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NET-JRF TUTORIAL by MANIPURI YOUNG SCHOLARS, , Both PAPER-I & II, , THEORIES OF INDUSTRIAL LOCATION, 1.1, , Introduction-1, , Theories of industrial location provide competition models indicating entrepreneur, preference for location based on factors such as cost of production, market area, profit, maximization etc., 1.2, , Approaches of Location Theories, , Based on factors considered, major theories of industrial location can be classified as, follows., , The Least-Cost Locational Approaches, These approaches emphasized least cost location, where demand is held constant and, the locational interdependence of firms is disregarded. It assumes pure competitive, market with no monopoly gains., , , Launhardt, Von Thunen, and Weber were concerned with plant location., , , , Launhardt and Weber worked on „Least-cost theory‟ of plant location., , , , Weber (1909) , Palander (1935) and Hoover (1937,1948) indicated that cost of, production was the chief determinant of industrial location., , , , Launhardt and Weber were concerned with manufacturing locations., , , , Von Thunen concentrated mainly on agriculture locations., , , , Hoover in a work similar to Weber, arrived at location based on minimization, of sum of two costs the transport costs and processing costs. Hoover՚s analysis, differs from Weber՚s in that he, unlike Weber, considers all possible locating, factors, and not only the general ones, which influence every plant location., , The Demand Approach, According to this approach, plant locations vary according to demand and size of, market. That is, producer tries to control the largest market by selling goods at, minimum price. Cost is assumed same at all locations and is disregarded., , , Christaller and Losch (1939) considered the market factors in choosing optimal, location. Losch theory considers optimum location to be the point where, market area is optimum., , N. LISAN, MYS Faculty, , GEOGRAPHY

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NET-JRF TUTORIAL by MANIPURI YOUNG SCHOLARS, , Both PAPER-I & II, , Profit Maximization, The least-cost approach and demand or market approach are one-sided approaches., Walter Isard and Melvin Greenhut tried to integrate both least-cost and demand, approaches to find the profit maximization location., , , , , Greenhut՚s theory of industrial location incorporates cost factor, demand, factor, cost reducing factor, revenue-increasing factor etc. to arrive at profit, maximizing location. Although he considered behavioral aspects, theory based, on profit was found preferable., Isard՚s location theory claimed to have a broader purpose of maximizing, benefits for society, as contrasted with maximizing profits. It was heavily, focused on transport inputs but factored in other inputs of production,, including economies of agglomeration and deglomeration., , Locational Interdependence, Hotelling՚s principle of minimum differentiation (1929) or Hotelling՚s “linear city, model” captures the effects of competition on business location decisions. It postulates, that locational decisions are influenced by actions of others, and hence considered, locational interdependence., , Behavioral Approach in Non-Normative Theories, Need for Behavioral Approach, , , , , , Growing dissatisfaction with idealized assumptions of classical theories of, locational analysis., Empirical studies of entrepreneurial decision-making stressed that locational, choices were made on little and imperfect information, undermining, fundamental assumption of economic rationality as a basis of location., Increasing concentration of manufacturing into larger corporations. Large, companies were often able to control local price of labor, inputs, and land thus, their locational decisions were more focused on human element., , Important Behaviour Theories,  Pred (1971) developed the behavioral matrix in a probabilistic sense to show that the, better the information and greater the ability to use it, the more likely it was that the, chosen location would lie near ideal maximum profit location. Probabilistic model gave a, chance even to an ill-informed enterprise to make the optimal choice., , , , , Simon and others pointed out that entrepreneurs may have business objective, other than profit maximization. They showed that enterprises could consciously, choose location away from optimal. For example, entrepreneur might choose a, location based on social or environmental attributes., Cyert and March pointed out possibility of multiple business goals in, organizations with large number of individuals., , N. LISAN, MYS Faculty, , GEOGRAPHY

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NET-JRF TUTORIAL by MANIPURI YOUNG SCHOLARS, , Both PAPER-I & II, , Structural Approach, In later half of 1970՚s, structural or radical theories emerged stressing the apparent, conflict between capital and labor. Industrial geography was concerned with capitalist, production assuming capital and labor combine to generate wages for labor and profit, for capital. However, growth in one is likely achieved at the expense of the other creating, the conflict., Major elements in structuralist approach include:, ,  Large enterprises manipulating economic and political power to achieve, authority over their workforce., , , , , Role of organized labor in responding to this control., Overall pattern of change in the world economy., , Massey argued that an alternative, radical approach to neoclassical industrial location, theory was required. The resulting theory had following distinctions:, , , , , , It employed no abstract model of the firm or enterprise., Spatial dimension was introduced only as last step in the causal sequence with, spatial changes being viewed only as an effect of the response to non-spatial, changes in macro-economy., The theory deals with specific product markets keeping the macro economic, effects constant thus permitting an analysis of different responses by different, types of company., , Thus, the structuralist approach tried to incorporate social and political factors into the, choice of location., 1.3, , Natural Laws Deciding Industrial Locations (Determinism), , Roscher and Schaffle were primarily concerned with discovering natural laws or, regularities in the loca-tional structure of economics., , , , , , , Schaffle was first author to be concerned with industrial location. He believed, that natural conditions and distribution are most important considerations for, industrial location. These make it possible for the factories to be located away, from the market. He contends that the large cities exert an attractive force, directly proportional to the square of their size and inversely proportional to, the distance between them and the factories., Wilhelm Roscher states that industry has a certain historical point of gravity, and that the forces of economic history are the natural laws, which decide, location. He however also mentions that raw materials, labor & capital, influence location., Alfred Marshall contends that industrial location is primarily determined by, physical conditions such as the character of the climate, nature of the soil,, , N. LISAN, MYS Faculty, , GEOGRAPHY

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NET-JRF TUTORIAL by MANIPURI YOUNG SCHOLARS, , Both PAPER-I & II, , existence of mines, and availability of transportation. He also points out the, immobility of industries, because of the growth of subsidiary trades, the use of, highly specialized machinery, and the availability of skilled labor., , , Edward Ross considered the presence of natural deposits as the most, important factor influencing the location of certain extractive industries. This, is especially true for bulky products, which use only small part of the input, or, when transportation cost is excessive due to mountainous district or inland, location., , 2, , Weber՚s Model of Industrial Location: Commonly Used Terms,, Assumptions of Weber՚s Model, , Fixed RM: Raw material, which is found in certain places, for example iron, copper, etc., Pure RM: Raw material, which has no loss in weight during manufacturing process., These add almost all their weight to the finished product., Gross RM: Raw material, which loses weight in the manufacturing process. These add, little or no weight to the finished product., , Isodapanes or Cost Contours: These are points of equal additional transport costs, around the (Weberian) minimum-total-transport-cost point. It is also the line with the, possibility of the labor up to which entrepreneur is ready to deviate from line of, minimum transport cost to get labor advant-age. It is also locus of the points of, interaction of isotims., Critical Isodapane: This isodapane signifies outer limit for alternative locations, (alternative to loc-ation with minimum aggregate transport costs) in a Weberian, locational triangle or other polygon and is dependent on savings (in labor etc.) related to, alternative. Savings in costs of labor on critical isodapane offset additional transport, costs. Beyond it, savings are not enough to compensate for additional transport costs., Isotims: Line connecting points, which are subject to equal transport cost for given raw, materials or products around a point of supply or around a market respectively. Isotims, are basis for calculating aggregate “isodapanes.” Isotims can also be based on isochrones, (line joining points of equal driving time) when cost of transport is proportion to time., Material Index (MI) : It is defined as ratio between sum of the weights of localized, raw materials and weight of the final product, ., When the weight of the final product is less than the weight of the raw materials going, into making the product that is, material index is more than 1, the industry is called a, weight-losing industry. This is the case with the gross RM. For example, in iron and, steel industry, it would be extremely expensive to carry raw materials to the market to, N. LISAN, MYS Faculty, , GEOGRAPHY

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NET-JRF TUTORIAL by MANIPURI YOUNG SCHOLARS, , Both PAPER-I & II, , process and so manufacturing must be near raw materials. Along with mining, other, primary activities are also material oriented like, timber mills, furniture manufacture,, most agricultural activities, etc., If weight of final product is equal to ( ) raw materials needing transportation, then, pure raw material is used. This might be ubiquitous raw materials like water that is, incorporated into the product. This is called weight-gaining industry. This type of, industry should be built near market or raw material source, for example, cotton, industry., When the weight of the final product is more than the weight of the raw materials, going into making the product that is, material index is less than 1, the industry is, called a weight-gaining industry. In case of heavy chemical industries, weight of raw, material is less than weight of finished product and these industries must develop, near market. Such industries typically use ubiquitous raw materials to increase the, weight of final product., Locational Triangle: This was devised and used by W. Launhardt and A. Weber, with the aim to create basic locational model. These triangles demonstrated impact of, forces of attraction of three (more if a polygon was used) reference locations, (originally 2 raw material locations and one market) on (dependent) optimal leasttransport-cost location of a processing plant., 2.3, , Assumptions of Weber՚s Model, , Weber՚s model assumes that, , , , , , , , , , , , 1.1, , Factory location is being considered in an isotropic plane., Locations and types of raw material are fixed., It is being applied in a homogenous single isolated area., Transportation cost is a function of weight and distance., Industries are found in given locations., Size and consumption of location center is given., Labor is geographically fixed and refuses to move, for example, Firozabad glass, workers refuse to move., Entrepreneurs try to minimize total production cost., There is a perfect competition in the economy., Cost of building and equipment does not vary regionally., , Principles and Details of Weber՚s Model, , Basic principle of the model is to identify the point of minimum transport cost. Once, least transport cost point (or points) has (have) been identified model considers effects, of labor and agglomeration-deglomeration., , N. LISAN, MYS Faculty, , GEOGRAPHY

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NET-JRF TUTORIAL by MANIPURI YOUNG SCHOLARS, , Both PAPER-I & II, , Weber՚s least cost theory accounted for locating manufacturing plant in terms of, owner՚s wish to minimize 3 categories of cost:, 1. Transportation Cost: Site chosen must have minimum possible total, transportation cost along with cost of transporting raw materials to factory and cost of, transporting finished products to the market. This, according to Weber, is major, criteria for choosing a location. To understand effect of transport costs he devised two, special cases., Case I: Weight of final good is less than raw material՚s weight getting into formation, of product. This is the weight losing case., Case II: Final product is heavier than raw material that needs transport. This is the, case of some ubiquitous (everywhere available) raw material like water being, incorporated into the product and is called weight-gaining case., These two cases can be explained with the help of following simple examples:, Example A: Where there is 1 market and 1 raw material, following locations are, possible, , , , , , , If RM is ubiquitous, industry is located at market., If RM is fixed and pure, industry is located at market or RM source., If RM is fixed and gross, industry is located at the source of RM., If RM is ubiquitous and pure, industry is located at market., If RM is ubiquitous and gross, industry is located at market., , Example B: Where there is 1 market and 2 raw materials, locational triangle can be, devised to find the location., , , , , , , , If both RM are ubiquitous, industry is located at market (transport cost is lowest), ., If both RM are fixed and pure, industry is located at market (lowest aggregate, transport cost) ., If both RM are fixed and gross, solution is complex and industry is located at, median., If one RM is ubiquitous, second RM is fixed (to market) , and both are pure,, industry is located at market and transport cost is governed by the second RM, only., If one RM is gross and other RM is pure but both are fixed, industry is located, near the gross RM site., , N. LISAN, MYS Faculty, , GEOGRAPHY

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NET-JRF TUTORIAL by MANIPURI YOUNG SCHOLARS, , Both PAPER-I & II, , In the diagram, M is the Market, RM1 and RM2 are the raw materials one and two, respectively, P is the location of the plant and T is transport. In above diagram, case II, represents a weight losing case, where and industry is raw material oriented., Case III is a weight gaining case, where and industry is located close to the market., The idea behind the location of point P can be understood if we assume lines from point, P to market and raw materials are all strings. Assume that triangle is lies in a horizontal, plane. Now if the strings of market and raw materials are pulled with a force, proportional to weight of raw materials or finished products at these locations, then, final position of point P would provide location of industry., , 2. Labor Cost: Higher labor costs decreases profits, so a factory can do better away, from raw materials and markets when cheap labor is available (For example in case of, , N. LISAN, MYS Faculty, , GEOGRAPHY

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NET-JRF TUTORIAL by MANIPURI YOUNG SCHOLARS, , Both PAPER-I & II, , China) . Technological industries require skilled labor and raw material and so best, location cannot be just based on transportation, if skilled labor and specific raw, materials are available in some other location. While, low-tech industries that can use, local labor and raw material will locate close to optimal location based on transportation. After establishing least-cost location, Weber considers effect of labor costs. To, find if saving by transporting to location of cheaper or more efficient labor would more, than offset higher transport costs, isodapanes are made around point of minimum, transport costs. Extra price of the wage bill is calculated for the point of production. If, the source of cheap labor lies within an isodapane such that the extra transport costs, (because of moving further away from least transport cost location) are more than offset, by the savings due to cheap labor, it would be much profitable to select site having low, labor costs as compared to least transport costs location. Isodapane, for which the cost, decrease due to cheap labor perfectly matches the cost increase due to higher transport, cost, is called critical isodapane. It is not profitable to locate the industry beyond critical, isodapane., , Another way to consider labor in Weberian framework is to treat labor supply as, another raw material. Distantly located labor supply in the locational triangle would, mean an increase in the transport cost and non-profitable solution., 3. Agglomeration and Deglomeration: When numerous enterprises cluster, (agglomerate) in same area (for example city) , assistance can be given to one another, , N. LISAN, MYS Faculty, , GEOGRAPHY

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NET-JRF TUTORIAL by MANIPURI YOUNG SCHOLARS, , Both PAPER-I & II, , by shared talents, services, facilities (for example manufacturing plants requires, furniture) . Such clusters also attract investments thus decreasing costs of production, (refer to agglomeration effect above) . However, opposite effect called deglomeration, is also seen., Deglomeration is leaving of companies and services due to diseconomies of industries՚, excessive concentration, for example, land price, traffic problems can rise due to high, agglomeration., , Thus, after the optimal size is reached, local facilities gets over-taxed and offsets to, initial advantages are created. Then other force that leads to deglomeration replaces, force of agglomeration., Industrial location may be swayed by agglomeration and deglomeration forces, from one, obtained just based on transport costs. To find the optimal location in the presence of, agglomeration effect, the savings, which would be made if, say, three firms were to, locate together, are calculated for each plant. Isodapane having this value is made, around the three least-cost locations. Situation is profitable for all three to locate, together in the area of overlap, if these isodapanes overlap., , N. LISAN, MYS Faculty, , GEOGRAPHY

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NET-JRF TUTORIAL by MANIPURI YOUNG SCHOLARS, , 2.1, , Both PAPER-I & II, , Criticism and Infirmities in Weber՚s Model, , Weber՚s model has been criticized because, , , , , , , , , , , , , , Transport costs do not rise proportionally with weight and distance as assumed, in model., Perfect competition, which forms one of the model assumptions rarely, exists., Man does not behave rationally as assumed in the model., Model assumes that plant serves only one market at a time, which is not the, real case., MI is at best a crude measurement of transport cost, It overemphasizes the role of cost minimization (especially transport cost) in, determining factory location, industry locations are based on other factors as, well., Nature of industrial organization and decision-making is not always consistent,, breaking one of the assumptions of the model., Secondary influences like political and social have not been considered in, determining the location. Market orientation is accentuated by freight-rate, structure complexity, which leads to high cost of transportation of finished, products., In modern days, industrial organization has become more complex., Model assumes that the demand would remain constant and hence does not, play a role in plant location., , , , , Model ignores long and short-term profitability., Model ignores role of government and government policies in location, decisions., , N. LISAN, MYS Faculty, , GEOGRAPHY

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NET-JRF TUTORIAL by MANIPURI YOUNG SCHOLARS, , , , , Both PAPER-I & II, , It represents market as point and each point serves as only one market., It failed to pay attention to the revenue and tariff structures., It does not consider the fact that total cost of finished goods is usually more, than that of raw material. It fails to consider constraints placed by space and, energy crisis., , 2.2, , Advantages of Weber՚s Model, , , , , It provides a framework for empirical analysis., It can be applied to real world phenomena., Concept of isodapanes and material index has been successfully employed in, determining location of many present-day industries., , LOSCH MODEL OF INDUSTRIAL APPROACH, 1.1, , Introduction, , Losch՚s approach is considered the most important market area analysis. Also, refer, topic “Losch Theory” in chapter “Settlement Geography.”, 1.2, , Basis of Losch՚s Model, , According to Losch, correct location of firm lies where net profit is greatest. Net profit is, difference between sales income and production costs. Following are some important, points, which form the basis of Losch՚s work., , , , , , , He included spatial influence of consumer demand and production costs and, assumed that goods from production center would need to be transported and, made available at consuming centers, near the consumers. Revenue would fall, with distance from the point of production because of cost of transporting, goods to the customer. In this way the edges of true market area could be, defined where revenue was zero., In general, entrepreneurs will prefer location where difference is greatest., However, it is very difficult to pinpoint a single best location since it is possible, to replace a declining amount of one input (for example labor) by another (for, example, automated technology) or increase transport cost while reducing land, rent (substitution principle) . With substitution, number of various points can, be seen as optimal locations., Series of points are seen when total revenue equals total cost (to generate given, output) . These are connected by Spatial Margin of Profitability. It defines area, lying within which profitable operations are seen. Location anywhere within, the margin assures some profit and so considers imperfect knowledge., , N. LISAN, MYS Faculty, , GEOGRAPHY

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NET-JRF TUTORIAL by MANIPURI YOUNG SCHOLARS, , , 1.3, , Both PAPER-I & II, , Both Weber and Losch make underlying assumptions about behavior of, decision-makers that limit the application of their theories. Market-oriented, approach seems to be more relevant to weightgaining industries like brewing,, bakeries, and assembly activities such as furniture making, while least cost, approaches are more suited to traditional heavy industries like iron and steel, industry., , Concept of Losch՚s Model, , If the hexagons of Losch՚s model are rotated with common center, 12 sectors alternately, compromising many and few production sites are formed. This arrangement according, to Losch,, , , , , , Enables greatest number of industrial locations to coincide with real life, arrangements., Enables maximum number of local purchases from production sites., Provides least sum of minimum distances between industrial locations, facilitating transport of raw material and finished products between industries., Reduces not only shipments but also transport lines to minimum, , Thus, six sectors are identified with comparatively many high order settlements (cityrich sectors) and six with comparatively few high order settlements (or city-poor, sectors) ., 1.4, , Limitations of Losch՚s Model, , Walter Isard pointed out that Losch՚s model yields different sizes of concentrations of, industrial activity and thus jobs at various production centers, and yet it postulated, uniform distribution of consuming population. According to Isard, this inconsistency, can be eliminated, if Losch diagram exhibited for each commodity greater, concentrations of market areas and producers about central city. Since central city is, common production center, it has high level of industrial activity and large labor, population. To take account of this possibility, Isard gave modified Losch system where, pattern of hexagons decreases in size as one approaches central city from any direction., , N. LISAN, MYS Faculty, , GEOGRAPHY