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

Bulk-reducing industry (steel is too) 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? The plant should be close by.

Bulk-gaining industry (fabricated metals – cars, refrigerators) 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? Since water is easily available – then close to 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-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 Hotelling’s Model Least Cost Theory 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