1. Weber’s Least Cost Theory of Industrial Location

2. Alfred Weber

3. Least Cost Theory Early 20 th Century German economist set out to predict and explain where factories would choose to locate and grow. Called Least Cost Theory because it predicted where industries would locate based on the locations that would be the lowest cost to them. Two issues to consider: 1.Distance of transportation to the market. 2.Weight of the goods being transported.

4. Weber’s Model Assumes 1.The heavier the good and/or the further the distance cost more to ship. 2.Industries aim to minimize cost and increase profit. 3.Markets are in fixed locations. 4.Labor exists only in certain places and is not mobile. 5.Political-cultural landscape is the same across the space being studied.

5. Weber’s Model Assumes 6. The location of industry (factories) is driven by four factors: 1)Transportation 2)Labor 3)Agglomeration 4)Deglomeration

6. A) Weight-Gaining vs Weight-Losing Industries 1.Early factories had to decide how close to locate near raw materials. They had costs that were determined by the factories location. Factories using heavy or perishable raw materials had to be close to source to cut down on transportation costs. 2.Weight-losing processes are manufacturing processes that take raw materials and change them into a product that is lighter than the raw material that went into making it. Example: Paper Production

7. A) Weight-Gaining vs Weight-Losing Industries 3.Weight-gaining processes take raw materials and create heavier finished products. Beverage bottling is an example. Early factories were located near marketplace because the product was heavier to transport in its final form. When these industries are located where heavy products will be sold, the industry is said to have a market-orientation.

8. B) Footloose Industries 1.Footloose industries are not restricted to where they can locate because of transportation costs. Some industries maintain the same costs for transportation and production regardless of where they choose to locate. 2. These industries have costs that stay the same no matter where they choose to locate 3. These industries often produce light weight products of extremely high value, like computer chips

9. C) Labor Costs and the Substitution Principle 1.The cost of labor is a key factor influencing where industries choose to locate. 2.Included in labor consideration is the availability of industrial capital: A.Machinery B.Money to purchase tools C.Employees 3. The substitution principle applies when industries move to access lower labor costs, EVEN if transportation costs increase as a result.

10. D) Agglomeration 1. Occurs when industries clump together in the same area. These were first seen when England was industrializing in the late 1800s. 2. Factories in the same area can share associated costs of such things as utilities and road usage.

11. D) Agglomeration 3. Agglomeration economies occur when the positive effects of agglomeration result in lower prices for consumers. I.Localization economies are created when firms in the same industry benefit from sharing skilled labor talent living in the same region. II.Urbanization economies are created when large populations in urban areas cluster together and benefit because they share infrastructural elements such as power lines and transportation systems.

12. E) High Tech Corridors and Technopoles 1.A high-tech corridor is a place where technology and computer industries agglomerate.  California’s Silicon Valley is an example 2. A technopole is a region of high-tech agglomeration, formed by similar high-tech industries seeking to share an area so that they can benefit from shared resources.

13. F) Backwash Effect - Are negative consequences of agglomerates that can occur when other areas suffer out-migration (brain drain) of talented people who are moving to a technopole or other “hot spot” of industry agglomeration.

14. G) Locational Interdependence 1.The theory that industries choose their locations based on where their competitors are located at. 2.Industries want to maximize their dominance of the market, so they are influenced by their competitors. Example – gas stations

15. H) Deglomeration 1.The “unclumping” of factories because of the negative effects and high costs associated with industrial overcrowding. 2.Often occurs when a agglomerated region becomes too clustered and too crowded. Causing: pollution, traffic congestion, strained resources and labor.

16. Outsourcing The decision by a corporation to turn over much of its responsibility for production to independent suppliers. A.Transnational corporations use low-cost labor in LDCs to cut production costs. B.Processes or parts that require highly-skilled labor remain in MDCs. NEW INTERNATIONAL DIVISION OF LABOR refers to the transfer of certain steps to LDCs while others remain in MDCs. VERTICAL INTEGRATION - the traditional form of mass production whereby a single company tightly controls all phases of production.