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cheaper rates and provision of education and training facilities. Some entrepreneurs induced by such incentives may come forward to locate their units in such areas. 7. Finance: Finance is required for the setting up of an industry, for its running, and also at the time of its expansion. The availability of capital at cheap rates of interests and in adequate amount is a dominating factor influencing industrial location. For instance, a review of locational history of Indian cotton textile industry indicates that concentration of the industry in and around Bombay in the early days was mainly due to the presence of rich and enterprising Parsi and Bhatia merchants, who supplied vast financial resources. 8. Natural and Climatic Considerations: Natural and climatic considerations include the level of ground, topography of a region, water facilities, drainage facilities, disposal of waste products, etc. These factors sometimes influence the location of industries. For instance, in the case of cotton textile industry, humid climate provides an added advantage since the frequency of yarn breakage is low. The humid climate of Bombay in India and Manchester in Britain offered great scope for the development of cotton textile industry in those centres. 9. Personal Factors: In deciding location of industrial units, sometimes an entrepreneur may have personal preferences and prejudices against certain localities. For instance, Mr. Ford started to manufacture motor cars in Detroit simply because it was his home-town. In such cases, personal factor dominates other considerations. However, this kind of domination is rare. 10. Strategic Considerations: In modern times, strategic considerations are playing a vital role in determining industrial location. During war-time a safe location is assuming special significance. This is because in times of war the main targets of air attacks would be armament and ammunition factories and industries supplying other commodities which are required for war. The Russian experience during the Second World War provides and interesting example. 11. External Economies: External economies also exert considerable influence on the location of industries. External economies arise due to the growth of specialized subsidiary activities when a particular industry is mainly localized at a particular centre with port and shipping facilities. External economies could also be enjoyed when a large number of industrial units in the same industry were located in close proximity to one another. 12. Miscellaneous Factors: Historical incidents also play a dominating role in determining the location of industries in certain cases. The development of cotton-textile industry in Lancashire provides an interesting example for this. Further, the size of and industrial unit would also have much influence in choosing location. This is because the size of industrial units depends upon the radius of the circle within which they can profitably distribute their goods and upon the density of population living within the circle.
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Economics Notes
Location of Industry
What Do These Notes Cover?
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Location of Industry 1 [1 MB] Location of Industry 2 [2.1 MB] Location of Industry 3 [3.06 MB]
What are the reasons for the location of a particular business or industry in a specific area? Was it just a snap decision or is there more of a science to the decision? This is the subject of location of industry.
Percentages Industry United Kingdom excluding Extra Regio 26.7 North East North West Yorkshire & the Humber 33.2 30.6 30.9 Services 72.2 66.1 68.6 67.8
34.7 33.2
63.7 65.6
Source: Office for National Statistics. The crucial factor in many cases will be locating where costs of production can be minimised. Planning laws and regulations might mean that it is not always possible to set up in the preferred location. The economist (and later sociologist) Alfred Weber (18681958) pioneered the work on location of industry way back in 1910. His theory was based on the principle that a business would seek to locate where costs could be minimised. If there were two locations, a and b, where a represented a location where the cost of setting up was lower than b, then the firm would always go to a. Weber was writing at a time when the industrial revolution resulted in a number of large industries being concentrated in certain parts of the UK - coal, steel, shipbuilding, textiles
and so on. Whilst the factors that were relevant to firms in those industries are different for many firms in the 21st Century, some of the basic principles he laid down are still relevant. There are a number of factors that will influence where a business will choose to locate. The following could all be considered as important but for some businesses, some of the factors will be more important than others.
Nearness to Power
Some firms require either a certain type of power/energy source or particular amounts to be able to operate effectively. This means that one consideration for location is somewhere that has relatively easy access to such sources. This might be particularly relevant for a business that uses large amounts of power in the production process. In simple terms, the location has to be in a position to be able to supply the amount of power that a business might need.
Some businesses need large amounts of power to be able to produce - this might be much more than is normally available from a domestic supply and so there has to be that source available if location is to be viable. The chemical industry is an example of production that uses large amounts of power. Copyright: Griszka Niewiadomski from stock.xchng, and A. Ashwin. If we use the example of the chemical industry, the production process involved in this industry requires large amounts of gas and electricity. Providing the amount of electricity needed for such processes is not the same as the amount needed by the average house. For firms like BASF, ICI and Degussa, Teesside is able to provide that power. At the
mouth of the River Tees is a nuclear power station at Hartlepool, which is able to supply the necessary power that these firms need.
Nearness to Market
Access to a market for the good or service produced is an important component for some firms. The market in this context is referring to the customers who buy the good or service produced. In some cases, this can be the general public at large; others might be far narrower. For example, some businesses sell their output to a small number of other businesses. The importance of access to a market depends on the type of business and what it is involved in. For some businesses, being near to customers is essential. One obvious example is a snack bar or caf . To survive, such businesses need to be somewhere where customers will regularly pass by.
This snack food store is located on one of the main platforms at Reading station. It is ideally situated to take advantage of the flow of passengers going in and out of the station. If it was located down a quiet residential street, it would not be as successful. In the case of our chemical firms, nearness to the market might not be quite as important as might be the case for online retailers such as Amazon, where other means of getting to the market are more important (good distribution and communication networks, for example). The importance of being near to the market might also be dictated by the nature of the product produced. Weber identified the importance of this in his original analysis. Weber noted that the ratio of the weight of raw materials to the finished product
might be a factor influencing location. We refer to this as 'bulk reducing' or 'bulk increasing' industries.
The end product in the steel-making process might be heavy but is a lot less bulky than the raw materials that go to make it - this is a bulk reducing industry. Copyright: David Ritter, from stock.xchng. A bulk reducing industry is one where the finished product is less bulky and easier to transport and distribute than the raw materials. Steel is a good example of this type of industry. Steel is made from a combination of coal, iron ore and fluxes which are processed before being combined in a blast furnace where molten steel is then processed into steel slabs, plate and so on. In such circumstances, the cost of transporting the raw materials may be high compared to that of the finished product. Tata Steel has a good animation showing the production process of steel. A bulk increasing industry is one where the opposite occurs. In this case, the finished product might be more bulky than the raw materials. A good example here is the furniture industry. Completed items of furniture (not flat-packed obviously) tend to be far more bulky than the raw material used to make it.
The steel industry traditionally located near to supplies of raw materials because it was more cost effective to transport the finished product rather than the raw materials. Copyright: Gerla Brakkee, from stock.xchng. In other cases, the raw material might be less obvious. In certain parts of the UK, there tends to be a relative concentration of certain types of farming. In these cases it may be the quality of the land for arable use that might be important. In other cases it might be that certain types of land and area are more suitable for dairy farming. Even more obvious might be the proximity of many fish-processing plants located near to fishing ports or firms involved in quarrying.
A dairy farm relies on supplies of good quality grass to help boost productivity. In such cases, the soil and quality of the land might be determining factors for location. Copyright: Michael Swanson, from stock.xchng.
Relocating to foreign countries where labour is cheaper has become a high profile news story in recent years. Labour is one of the highest costs for any firm. If good quality labour is available at reasonable wage rates, firms are tempted to locate to exploit this supply of labour. Copyright: Dragon MasterGunner, from stock.xchng. Certain parts of the country may be associated with certain types of labour. In the City of London, for example, there may be opportunities for firms in the financial industry to access supplies of highly skilled and experienced labour. There are, in addition, a number
of specialist business schools in the City that are able to attract good quality teaching and research staff as well as recruiting good quality students. As a result, firms in the locality know that they have access to good quality labour.
The City has a huge reputation for the high quality of its financial services industry. Any firm in the industry setting up in this area will be able to reap the benefits of being associated with this reputation.
be able to gain some reputation purely by having a postcode that is linked to the City and so on. As the structure of industry in the UK changes in favour of a more service-based economy, the importance of the concentration of industry which was a feature of the old traditional heavy industries that developed after the industrial revolution, is declining. Whilst this factor may be seen as being less important it can still be a factor that a firm might consider.
Data transfer is an important part of many businesses in the knowledge economy. Speed of transfer depends on having the right infrastructure in place - not everywhere in the country has access to super fast data transfer, which may affect decisions on location. Copyright: Andrew Brigmond, from stock.xchng.
In other examples, many hotel chains have located in particular areas often near to motorway exits around major cities or airports. Companies like Travelodge, Holiday Inn, Holiday Inn Express, Ibis and Premier Lodges have all appeared in clusters around these exits. They are hoping to take advantage of business travellers who use these main arterial routes.
Incentives
As the structure of industry changes, different regions of the country might experience different levels of economic growth. In some regions, the decline of old traditional industries like coal and steel has not been offset by a growth in new industries. Unemployment can be a problem in these areas. The EU might play a role in location in offering various incentives to help promote economic growth and regeneration in poor regions of the EU. Copyright: Pivi Tiittanen, from stock.xchng. As a result, various government and EU grants and incentives might be available to persuade firms to locate in these areas. The availability of low rent premises, faster planning permissions, employment subsidies (a sum of money given for every job created), reduced red tape, grants etc. can make a difference to a firm that decides to locate in that area. One of the problems, however, is that there might not be any other natural reasons for a firm to locate in these areas and when the incentives run out there might not be any reason for the firm to remain in the area.
Competition
Firms will be aware of the extent of the competition in an area when they are looking to locate their business. If there are several other similar businesses in the locality, it might influence their decision about location.
Is this a good location decision or not? Being located near to competition can have its disadvantages but might also have some advantages.
UK Regional policy in recent years has changed its emphasis. The UK's membership of the EU has been a part of this. The approach is to have a co-ordinated policy with the EU to help each region achieve its full economic potential but at the same time to allow decision-making to be devolved to the lowest level, where possible. This means that the regions themselves will take a lead in encouraging economic development and supporting businesses in their region.
Gateshead in the north east of England - an area that has struggled to come to terms with changes in the structure of industry but an area that is rapidly taking on a different look as regeneration projects attempt to bring new business to the area. This is The Sage, a music and concert venue developed on the banks of the River Tyne on land that was once derelict. Copyright: Graham Soult, from stock.xchng. To this end, there is now a network of regional development agencies (DAs) focusing their attention on improving the economy of particular regions. Examples of such DAs include the Welsh Development Agency, the South West of England Regional Development Agency, the South East England Development Agency and the East of England Development Agency. In Scotland, the Scottish Executive administers a grant scheme called Regional Selective Assistance (RSA), which seeks to encourage inward investment and job creation in so-called Assisted Areas in conjunction with the EU's regional aid mandate. In October 2006, the map covering the Assisted Areas for the whole of the UK was amended and agreed by the EU. What this means is that regional assistance can be given to these areas under EU laws. It would be contrary to EU policy to provide economic aid to an area independently - this is really counter to the idea of a single market hence the need for EU agreement.
Labour Availability: Bangalore was seen to have abundant labour that could be drawn from its long-standing research laboratories, educational institutes and public sector electronics firms. Key institutions included Bharat Electricals Ltd, the Indian Institute of Management and the Indian Institute of Science. These have been a key source of both software employees and - in later years entrepreneurs. Quality of Life: Bangalore benefited from its reputation for a good climate and social life. IT workers were rapidly integrated into the city's social fabric By contrast Mumbai