Location, Location, Location

Site vs. Situation

• Situation factors: involve transporting materials to and from a factory– Minimize cost of transporting inputs to the

factory & finished goods to the consumers

• Site factors: related to the costs of factors of production inside the plant– Land, labor, capital

Situation factors

• Least Cost Theory (1909) – Alfred Weber’s model – owners of

manufacturing plants seek to minimize three costs:

– 1) Transportation, and– 2) labor

–

• Least Cost Theory (1909)

– Weight-losing case: final product weighs less than raw materials; location = source

– Copper industry: only 0.7% of mined is copper, rest is waste (gangue)• Then concentration process (crush, grind, mix, filter,

dry) results are about 25% copper• Then smelting to reduce impurities

– Bulk-reducing industry (steel is too)– Where should the concentration plant be

in relation to the mine and the customer?

• Soft drink bottling– Empty cans or bottles– Syrup concentrate– Water – =finished product

• Bulk-gaining industry (fabricated metals – cars, refrigerators)

• Where should the bottler be located in relation to the can manufacturer and the customer?

Perishable Products

• Must locate near market

• But not an issue of bulk-reducing or bulk-gaining

Labor Intensive Industries

• textiles

Energy Intensive Industries

• Aluminum

Footloose Industries

• Micro-chips

Break-of-Bulk Points

• The location where transfer among transportation modes is possible

• Costs rise each time cargo has to be loaded and unloaded – Ship– Rail– Truck, or – Air

Site factors

Labor-intensive Industry

• Labor– Labor-intensive industries: Ex. Textiles –

less-skilled, low wages– 6% of dollar value but 14% of employment

• Land– Factors to consider: Climate,Topography,

Low-cost energy sources

• Capital

Location Models

Weber’s Model

Manufacturing plants will locate where costs are the least (least cost theory)

Theory:

Least Cost Theory

Costs: Transportation, Labor, Agglomeration

Hotelling’s Model

Location of an industry cannot be understood without reference to other industries of the same kind.

Theory:

Locational interdependence

Losch’s Model

Manufacturing plants choose locations where they can maximize profit.

Theory:

Zone of Profitability

Hotelling’s Model• Harold Hotelling (1895-1973)

• Locational Interdepedence

• Originally locate near customers – but will gravitate to each other to maximize profits

• The costs for some customers will be greater if the 2 sellers cluster – further to walk. Also fewer customers aware of service. But can’t move for fear of losing customers.

Changing Markets

• Outsourcing

• New international division of labor– Moving industry to low-cost labor

• Just-in-time Delivery

• Post-Fordist system – more flexible, less mass produced (time-space compression)

• deindustrialization

• High tech corridors – area designated by local or state government to benefit from lower taxes and higher technology infrastructure (Silicon Valley)

• Technopole – area planned for high tech where agglomeration built on synergy among tech companies occur (from Dulles Airport – DC has AOL, MCI, Orbital Sciences)

• Formal economy

• Informal economy