence, pure materials do not exert influence on the selection of location.
Circumstances in which Plant must be Located Nearer to the Sources of Raw Materials
Circumstances in which plant must be located nearer to the sources of raw materials are:
1. When the raw materials are bulky and of less cost.
2. When the raw materials required are of gross which loses their weight in the process of manufacture.
3. When the raw material is of perishable in nature which would be made less perishable by the process of manufacture.
Location of Industries, which require several Raw Materials
If several raw materials are required, the plant must be located in a place where the weight losing materials is available. If two materials are required, the plant may be located at the source of one of these materials or at a place, which is situated in between the sources of these two materials.
2. Access to Market influence location of an Industry
Another important factor which entrepreneur must take into account is access to the market. If the plant is located nearer to the market, the entrepreneur can determine the trends of the market and adjust his production activities accordingly.
Circumstances under which the Plant must be Located Nearer to the Market
Circumstances under which the plant must be located nearer to the market are:
1. When the cost of transporting finished goods is higher than that of raw materials.
2. When the weight of the final product increases due to the nature of production process.
3. When the product fragile decrease as a result of processing. Examples are Glass and Ceramics Industries.
4. When the proposed product is of consumer goods.
5. When the product is aimed at covering only a local market.
6. When the product becomes susceptible to spoilage due to the process of production.
Merits of Access to Market
The following are the important merits, which an entrepreneur can enjoy by locating his plant in the vicinity of the market:
1. Finished products can be transported to market as per the requirements of the customers quickly and also without incurring heavy transportation cost.
2. Services can be rendered to the customers quickly and the replacement order can be executed as early as possible.
3. The producer can provide after sale service facilities.
4. The producer can have close contact with the customers.
Location of the Plant in case where the Market is Scattered Widely
If the market is evenly spread over a wide area, the plant may be set up nearer to the sources of raw material. But if the market is unevenly scattered over a wide area, the plant must be located in the vicinity of the large market centre. Hence the pull of the market depends on the nature of the market itself
3. Availability of Labour influence location of an Industry
The availability of right type of labour at favorable wages is an important factor that influences the selection of plant location. Labour that is required by the industries is of skilled labour and / or unskilled labour.
Skilled workers are available only in industrialized centres, while unskilled labourers are available any where. Thus the industries requiring skilled labour must be located in such places where they are abundantly available. However, it is not necessary that there should be prior existence of plenty of labour in an area, which is being considered for location. The industrial regions or sites should be such that which can attract adequate labour from distant as well as adjoining areas.
The influence of labour on location depends on the ratio of labour cost to the total cost of production, which is called “Labour Cost Index” by Weber. But modern economists disagree with Weber. At present availability of labour is not likely to prevent a region or a site, which has great natural advantages for starting an industry because labour can be obtained from other regions.
Further, the wage rates of labour are regularized by a legislation called Minimum Wages Act and other social security measures. So there is not much possibility in obtaining cheap labour at certain locations only.
4. Proximity of cheap Fuel and Power influence industry location
Nearness to cheap power and fuel is another decisive factor in industrial location. Power is essentially needed for running an industry.
Water, coal, oil, gas and electricity are the chief sources of power. The industries, which require very large quantities of coal, are generally located near the coalmines because coal loses its weight completely. However the development of electric and diesel power has reduced the importance of coal. Thereby the locational distribution of industries has considerably changed.
Electric power can be carried on to a long distance from its sources. Thus it enables the industries to set up any where throughout the country i.e. dispersal and decentralization of industries.
5. Transport facility influence location of industry
The facilities for transport available at a particular location and the cost of transportation are also of great importance. Nearness to sources of materials and proximity to market rarely coincide. In case of industries the transportation is required for two purposes viz.,
1. For the movement of raw materials and fuel to the factory, and
2. For the movement of finished goods from factory to the market.
The question of locating plant must be finalized by balancing the advantages of nearness to the sources of raw materials and nearness to the markets. It was rightly remarked by Eiger M. Hoover that,
in the absence of production cost differentials, the best location for the production process is at the point of minimum transport costs.
Secondary Factors influencing Location of Industry
Secondary factors include:
- Financial services,
- Climate factors,
- Personal factors,
- External economies,
- Momentum of an early start,
- Historical factors,
- Political stability,
- Special concessions and benefits, and
- Strategical considerations.
1. Availability of Financial Services influence industry location
An important factor, which influences the location of the plant, is the availability of financial facilities. Adequate finance is required for the purpose of carrying out the business activities successfully. But capital being more and more mobile, now-a-days location of an industry may not be rigidly influenced by availability of finance in an area. Finance can be brought from other areas to locate the industries in a region otherwise deemed suitable.
2. Climate Factors influence location of industry
Suitable climate is an additional factor influencing the location of industrial firms. Some of the most important climate factors that are to be considered are the level of ground, topography of the region, drainage facilities, water facilities, disposal of waste product etc.
For example, in case of cotton textile industry, humid climate provides an additional advantage. Therefore Mumbai in Maharashtra, Coimbatore in Tamil Nadu and Manchester in London with humid climate are suitable for cotton textile units.
The topography of a region leads to a reduction in the transportation cost. So it must also be taken into consideration. Similarly, if the steady supply of water is required for any manufacturing process, such industry must be located where water is abundantly available.
3. Personal Factors influence location of industry
Sometimes locations are the result of personal factors. An entrepreneur may have personal preference towards certain localities. Such personal preferences may be of a love for the hometown, a desire to develop his native area etc. For instance, Mr. Ford started the manufacture of motorcars in his hometown i.e. Destriot. But this kind of location is generally rare.
4. External Economies influence location of industry
External economies are those economies, which arise out of the growth of some specialized subsidiary activities. For instance, if a large number of industrial units engaged in the same line of activity are located in a particular area, that can be an additional encouragement for the new entrepreneur to start their industrial units in that particular area.
5. Momentum of an Early Start influence industry location
Once an industry has been started in a particular area and it has been successful, the business people develop a sort of attachment to that area. Consequently, other units are attracted towards that area. Subsidiary units and other servicing units also grow up. All these factors give momentum to the growth of new industries in such an area.
6. Historical Factors influence location of Industry
Historical factors also in many cases lead to the development of a place as the centre for an industry. For instance, in India, industries have flourished in Kanpur arid Mumbai because of historical coincidence.
7. Political Stability influence location of Industry
Political stability also exerts considerable influence in selecting the location of industries. The lack of political stability of the State will adversely affect the industries located there. Further, he must also see whether the labour market is not under the control of trade unions. In fact, many industries are moving-from West Bengal and Kerala only due to the adverse trade union activities prevailing in those states.
8. Special Concessions and Benefits influence industry location
Various assistance given by the Government in order to encourage the industrialists to set up their industries in certain areas also play an important role while selecting the location of industries.
For example, establishment of units in backward areas. Further, most of the State Governments in India are offering various incentives for the rapid industrialization of that State by encouraging the setting up of industrial units. These incentive include subsidies, tax concession, transportation facilities, financial assistance etc.
9. Strategical Considerations influence location of industry
Strategical considerations are another factor, which exert a greater influence on locational decisions. During periods of war, the air attacks would be aimed at the places where the defence materials producing factories are located. Hence, such industries must be located at a place where there is a remote chance for air attacks.
To sum up, all the factors, which we have discussed above as important factors responsible for the location of an industrial unit do not remain important at all, times.
A factor, which is considered as more important at one point of time, may lose its importance at another time and vice versa. Hence the entrepreneur must take into consideration all the factors and analyze its extent of influence and select a suitable location.
- Primary Factors influencing Location of an Industry
- 1. Access to Raw Material influence location of an Industry
- 2. Access to Market influence location of an Industry
- 3. Availability of Labour influence location of an Industry
- 4. Proximity of cheap Fuel and Power influence industry location
- 5. Transport facility influence location of industry
- Secondary Factors influencing Location of Industry
- 1. Availability of Financial Services influence industry location
- 2. Climate Factors influence location of industry
- 3. Personal Factors influence location of industry
- 4. External Economies influence location of industry
- 5. Momentum of an Early Start influence industry location
- 6. Historical Factors influence location of Industry
- 7. Political Stability influence location of Industry
- 8. Special Concessions and Benefits influence industry location
- 9. Strategical Considerations influence location of industry