Why do industries have different distributions? Ch.11 Industry

Geographical Costs Industry seeks to maximize profit by minimizing production costs Location of Industry is decided by 2 main costs; situation factors vs. site factors

Situation Factors Every manufacturer buys & sells Minimize transportation costs the farther something is transported, the higher the cost (locate near buyers & sellers) Least cost analysis (see handout)

Location Theory Considers: Weber’s Least Cost Theory of Industrial Location 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 & labour costs

Weber’s Least Cost Theory of Industrial Location Alfred Weber, (1868-1958) a German economists, published Theory of the Location of Industries in 1909. His theory was the industrial equivalent of the Von Thunen Model. Manufacturing plants will locate where costs are the least. Three Categories of Costs: Transportation- *most important cost*-usually the best site is where cost to transport raw material and finished product is the lowest Labour-high labour costs reduce profit-location where there is a supply of cheap, non-union labour may offset transportation costs Agglomeration- (clustering of an industry) when a group of industries cluster for mutual benefit-shared services, facilities, etc.-costs can be lower – examples – Hollywood, Silicon Valley, NY/Wall Street (Finance Firms), Car Manufacturers Technopole - A region of many high tech businesses (agglomeration) - Silicon Valley, CA Deglomeration - The “unclumping” of similar businesses due to over crowding.

Location near inputs When cost to transport is high copper & steel industries bulk-reducing industry Final product weighs less than its inputs

Copper Industry in North America Fig. 11-9: Copper mining, concentration, smelting, and refining are examples of bulk-reducing industries. Many are located near the copper mines in Arizona.

Location Near Markets: cost to transport finished product is more Bulk-gaining industries: gains weight /volume during production (Coca-Cola, Ford etc.) Single Market Manufacturers: product sold primarily to one market high-fashion clothing in NY, seats for Ford cars Perishable Products: Delivery has to occur rather quickly (Toronto Star) Other examples?

Mode of Transportation? Ship, Rail, Truck, or Air? Firms seek the lowest-cost mode of transport. The cost per kilometer (mi.) decreases at different rates for each of the four modes, because loading and unloading expenses differ by mode of transportation. Cost decreases at different rates for each of the four modes Truck = most often for short-distance travel Train = used to ship longer distances (1 day +) Ship = slow, but very low cost per km/mile Air = most expensive, but very fast The mode(s) of transportation used is a function of speed and cost of delivery.

Many companies that use multiple transport modes locate at a break-of-bulk point, which is a location where transfer among transportation modes is possible. Examples include seaports and airports

Site Factors Have become increasingly important Helps explain importance of Japan and other Asian manufacturers 3 main factors : Land, labour, capital

Land Suburban/rural locations now b/c of large amount of land needed (& cheaper) Accessibility to energy resources (Aluminum industry) Climate, cost of living, recreation, etc.

Labour Labour-intensive industry: one that’s labour costs are high % of expense Textile/Clothing: less skilled, low cost workers, LDC’s in Asia, change in location in US NE → SE “Right to Work” states (non-union) Electronics: highly skilled, high wages, US: near university centers (NY, Mass, Cal)

LABOR AS A SITE FACTOR: MANUFACTURING WAGES The chart shows average hourly wages for workers in manufacturing in the 14 countries with the largest industrial production in 2010.

Capital Availability to borrow money to expand or establish new factories (recently in LDCs) Silicon Valley – California, ¼ of all capital in the US is spent on new industries there

Obstacles to Optimum Location Location cannot always be explained by situation & site factors Increase in footloose industries Can locate anywhere Executive’s knowledge & power Personal preferences