1. How do Location Theories explain Industrial Location?
Right Caterpillar Plant in Aurora, Illinois
Left-Industrial Area around Detroit
Hong Kong Container Port

2. Economic Geography
Economic geographers investigate the reasons behind the location of an economic activity

3. Location Theory
Attempts to explain the pattern of the location of an economic activity in terms of influential factors

4. The Location Decision Alfred Weber: 1868-1958
Built on Von Thunen model of Agricultural Land Use
Least Cost Theory
Accounted for the location of a manufacturing plant in terms of the owner’s desire to maximize three costs
Transportation
Labor
Raw Materials

5. The Location Decision (1)
Transportation (most important)
moving raw materials to factory and finished goods to market

6. The Location Decision (2)
Labor
High labor costs reduce margin of profit
Explains the current economic boom on Pacific rim
Location chosen always has least combined costs (might have higher transportation costs, but more inexpensive labor)

7. Factors of Industrial Location (2)
Labor
a large, low-wage trainable labor force will attract manufacturers
Japan’s postwar success based on skills and low wages of workforce, low quality high quantity initially

8. Factors of Industrial Location (2)
Labor
China emerged with large labor force in 80’s
Taiwan and South Korea emerged to challenge Japan in mid ‘90’s due to cheaper labor
Four Tigers today (Hong Kong, Singapore, South Korea, Taiwan)

9. The Location Decision (3)
Raw Materials
Primary Industries
Because these deal with the extraction of resources, primary industries must be located where the resources are

10. The Location Decision Secondary Industries
less dependent on resource location
raw materials can be transported if profits outweigh the costs of transportation

11. The Location Decision (3)
Agglomeration
number of similar enterprises clustered in the same area
Great example is car dealerships and fast food restaurants
Shared talents, services and facilities
when excessive, can lead to high rents, rising wages, circulation problems

13. Weber Triangle Three factors: Transport costs: Transport costs
Labor costs
Raw Materials
Transport costs:
One market and two sources:
Equal distance and shipping costs dictates a market location
Two weight-losing materials results in an intermediate location

14. Weber’s Theory Weber’s theory results in 3 generalizations:
Using pure materials in the production process will always dictate a market location
Weight-loss materials usage will pull the plant closer to the sources
Intermediate location chosen most often

15. Weber
Some argued that Weber’s model did not adequately account for variations in costs over time
Substitution principle: when one cost decreases can endure higher costs in another area (fixed vs variable costs)
Model suggests that one particular site (point vs area) would be optimal but the business could flourish in more than one area
Taxation policies are not accounted for by Weber

17. Factors of Industrial Location (1)
Raw Materials
resources involved in manufacturing
steel plants along Atlantic seaboard because iron shipped in from Venezuela
Europe’s coal and iron ore regions
Iron smelters built near coal fields

19. Factors of Industrial Location (1)
Raw Materials
Japan’s colonial expansion into E Asia (China/Korea) due to raw materials
Japan’s cheap labor allowed them to purchase and transport goods from other locales (substitution principle)
European colonization for resources, periphery to core

20. http://www. epa. gov/sectors/sectorinfo/sectorprofiles/ironsteel/map

24. Transportation Cost Minimization
Raw Material Oriented
Tendency for industry to locate near its source of raw materials in order to save on transport costs
Usually occurs when raw materials lose weight in the production process (e.g., paper, steel)
DISCUSSION:
* What raw materials need to be processed close to where they are extracted due to high transportation costs?

25. Transportation Cost Minimization
Market Oriented
Tendency for industry to locate near population centers in order to save on transport costs
Occurs when product is more costly to transport than raw materials (e.g., beverages, glass)
DISCUSSION:
* What raw materials need to be processed close to markets due to high transportation costs?

26. Break-of-Bulk Oriented
Transportation Cost Minimization
Break-of-Bulk Oriented
Location between sources of raw materials and markets – for products that must be divided and shipped from a central point of entry
Intermodal transportation – e.g., moving from rails to trucks or ships to trucks, or ports to pipelines
DISCUSSION:
* What raw materials would be processed at a break-of-bulk point?

27. Where is the best location for a steel manufacturing plant?
Recipe for steel (traditional)
Coal = 2 to 3 tons (+ energy*)
Iron ore = 1½ to 2 tons
Limestone = ¼ to ½ ton
Mix all solid ingredients. Heat at about 600º F until thoroughly melted.*
Pour molten blend into molds. Cool and serve. Makes one ton of finished steel.

28. Shipbreaking industry, Bangladesh
Shipbreaking yards in Bangladesh alone dismantle about 90 giant ships a year, mostly oil tankers, generating millions in revenue, employing tens of thousands, and providing a significant proportion of the iron and steel used by local industry. However, there is a dark side to the industry in which the workers must toil in extremely hazardous conditions that frequently lead to death or serious injury and which is tremendously harmful to the environment. ... A majority of ships are built in South Korea and China, filling orders placed by Japan, the UK, the US, Norway, Singapore and Denmark. Until the 1970s, shipbreaking was done in the countries of origin, using heavy machinery on salvage decks. But increasing environmental regulations and labour costs resulted in the transfer of this work -- first to Korea and Taiwan, and then to South Asia after the Asian Tigers upgraded away from this work.
Source:

29. Consider transport costs of a car’s components
Consider transport costs of a car’s components. Where’s a good place to locate your assembly plant?

30. Other Location Models
Hotelling’s Model-Harold Hotelling ( ) this economist modified Weber’s theory by saying the location of an industry cannot be understood with out reference to other similar industries-called Locational Interdependence
Lösch’s Model-August Losch said that manufacturing plants choose locations where they can maximize profit.
Theory: Zone of Profitability

31. Lösch’s Model-Zone of Profitability