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 Alfred Weber 1868-1958 wrote Theory of the Location of Industries in 1909

Location Models Weber’s Model - The Least Cost Theory Alfred Weber, (1868-1958) a German economist, published Theory of the Location of Industries in 1909. The industrial equivalent of the Von Thunen Model Manufacturing plants will locate where costs are the least. 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

Weber’s Least Cost Theory: Brick Bunny Easter Town                                                Bunny Fur Bricks

Location Models Hotelling’s Model - economist Harold Hotelling (1895-1973) modified Weber’s theory by saying the location of an industry cannot be understood without reference to other similar industries-called Locational Interdependence Suppose that two owners of refreshment stands, George and Henry, are trying to decide where to locate along a stretch of beach. Suppose further that there are 100 customers located at even intervals along this beach, and that a customer will buy only from the closest vendor. Finally, assume that the beach is short enough so that total sales are independent of where the vendors locate. Suppose that initially the vendors locate at points A and C in the illustration below. These locations would minimize the average traveling costs of the buyers and would result in each vendor getting one half of the business. However, this solution would not be an equilibrium. If George moved from point A to point B, he would keep all customers to his left, and get some of Henry's customers. For similar reasons, Henry would move toward the center, and in equilibrium, both vendors would locate together in the middle.

Location Models Losch’s Model - August Losch (another German economist) said that manufacturing plants choose locations where they can maximize profit. Theory: Zone of Profitability

How has Industrial Production Changed?

How has Industrial Production Changed? Fordist – dominant mode of mass production during the twentieth century, production of consumer goods at a single site. Post-Fordist – current mode of production with a more flexible set of production practices in which goods are not mass produced. Production is accelerated and dispersed around the globe by multinational companies that shift production, outsourcing it around the world. Henry Ford introduced the assembly line production of automobiles which resulted in agglomeration of auto production in the Detroit and Great Lakes area-now known as the rust belt. Bretton Woods agreement industrial countries adopted the gold standard-value of currency pegged to the value of gold-basis for prosperity and mass production by large corporations

Time-Space Compression Just-in-time delivery rather than keeping a large inventory of components or products, companies keep just what they need for short-term production and new parts are shipped quickly when needed. Global division of labor corporations can draw from labor around the globe for different components of production. Containers await shipment in China Bottom Container ship from Europe enter Halifax, Canada’s harbor Major corporations: General Motors, Union Carbide, Exxon and others take advantage of the low transport costs, expanding information technology and favorable government regulations to outsource jobs to specific locations. Multinational Corporations move labor-intensive manufacturing to peripheral countries where laobr is cheap Core manufacturing is increasingly automated

Modern Production Outsourcing – Offshore – moving individual steps in the production process (of a good or a service) to a supplier, who focuses their production and offers a cost savings. Offshore – Outsourced work that is located outside of the country.

Nike (A Light Industry)-Headquartered in Beaverton, Oregon, Nike has never produced a shoe in Oregon. Beginning in the 1960s, Nike contracted with an Asian firm to produce its shoes. Skopje, Macedonia-The swoosh is ubiquitous, but where is the shoe produced? Nike has a global network of international manufacturing and sales.

Maquiladora in Nuevo Laredo, Mexico repairs telephones for AT&T

New Influences on the Geography of Manufacturing Transportation-intermodal connections where air, rail, truck, ship and barge connect-eases flow of goods-e.g. container shipping… Break of Bulk Regional and global trade agreements-WTO, Benelux, European Union, NAFTA, MERCOSUR, SAFTA, CARICOM, ANDEAN AFTA, COMESA, etc. goal to ease flow of goods by eliminating trade tariffs or quotas Energy-coal was replaced by natural gas & oil after WW II-transported by pipeline or tanker WTO 148 states in 2005 works to negotiate trade agreements

Europe-despite North Sea Oil-still must import Mexico & Canada oil and natural gas U.S. uses 27% if oil & 37% of natural gas produced in the world. Dependent on imported oil OPEC: Saudi Arabia, Kuwait, Iraq, Russia large oil reserves

Deindustrialization – a process by which companies move industrial jobs to other regions with cheaper labor, leaving the newly deindustrialized region to switch to a service economy and work through a period of high unemployment. Abandoned street in Liverpool, England, where the population has decreased by one-third since deindustrialization

The Rust Belt vs The Sun Belt Flow of population.

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