Weber and Industrial

Location Theory

Industrial Activity and Geographic

Location

Economic Geography

• Economic geographers

investigate the reasons behind

the location of an economic

activity

Location Theory

• An economic activity is categorized

according to:

– Purpose

– Relationship to natural resources

– Complexity

– Primary, secondary, tertiary,

quaternary, quinary

• Location theory attempts to explain

the location pattern of an economic

activity in terms of the factors

that influence that pattern

The Location Decision

• Primary Industries

– Because these deal with the

extraction of resources, primary

industries must be located where

the resources are

The Location Decision

• Secondary Industries

– less dependent on resource

location because raw materials can

be transported to distant

locations to be converted into

manufactured products if profits

outweigh the costs of

transportation

The Location Decision

• Establishing a model for the

location of a secondary

industry is difficult because

the location depends on:

– Human behavior and decision making

– Cultural, political and economic

factors

– Intuition or whim

The Location Decision

• Models must be based on

assumptions and economic

geographers must assume that:

– Decision makers are trying to

maximize their advantages over

competitors

– Profit maximization

– Variable costs must be taken into

account (energy supply, transport

expenses, labor costs)

The Location Decision

• Alfred Weber: 1868-

1958

• German

• The Von Thunen of

economic geography

• Least Cost Theory

– Accounted for the

location of a

manufacturing plant in

terms of the owner’s

desire to maximize

three costs

The Location Decision

Transportation (most important)

moving raw materials to factory and finished

goods to market

Labor

High labor costs reduce margin of profit

current economic boom on Pacific rim

Agglomeration

number of similar enterprises clustered in

the same area

Shared talents, services and facilities

when excessive, can lead to high rents,

rising wages, circulation problems

Weber

• Sparked spirited debate among economic geographers

• 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

• 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 the model

Factors of Industrial

Location

–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

• Japan’s colonial expansion into E Asia dependencies (China/Korea)due to raw materials available

• Japan’s cheap labor allowed them to purchase and transport goods from other locales (substitution principle)

• European colonization for resources, periphery to core

Factors of Industrial

Location

–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

• 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

• pre-NAFTA US and Mexico

Factors of Industrial

Location

–Transportation • highly developed industrial areas are places that are served most effectively by transportation facilities

• efficiency

• alternative systems

• container systems, break of bulk

• for most goods, truck is cheaper over shorter distances, railroads cheaper over medium distances, and ships cheapest over longest distances

• must consider loading/unloading, actual transportation (cost of transportation increases with distance at a decreasing rate), and weight and volume

Factors of Industrial

Location

–Infrastructure

• transportation, telephone,

utilities, banks, postal, hotel

• China-inadequate local and

regional infrastructure

• Vietnam-inadequate power,

water, transportation

Factors of Industrial

Location

–Energy • used to be much more important than it is today

• early British textile mills had to locate near water power

• rarely a problem today, except industries needing a huge amount of energy--- metal processing and chemical industries may locate near hydropower (TVA or Pacific Northwest)

Other Factors

• agglomeration

• political stability

• receptiveness to investment

• taxation policies

• environmental conditions

(Hollywood)