1. Least-Cost Location Theory
Cost minimization is half of profit maximization equation (along with maximizing revenues)
Cost minimization theory:
- labor-cost minimization
- transportation cost minimization
Cost minimization - an industrial location strategy that seeks to minimize what the firm pays to produce and distribute its products or services
DISCUSSION:
* Why is cost minimization so important to a business?

2. Sources: PBS & Ingolf Vogeler
Minimizing Labor Cost
Maquiladoras – foreign-owned assembly plants in Mexico (mostly textiles and consumer electronics)
Over 11,500 maquiladoras along border with U.S.; employ 2 million+ Mexicans
Revenues from maquiladoras, exceed make up 85% of trade between Mexico and U.S.
Sources: PBS & Ingolf Vogeler
Average work week is hours; wages about $5.75 per day. Women are 70% of maquiladora workforce.
Since 2000, some maquiladoras have closed as corporations move assembly-line jobs to even lower-wage countries, mainly China.

3. Fixed and Variable Costs Influence the Optimum Location for Economic Activity
Classical economic geography models focus mainly on the variable cost of transportation

4. Determining the best location for a mfg
Determining the best location for a mfg. plant with raw materials in Minnesota, Florida, and Texas & the market in New York
(but with differing amounts of raw mat’s needed)

5. Weber Triangle Three factors: Transport costs: Transport costs
Labor costs
Agglomeration
Result in a per unit savings
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

6. Weber’s Theory of Location
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
No handling costs at terminal

7. Weber’s Theory of Location
Labor Costs:
Location chosen always has least combined costs
A location my have higher transport costs, but more inexpensive labor
Isotims: lines of equal transport cost
Isodapane: line of total transport costs (sum of isotims)

8. Transportation Cost Minimization
DISCUSSION:
* What raw materials need to be processed close to where they are extracted due to high transportation costs?
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)

9. Transportation Cost Minimization
DISCUSSION:
* What raw materials need to be processed close to markets due to high transportation costs?
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)

10. Break-of-Bulk Oriented
Transportation Cost Minimization
DISCUSSION:
* What raw materials would be processed at a break-of-bulk point?
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

11. 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.

12. The recipe for making steel has changed (new technology) How has this affected the location of modern steel-producing areas?

13. 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:

14. 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?

15. Over 50,000 U.S. auto-making jobs in these foreign-owned plants (New York Times data and map, 2005)

16. The cost of transporting data has declined to near zero
Low transmission costs, plus ability to digitize data, revolutionized the location choices for high-tech industry
Source: Probe Research, Inc., Telcordia (Bellcore); Progressive Policy Institute.

17. “Post-Fordist” Production – High Tech Industry
Adapting the traditional models of economic geography
Greater flexibility of production
Less reliance on storage of inventory – seek prompt delivery of goods needed for production (“just-in-time”)
Suppliers’ location
Need to have access to fast delivery systems (= airports)
Agglomeration of management
Still occurs! High-tech innovators locate closer to airports; universities; amenities; venture capital (tends to be a “footloose” industry)
Internationalized spatial division of labor
Lower labor costs needed for production – industry locates manufacturing in lower wage areas (secondary) but tech and management stays in core area (quaternary)

18. Economic Base Model Figure 6.7 (p. 146) DISCUSSION:
* Where does the "regional multiplier" effect manifest itself in this model?
Figure 6.7 (p. 146)

19. Weber’s Theory of Location
Agglomeration:
Weber recognized that clustering will result in a per unit savings
Example: