American Journal of Small Business, Volume III, Number 4, April, 1979

Economic And Noneconomic

Factors Affecting Plant
Location Decisions
HENRY A. TOMBARI, California State University

ABSTRACT
This paper describes two geographically separated studies concern-
ing plant location decisions in the electronics industry. It was found
that economic factors tend to outweigh noneconomic factors as
important location decision variables for this industry. Differences in
the importance of factor ordering was found between the two studies.
The implications of location analysis are discussed with regard to
differences in industries, geographical areas and local conditions.
Overall, the study implies that the location decision is situational in
nature.
INTRODUCTION
Historically, management decisions concerning plant location
have principally been considered as economic in nature [2, pp. 18-21].
The economic factors usually considered as most important in the
location decision include: transportation costs, labor and supply costs,
tax structures, material availability and costs, and market demand. In
summary, location decisions have been theoretically based on demand,
market and revenue factors [6].
A relatively recent in-depth review of the location literature argues
that the salient research has tended to underscore some of the relevant
decisional factors [8, pp. 195-205]. These researchers state that some of
the understressed factors include: management attitudes, local condi-
tions, and situational factors such as number of plant locations,
availability of capital, organizational structure, labor unions, govern-
ment regulation, etc. The authors tend to indicate that in the future
location analysts will have to make decisions based on information
which is expanded beyond classical location theory. Such an evalua-
tion, it is argued, should include noneconomic as well as economic
factors in the decision making process.
This latter point was strongly supported and detailed in a study of
how environmental and ecological matters will affect future plant
location decisions [5, pp. 4-16]. For example, Fulton shows that
minority hiring, inflation, availability of utilities, municipal services,
ecological regulations and nonindustrial land competition will increase
in importance in future location decisions.

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 American Journal of Small Business, Volume III, Number 4, April, 1979

In a recent survey of 96 industrial firms, a California city [3] cited

the principle reasons for the firm's original decision to locate in that
municipality as: (in order of importance)
(1) available facilities
(2) supply of land
(3) access to market
and unimportant as:
(1) favorable wage rate
(2) cost of materials
(3) taxes
(4) supply of trained labor
(5) transportation costs
However, some of these same industrial firms indicated that at the
time of the survey they may relocate due to:
(1) high taxes
(2) a feeling of uncertainty about future moves the city may make
that might adversely affect their business situation
(3) unavailability of land for expansion
(4) inadequate parking
Based on this empirical research and other cited studies, it appears
that factors other than purely economic variables influence the
locational decision. Thus, the general hypothesis of the present
research is that the most important factors in decisions concerning
industrial plant location are noneconomically oriented.

METHOD
Sample and Procedure
Data were collected from randomly selected industrial firms in two
different locations of the country. One location surveyed was in the
eastern part of the U. S. while the other location survey was conducted
in the far west. Such a procedure would permit an evaluation of the
degree of importance overall local conditions have on decisional
factors.
All firms manufactured electronic products that required similar
materials, facilities and production operations. Each firm had only one
plant and employed between 50 and 400 persons. All firms had moved
to their present location within five years of the survey.
Questionnaires were given to 43 firms in the eastern survey. It was
stressed that the questionnaire was confidential, anonymous and
voluntary. The survey resulted in 24 replies with 22 useable completed
questionnaires. The west coast questionnaire survey covered 56 firms
and resulted in 32 useable replies.
The questionnaire was designed and tested on six firms before
being distributed. The original questionnaire consisted of six

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 American Journal of Small Business, Volume III, Number 4, April, 1979

demographic questions and seventeen decisional factors which the

location literature considered important in location problems [5] [8].
The test indicated that two demographic questions and two decisional
factors were redundant or not clear. The resultant final questionnaire
consisted of four demographic questions and fifteen decision factors. Of
these final fifteen factors, eight are considered economic and seven
noneconomic.
The demographic questions consisted of: years onpresent site;
number of employees; time in months required to select the site; and
was there a quantifiable analysis made to evaluate alternative sites.
The fifteen decision factors are shown in Figures 1 and 2.
The level of importance of each decision factor was scaled from one
to five, with five signifying a factor of extreme importance and one
signifying a factor being of no importance. Analysis of the data was
made on the basis of means and standard deviations.

TABLE 1
EAST COAST ELECTRONIC FIRMS

•2§
eg 'S
91 .2 J<
s 5 > c
o a « o
Location Decision Factor ^M Z
w Q as
1. Shipping and transportation costs E 19 2 1 0 0 4.81 .49 2
2. Land availability for expansion E 5 11 3 2 1 3.40 1.11 9
3. Proximity to suppliers E 6 3 12 1 0 3.73 .94 7
4. Access to markets E 21 1 0 0 0 4.95 .21 1
5. Area identifies with your
industry NE 0 1 1 7 13 1.54 .78 12
6. Supply of trained lahor E 2 2 7 8 3 2.64 .97 10
7. Favorable wage rates E 6 11 2 3 0 3.90 .95 5
8. Preservation of the environment NE 0 0 0 0 22 1.00 0 14
9. Opportunity to employ minority
groups NE 0 0 0 0 22 1.00 0 14
10. Personal preference of top
management NE 18 4 0 0 0 4.81 .39 2
11. Tax advantages E 1 14 5 2 0 3.64 .71 8
12. Available facilities at low
initial cost E 7 7 6 2 0 3.86 .97 6
13. Local crime rate NE 0 0 1 1 20 1.14 .46 13
14. Union activity NE 1 3 2 4 12 1.95 1.26 11
15. Community's attitude toward
business NE 8 5 8 1 0 3.91 .95 4

Importance Level

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 American Journal of Small Business, Volume III, Number 4, April, 1979

TABLE 2
WEST COAST ELECTRONIC FIRMS

82
Location Decision Factor o

1. Shipping and transportation costs E 0 3 10 9 12 2.25 1.03 8

2. Land availability for expansion E 2 15 11 0 4 3.34 1.05 3
3. Proximity to suppliers E 1 4 13 12 2 2.69 .88 6
4. Access to markets E 4 9 10 6 3 3.16 1.15 4
5. Area identifies with your
industry NE 0 0 3 11 18 1.53 .66 11
6. Supply of trained lahor E 1 5 9 11 6 2.50 1.00 7
7. Favorable wage rates E 0 3 6 8 15 1.91 1.01 10
8. Preservation of the environment NE 0 0 0 0 32 1.00 0 14
9. Opportunity to employ minority
groups NE 0 0 0 0 32 1.00 0 14
10. Personal preference of top
management NE 13 8 7 0 3.44 .96 2
11. Tax advantages E 1 2 22 6 2.03 .81 9
12. Available facilities at low
initial cost E 6 14 6 0 3.63 .99 1
13. Local crime rate NE 0 0 5 26 1.22 .48 13
14. Union activity NE 0 1 4 6 21 1.53 .83 11
15. Community's attitude toward
business NE 1 6 14 2 2.84 .91 5

Importance Level

FINDINGS
The findings of the survey are presented in Tables 1 and 2. Table 1
shows the results of the eastern survey and Table 2, the results of the
west coast survey. As is shown in Table 1, east coast firms in this
particular industry tend to consider the economic factor of "Access to
Market" as their primary location decisional variable. The east coast
firms ranked the economic factors as follows: 1, tied for 2, 5, 6, 7, 8, 9,
and 10. The noneconomic factors are ranked as tied for 2, 4, 11, 12, 13,
and two tied for 14. Overall the findings of the east coast survey would
tend to suggest that the economic location decisional factors are most
important. However, two noneconomic factors do appear to have some
importance in decision location among these firms: personal pref-
erences and the community's attitude toward business. The east coast
results would thus appear to not support the hypothesis that the most

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 Am.erican Journal of Small Business, Volume III, Number 4, April, 1979

important factors concerning industrial plant location are

noneconomically oriented.
In addition, the findings of the west coast survey of the electronic
industry tend to generally conform with the east coast findings of
preferance of economic factors over noneconomic factors as the most
important location decisional variable. However, the west coast firms
selected the economic factor "Available Facilities at Low Initial Cost"
as their primary decisional factor versus the east coast proclivity
toward the factor concerned with the market. The west coast findings,
shown in Table 2, ranked the economic factors as follows: 1, 3, 4, 6, 7, 8,
9, and 10. The noneconomic location decisional factors were ranked as:
2, 5, 11, 12, 13 and two tied for 14. Hence, the west coast findings, like
the east coast, tend to not support the hypothesis that the most
important factors concerning industrial plant location are
noneconomically oriented.
Even though the two sets of findings do not support the general
hypothesis, a comparison of the findings indicates a wide divergence
between the sets of findings in the ranking of the economic decisional
factors. However, there appears to be an overall closeness in the
ranking of the noneconomic location factors. A comparison of the
factor rankings is presented in Table 3.
Examination of Table 3 shows that facilities and land factors
appear to be relatively far more important in the west than in the east.
However, market factors and transportation costs appear more
significant for the electronics industry on the east coast. With regard to
labor, the east coast firms tend to consider wage rates as more
important than the supply of trained labor, whereas the west coast
firms reverse that order of importance. The other two economic location
factors, concerning proximity to suppliers and tax advantages, are
ranked about the same in both findings.
The noneconomic factors that dealt with top management personal
preferences and community attitudes ranked equally high in both
studies. However, the other five noneconomic factors tend to be seen as
relatively unimportant in the electronic industry location decision on
both the east and west coast. In fact, it appears that there is almost
complete agreement on the relative order of noneconomic factors.
In addition, when a study of standard deviations is made in Tables
1 and 2, it shows that in general the east coast firms are in much closer
agreement with their ordering of the economic factors than are the
west coast firms. Moreover, such evidence suggests that with regard to
economic factors, local conditions may have an affect on the location
decision.
But when a study of the firms' agreement is made of the ordering
of noneconomic locational factors, both sets of findings are very close.
Such findings would tend to indicate that, except for the two relatively

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 American Journal of Small Business, Volume III, Number 4, April, 1979

important factors, the noneconomic factors are considered uniformly

unimportant by all the electronics firms on both coasts.
TABLE 3

COMPARISON OF THE RANKINGS OF EAST COAST

AND WEST COAST ELECTRONICS INDUSTRY
LOCATIONAL DECISIONAL FACTORS
Type of Factor
(E) Economic East Coast West Coast
Location Decision Factor (NE) Noneconomic Rank Rank
1. Shipping and transportation costs E 2 8
2. Land availability for expansion E 9 3
3. Proximity to suppliers E 7 6
4. Access to markets E 1 4
5. Area identifies with your
industry NE 12 11
6. Supply of trained labor E 10 7
7. Favorable wage rates E 5 10
8. Preservation of the environment NE 14 14
9. Opportunity to employ minority
groups NE 14 14
10. Personal preference of top
management NE 2 2
11. Tax advantages E 8 9
12. Available faeilities at low
initial cost E 6 1
13. Local crime rate NE 13 13
14. Union activity NE 11 11
15. Community's attitude toward
business NE 4 5

DISCUSSION
The findings of the present study suggest that for the electronic
industry economic factors are more important than noneconomic
factors in the location decision. However, the findings tend to support
the notion that certain noneconomic factors, such as top management's
personal preference and community attitudes, have some importance in
relation to economic factors.
In fact, it was somewhat surprising that management's personal
preference was so uniformly supported as an important location factor.
This finding would suggest that though economic factors may indicate
one site as the best economic alternative, top management may decide
for some personal reason to select an alternate location. Thus, this
finding would tentatively support the notion [8, pp. 195-205] that the
roles and personalities of top managers may have an influence on
location decisions that override economic factors.

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 American Journal of Small Business, Volum.e III, Number 4, April, 1979

Along these same lines the concept that community attitudes

toward business acts as an important noneconomic decisional factor
does not appear surprising. It seems logical that as a noneconomic
influence community attitudes toward business would be important to
the decision maker. Moreover, the decision maker would attempt to
gain this type of information to decrease his level of uncertainty. It has
been argued that the decision maker tends to seek certainty [7]. Thus,
the importance of this noneconomic factor is intuitively appealing.
Further, the importance of this noneconomic factor is supported by the
Berkeley, Califomia study which indicates that some firms may
relocate due to the feeling of uncertainty about moves the city may
make that might adversely affect their business situation [3].
The concept that economic oriented goals act as primary decisional
forces has been held as the most important type of factors in business
management decisions [4, pp. 110-117]. Thus, the present research
overall tends to support this concept. Moreover, the present study
would suggest that in general social factors are still considered to be
held in a relatively low level of importance when it comes to making
decisions that will affect the firm's major goals, such as profit, market
share, and growth, which could be affected by the firm's location.
However, such a finding of the relative unimportance of five of the
seven noneconomic factors in the location of electronics firms does not
fully support the notion that these same noneconomic factors would
become important for other industries. The chemical industry, for
example, may well have to consider the ecological factor as one of its
most important location variables. In fact, Dow Chemical Company in
selecting a site for a large chemical complex in Califomia found that
the ecological and government regulation factor was more important in
its final location decision than all the other economic and noneconomic
factors [1, pp. 8-12]. Thus, the importance of noneconomic factors, as
well as economic factors, may vary between industries as well as
localities.
This latter observation is tentatively supported by the evidence
shown in the present study. The data presented in Table 3 suggests
that electronic firms located in the eastern part of the country appear
to be more concerned with market and transport cost problems than
those firms located in the west. Those in the west seem to be more
concerned with real estate factors. Perhaps their difference in economic
factor importance can be explained by the competition between
commercial and noncommercial functions in Califomia for the use of
suitable real estate [9, pp. 84-96].

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 American Journal of Small Business, Volume III, Number 4, April, 1979

CONCLUSIONS
Overall, the results of the study would tentatively suggest that
location decisions are situational in nature. That is, that the location
decision should be analyzed with regard to industry, environmental
requirements, local attitudes concerning business, top management's
personal preferences, and the classical economic factors concerning
markets and costs based upon the geographical section of the country
in which the firm is to evaluate alternative locations.
Additional research is required, however, before making definitive
statements concerning the level of importance of either the economic
and noneconomic factors for any industry or section of the nation. For
instance, investigation of local conditions is needed to corroborate that
community attitudes toward business have great importance in a
firm's location decision. Likewise, an investigation of the interaction
between industry's ecological impact and the localities attitudes and
regulations are needed to support the notion that each industry and
locale has its own ecological constraints. These investigations should
then be carried out for each economic and noneconomic factor that
could affect the location decision.

REFERENCES
1. Anderson, E. V., "Dow Halted by Califomia Regulatory Tangle", Chemical and
Engineering News, 22: 8-12, April 25, 1977.
2. Carrier, R. E. and W. R. Schriver, Plant Location Analysis, Memphis, Tenn.:
Memphis State University, Bureau of Business and Economic Research, 1969, pp.
18-21.
3. Berkeley's Economy and Proposals for Economic Planning, Berkeley, Ca.:
Comprehensive Planning Department, August, 1976.
4. England, G. E., "Organizational Goals and Expected Behavior of American
Managers", Academy of Management Journal, 10: 107-117, Summer, 1967.
5. Fulton, M., "New Factors in Plant Location", Harvard Business Review, 49: 4-16,
166, 168, MayJune, 1971.
6. Greenhut, M. L., The Theory of the Firm in Economic Space, New York: Meredith,
1970.
7. Miller, D. W. and M. K. Starr, The Structure of Human Decisions, Englewood Cliffs,
N. J.: Prentice-Hall, Inc., 1967.
8. Nishioka, H. and G. Krumme, "Location Conditions, Factors and Decisions: An
Evaluation of Selected Location Surveys", Land Economics, 49: 195-205, May, 1973.
9. Robertson, W., "The Greening of the Irvine Co.", Fortune, 95: 84-96, December, 1976.

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