Theories of Industrial Location – Geography – UGC NET – Notes

The factors controlling the location of industry can be divided into two broad categories as under:

(i) Geographical factors:

Land, climate, water and power resources, and raw materials.

(ii) Social-economic factors:

Capital, labour, transport, demand, market, government, policies, tax structure, management, etc.

The basic question posed by scholars regarding industrial location has been “where ought industries to be located?” The traditional answer has been where they derive maximum profits”. But this is not so simple because factors are varied and complex in nature and also change with space and time.

To explain these complexities several theories of industrial location have been proposed by economists like Weber, Tord Palander, Edgar Hoover, August Losch, Walter Isard, and geographers like George Renner, Rawston, Allen Pred, Smith, etc. Some of the theories had been developed in early 19th century, while others in the 20th century.

The prime concern of all the theories of industrial location is to find the ‘optimal location’, which is economically the best and one that gives maximum profits. There has been a change in factors which distinguish earlier theories with contemporary reality: decrease in importance of transport costs; increased organisational dynamism, interdependence and variety and the rise of corporate enterprise.

The real manufacturing landscape, as it exists today, displays a variety of situations some of which have represented ideal locations at one time, but not necessarily now.

Problems in the location search process may arise from the fact that many of the major factors in this process are non-quantifiable or only partially quantifiable.

While it is easy to identify some of the prominent factors that may influence a location search, and ultimately site selection, the final determination of the feasi-bility of a proposed site must be examined in terms of (i) how the proposed site fits into the existing or restructured corporate production network; (ii) its competitive position in the industry as defined by its potential to expand or increase market share or compete with spatial rivals; (iii) its immediate and non-immediate impact on the area in which it locates; and (iv) the anticipated response or actions taken by competitors within the site’s sphere of influence.

The first theory of industrial location was given by Alfred Weber in 1909, which has revolutionised the concept of industrial location and given a new line of thought. After Weber’s theory several theories came into being and locational analysis became a very important aspect.

Some of the theories, formulated after Weber are: The theory of Fetter (1924), the theory of Tord Palander (1935), the theory of Smith (1941), the theory of August Losch (1954), the theory of Melvin Greenhut (1956), the theory of Walter Isard (1956), Renner’s Theory (1960), Allen Pred’s Theory (1967), and a few other theories.

Weber’s Theory of Industrial Location

Alferd Weber, an eminent German economist gave a theory on industrial location. This was published in 1909 in German language and was translated into English in 1929 and was published by Carl Joachim Friedrick. Weber’s effort was first systematic approach towards the industrial location.

He divided the factors influencing location into two broad categories viz:

1. Primary factors influencing the distribution of industrial units over the different regions. These are also referred as ‘regional factors’.
2. Secondary factors relating to the redistribution of industry from the original regions (or become cause of concentration of industry in one particular region). Weber referred these factors as “agglomerating and ‘deglomerating factors. Agglomerating factors refer to the advantages of the industries in a particular region in the form of specialised labour, centralised purchases, uniform production policies and lesser cost of production etc.

Deglomerating factors relate to various demerits associated with concentration of industries in a particular region e.g. unhealthy competition, rise in local taxes, congestion and housing problems etc. In formulating this theory, Weber further analysed that certain factors like depreciation, rent and interest etc. remain the same and do not have any bearing on the location of a business unit in different regions.

He further remarked that cost of raw material and cost of labour are two important constituents which considerably affect the location of an industrial unit in different regions. According to Weber, cost of transporting the raw material and finished products to the plant greatly influence location of a unit.

If the cost of carrying the raw material from its origin to the factory is more than the cost of carrying the finished goods to the market, the plant shall be located near the place from where raw material is available.

Weber divided the raw material into two categories:

1. Localised relating to a particular region e.g., lime stone used for cement, iron ore, coal and other natural deposits etc.,
2. Ubiquitous i.e, which are universally available such as water, air and bricks etc. Localised factors affect the location of a plant in different regions, whereas the second category of factors does not affect.

Localised raw materials are further subdivided into two classes viz:

1. Gross Raw Materials or weight losing materials, are those which do not form part of the finished products but are helpful in shaping the finished product. Most appropriate example of this type of raw material is coal.
2. Pure Raw Materials are directly converted into the finished product and form the major proportion of the article produced e.g. cotton, wool, iron ore etc. Industries using gross raw materials can be located near the sources of these materials thereby considerably reducing the cost of transportation.

The other hand, industries using pure raw materials should be situated near the consumption markets because there will be no economy in the transportation costs if these units are located near the sources of raw material supply. Weber developed the following mathematical derivation in order to explain his finding precisely:

Location Materials Index = Weight of localized material/Weight of finished products

Location material index is the ratio of the weight of localized raw materials to the weight of finished product. If it is more than unity, it would be appropriate to locate the industry near the sources of supply of raw material, if it is less than one, the industry will be situated near the consumption points.

Another important consideration in deciding location of a plant is the cheap and adequate labour. According to Weber, labour dominated industries should be situated near the labour supply centres. It will considerably minimise the transportation costs and will also lead to economies in production.

Weber gave another important concept relating to his theory which is known as ‘split in location’. If a product consists of two or more processes and each can be carried out independently, it is possible to have split in location of plant. Such a split in location is possible only when the material used in the first stage loses a substantial proportion of its weight in first process.

In such cases the plant will be located near the raw material supply centres. The second process (when the end product is produced) can be located near the market centres. A good example of such a split in production is provided by paper industry. Pulp (raw material for paper) is produced near the forests and the manufacturing of paper is undertaken near the consumption centres.

Critical Appraisal of Weber’s Theory:

Weber’s theory has been criticised on account of the following reasons:

1. This theory is over simplified and far away from reality. It is an unrealistic approach.
2. The scope of theory is limited to selected factors only and it does not include many other factors influencing the location of an industrial unit e.g. historical factors personal factors, govt. policy and taxation policies etc.
3. Assumptions with regard to labour are not correct. It is assumed that labour supply centres are fixed. But in reality the position is different on sition is differen account of mobility of labour.
4. Similarly, it is assumed that there are fixed consumption centres. But in reality the position is different on account of scattered consumers.
5. This theory emphasises calculation of cost of transport on the basis of weight and distance, but transportation costs are calculated on the basis of type of transport, quality of goods and rates of different transport agencies etc.
6. The theory is full of technical co-efficient and least coverage is given to cost and price factors which are the most vital components of such theories. It can be said that Weber’s theory is more a selective theory than a deductive one. But in spite of the above mentioned criticism, this theory is still considered to be the first systematic and pioneer approach towards industrial location. According to K. Balakrishna. “It would be more profitable to give up some of the unreal assumptions of the deductive theory expounded by Weber rather than to discard it”.