Industrial Location Spring 2013 Economic Geography Industrial Location Spring 2013

The Location Decision Primary Industries:located near raw materials Secondary Industries: less dependent on resource location

Principles of Location Certain input costs of manufacturing are spatially fixed costs, e.g., wage rates set by national or area-wide labor contracts The ultimate aim of the economic activity is profit maximization Other input costs of manufacturing are spatially variable costs, i.e.,they show significant differences from place to place Transportation charges- the costs of accumulating inputs and of distributing products are variable costs

Principles of Location Individual establishments rarely stand alone; they are part of integrated manufacturing sequence and environments in which interdependence increases as the complexity of industrial processes increases, e.g,(agglomeration) the use of common resources- skilled labor or multiple suppliers of product inputs

Spatial interaction principles Friction of Distance- the increase in time and cost that usually comes with increasing distance. Distance decay- the impact of a function or activity will decline as one moves away from its point of origin.

Spatial interaction principles Complementarity- refers to the needs of one region matching the products of another Intervening opportunity- reduces attractiveness of more distant locations Transferability- refers to the ease with which products can be moved.

Classic Theory of Industrial Location Based on the work of Alfred Weber (1868-1958) Sometimes called Weberian analysis Explains the optimum location of a manufacturing firm in terms of minimizing 3 basic expenses:labor, transport & agglomeration costs Known as Weber’s Least Cost Theory

Assumptions of Weber’s Least Cost Theory An area is completely uniform physically, politically, culturally, and technologically. This is known as the uniform, or isotropic, plain assumption Manufacturing involves a single product to be shipped to a single market whose location is known. Inputs involve raw materials from more than one known source location

Assumptions cont’d Labor is infinitely available but immobile in location Entrepreneurs minimize costs of production Transportation routes are not fixed but connect origin and destination by the shortest path; and transport costs directly reflect the weight of items shipped and the distance they are moved

Weber’s Locational Triangle

Agglomeration Refers to the clustering of productive activities and people for mutual advantage When a large number of enterprises cluster in the same area (e.g. city), they can provide assistance to each other through shared talents, services, and facilities; (too much can lead to high rents, wages, and circulation problems

Agglomeration- occurs when certain conditions are met: When a cluster of activities create enough demand for support services When cultural institutions (schools, hospitals) are attracted to the area Deglomeration- too many activities (of the wrong type); traffic, pollution, capital shortages, increase in land prices, etc. may lead to a firm relocating elsewhere; expressed in the suburbanization of firms to nonmetropolitan locations

Agglomeration What are some examples of agglomeration in the Greater Boston Area?

Some Criticisms of Weber Labor is mobile and does not exist in unlimited quantities Plants often produce a variety of outputs for many markets The terrain is not flat everywhere Does not account for taxation policies and changes in consumer demands

Criticisms Cont’d The substitution principle suggests that business owners can juggle expenses as long as labor, land rents, transportation and other costs don’t all go up at one time If labor costs go up, they may be offset by a decline in transportation and rent costs, encouraging the owners to remain in business

Factors of Industrial Location: Raw Materials Labor: price, quantity & skills Infrastructure (banks, communication, social services, transportation) Government policies Transportation Energy

Modes of Transportation Railroad Highway carrier Inland waterway Pipelines Airways Intermodal containerization

A container Port

Other Locational Factors Political Stability Other Businesses Taxes Climate Personal preference

Situation and Site Factors Geography provides companies with 2 type of production costs: Situation factors Site factors

Situation Factors Have to do mainly with transportation- bringing raw materials or parts into a factory and shipping the finished goods to consumer or retailers. If the cost of transporting the finished product is higher than the cost of shipping raw materials, factory should be located to the buyer than the seller and vice versa (e.g. bulk-reducing industries & bulk-gaining industries) Single-market manufacturers - e.g. clothing manuf Perishable products- bread, milk, etc

Site Factors Focus on varying costs of land, labor, and capital Preference for rural and suburban areas in contrast to the central city where the land costs are prohibitive Preference for sites with good access to cultural and sporting events Labor-intensive industries

Four Primary Industrial Regions Eastern North America (largest) Western & Central Europe Russia and Ukraine Eastern Asia (fastest growing)

North America New England- oldest industrial area; relatively skilled, but expensive labor Middle Atlantic- b/ween NYC & Washington, D.C. (largest US market); NYC- great relative location- major break-of-bulk (e.g. ship to rail) port Mohawk Valley- upper NY state along Hudson River & Erie Canal

North America Cont’d Pittsburgh-Lake Erie- b/ween Pittsburgh and Lake Erie (most important steel producing area) Western Great Lakes Area- extends from Detroit & Toledo on the east to Chicago & Milwaukee on the west; Chicago- 3rd largest urban area- highly centralized St. Lawrence Valley-Ontario Peninsula- Canada’s most important industrial area- assets: centrality to the Canadian market, proximity to the Great Lakes, & access to cheap hydroelectricity from Niagara Falls

Europe Rhine-Ruhr Valley: steel (West Germany)- greatest in Europe: good resources, accessibility & centrality Mid-Rhine United Kingdom: oldest industrial region Saxony (East Germany) & Silesia (Poland): steel production center Northern Italy

Former USSR Communists sponsored major industrialization; Moscow, St. Petersburg(shipbuilding), Volga-petroleum & natural gas (East of Moscow), Urals-minerals (further east), even Siberia were major areas of industrialization. Eastern Ukraine- coal; steel

East Asia: Two countries avoided European imperialism Japan- major regions: Kanto Plains (largest- Tokyo and Kansai District; 2nd largest- Kyoto-Kobe-Osaka) China- major industrialization under communism (1949); Northeast is industrial heartland; Shanghai & Chang (river) District- 2nd largest

Late 20th century and Beyond “Four Asian Tigers”: What development strategy did they use?- export-oriented industrialization South Korea Taiwan Hong Kong Singapore

Export Processing Zones

Secondary Industrial Regions South East Asia: Thailand, Malaysia & Indonesia Mexico Brazil South Africa Egypt India Australia