Location conditions and locations factors Location conditions and factors define characteristics which vary from place to place and directly (indirectly) affect the viability of factories Def: 1. Location conditions: differences among locations ( exist for all industries ) 2. Location factors : specific interpretations of conditions made by individual firms

What places offer industry: typology of location conditions General introductory of location conditions ( 5 of them ) : 1. each location c. includes many tangible ( easy to quantity in terms of costs ) and intangible characteristics 2. intangible characteristics are hard to measure 3. coution in the interpretation of individual c, as everyone are interilated ( low wages may imply low skill and low purchasing power ) 4. categories of c. are not mutually exclusive 5. intangible feauters, unfortunaly are real and important.

Since there is no one way to classify location c, there are 11 categories, similar to others that have been indentified - TABLE!!!

1. Transportation Very important! Because of costs! Transportation costs are determined by distance, characteristics of goods ( weight, bulk…), value of goods, mode of transportation ( rail, air, water…) etc.

Important distinction is between total tranport costs and average costs! –Total costs - increase with distance and weight –Average costs – decrease with distance and weight of goods Rail, water, pipeline transport have hight fixed cost  because of capital investments in infrastructures

2. Materials Where are materials located? What are transportation costs of materials from their location? Answers on these questions are the one that can be measured! BUT : Quality of materials!!! ( can not be predicted )

3. Markets Important as a location c. for individual industries and manufacturing as whole! Market potantial shows the relative demand of places within a given market area! EX: the US, based on the distribution of people.

The basic formula for market potential is : Market potential model is crude measured of market access: the distribution of population, for example also measure the distribution of other location c, such as labour or infrastructure.

4. Labour Labour costs include wages and non – wage benefits such as contributions to medical plans, unemployment insurance… Labour costs vary by industry, union and non – union sectors EX: Lowest wages in the world are in asian countries Germany pays higest manufacturing wages in EU

Hiring costs are lower in metropolitan labour markets, and higher in isolated communities! IS IT? Non – tangible features of labour: Degree of unionization! - German unions! Labour skill: - specific to industries, firms or even machines… - physical strength - unskilled workers – highly repetitive tasks - in years skill changed radically…

Labour as a location c. is very complex: \\ –Cost of labour –unionization

5. External economies of scale Is it possible to manage economie of scales at some locations??? –Depends of externalities: 1. positive 2. negative

6. Energy For many traditional industries, energie sourses were significant location c. Now, energy is more flexible: Solar, water, wind, oil…

7. Community infrastructure Is devided in two important parts: 1. Economic overhead capital ( EOC ): roads, ports, power lines… 2. Social overhead capital ( SOC ): schools, univarsities, hospitals… Infrastructure is very expansive to bild!

8. Capital 1. Fixed - measured by cost of construction 2. financial capital – cost of borowing Today is highly mobile and interest rates vary by location

9. Land Lands units vary in terms of size, shape, accessability! Cost of land: –Higher in metropolitan areas than in industrial zones.

10. Enviroment As a location c. raises two distinct sets of issues: spatial variations in enviromental amanities and spatial variations in enviromental policies and regulations What are regulations about “clean air” and “clean wather” Important because it is crossing political jurisdictions and enviromental lobies

11. Goverment Diferent levels of government affect the nature of location c. Local policy – “business climate”

Location Factors A location factor: how an industry translates a location condition into something reflecting its specific requirements for a specific investment decision. Example: access to market (location condition) => close contact with the market? => transportation costs advantage? …

Summarize Location Factors Lots of studies using several research designs: –Partial / general surveys –geographically: large/small scale (local, region, country), national context, comparative dimension or not –Number of firms (from 1 to several hundreds), respondents interviewed, laps of time between the survey and the decision about location –Nature, scope, structure of the questions asked Complex and subjective factors

The product cycle model Scientists and engineers Unskilled workers Skilled workers Labour intensive Capital intensive

Review of location surveys Head-office Main factors: - geographic proximity with related businesses to facilitate person to person contact - prestige - accessible amenities - labour - availability and quality of office space - access to international airport => Major metropolitan centres, downtown cores, CBD

Review of location surveys R&D Main factors for managers: - environmental quality (1) - quality of public education (1) - availability of professionals (3) Main factors for employees: - cost of housing (1) - environmental quality (2) - recreational opportunities (3)

The product cycle model Scientists and engineers Unskilled workers Skilled workers Labour intensive Capital intensive

Review of location surveys Innovative manufacturing Early stages of the product life-cycle Main factors: - skilled labour - established place of residence - proximity to universities - business climate

The product cycle model Scientists and engineers Unskilled workers Skilled workers Labour intensive Capital intensive

Review of location surveys Branch plants Main factor: a malleable and cooperative workforce (low costs, low level of unionization, availability of unskilled labour, high productivity…) (North Carolina between 1969 and 1974 = the lowest manufacturing wage in the US)

The product cycle model Scientists and engineers Unskilled workers Skilled workers Labour intensive Capital intensive

The product cycle model Scientists and engineers Unskilled workers Skilled workers Labour intensive Capital intensive

Review of location surveys Factory closure -Cessation (death of the product) -Selective closure because of area (wage rate, government subsidies…) or plant (age of building, size, productivity…)