Geo 103 Class 7

Introduction to Location Theories

• Location theories provide frameworks for understanding how businesses choose their locations.

• Theories differentiate between description (how things are) and explanation (why things are).

Understanding Theories

• Theories simplify complex realities by isolating key variables, particularly important in fields like economics.

• In economic geography, theoretical frameworks help analyze industrial location.

Key Factors in Industrial Location

Labor

• Importance of Labor:

  • Labor is the most crucial factor in industrial location apart from the primary sector (e.g., agriculture, mining).

  • Labor is essential for productive activities although automation is increasing.

  • In underdeveloped countries, the primary sector is labor-intensive, whereas in developed countries, the service sector has greater labor involvement.

• Labor Mobility:

  • Labor is mobile but limited by biological constraints and political boundaries.

  • Wages react slowly to market changes, unlike product prices.

  • Union activity indicates labor's unique political considerations.

Land

• Cost of Land:

  • Availability and price are critical locational factors in firm decisions.

  • The proximity to urban areas affects land costs significantly, particularly near Central Business Districts (CBD).

Capital

• Types of Capital:

  • Financial capital (money) is highly mobile and can be transferred easily.

  • Fixed capital (machinery, equipment) is less mobile but still more than labor.

• Capital Intensification:

  • Refers to increasing machinery use relative to labor, which is more common in developed economies.

Managerial and Technical Skills

• Managers and skilled labor are key to productivity. Businesses may locate near these skill pools.

Alfred Weber's Theory

Overview of the Reberia Model

• Developed by geographer Alfred Weber in 1929, emphasizing cost in industrial location decisions.

• Key Assumptions:

  1. Transportation costs rise proportionally with distance.

  2. Producers have perfect information, facing no uncertainty.

  3. Demand for products is infinite.

  4. Land is flat with no barriers.

• Transportation of Materials:

  • Companies transport raw materials to production sites and finished goods to the market.

• Material Index:

  • Calculated as weight of input over weight of output to assess transportation cost efficiencies.

Scenarios in Material Index

1. Ubiquitous Raw Materials:

   • Available everywhere; factories should be near the market to avoid transportation costs.

2. Localized Pure Raw Material:

   • Fixed source; the location ideally between raw material and market minimizes costs.

3. Localized Weight-Losing Raw Materials:

   • Ideal for locating factories near the raw material to avoid costs of heavy transportation.

4. Mixed Scenarios:

   • Various combinations of the previous scenarios dictate different location decisions based on processing weight changes.

Shortcomings of Weber's Model

• The model's assumptions often oversimplify real-world complexities.

• It overlooks the importance of historical context and technology over time.

• Fails to account for managerial considerations and modern transportation advancements.

Economies of Scale

• Definition:

  • Cost reductions associated with producing in larger quantities.

• Advantages:

  • Division of labor improves efficiency, and vertical or horizontal integration can reduce costs.

• Agglomeration Economy:

  • Proximity of industries leads to efficiency and cost benefits.

Product Life Cycle

Stages

1. Introduction:

   • Developed by a single company, protected by patents.

2. Growth:

   • Other firms enter the market as technology becomes accessible.

3. Decline:

   • Product becomes obsolete as cheaper alternatives proliferate.

• Implications:

  • Production may shift from developed to developing countries as competition increases and labor costs lower.

Conclusion

• Location theories, including Weber's model and concepts like economies of scale and the product life cycle, help explain the dynamics of industrial location choices.

• Consider various factors such as labor, land, capital, and managerial skills when analyzing location decisions.