Locational Theories

LOCATIONAL FACTORS: the WHY of the WHERE

SITUATION FACTORS-relative location

  • Proximity to INPUTS-raw materials   * Copper: A bulk-reducing industry-from BIG…..to little   * Mining, concentration, and smelting processes use inputs that weigh more than the final product and must be located close to the resource.   * Steel: A bulk-reducing industry     * Coal and Iron Ore combine to make steel and are inputs that are heavier than the final product, so they must be located close to the resource!
  • Proximity to MARKETS-consumers   * Bulk-gaining industries-little…….BIG     * Fabricated metals     * Beverage production   * Single-market manufacturers - JIT production (Just-In-Time)-cars   * Perishable products-dairy, fruits, veggies, newspapers
  • Ship, Rail, Truck, or Air?   * Firms seek the lowest-cost mode of transport, but which of the four alternatives is cheapest changes with the distance that goods are being sent.   * The farther something is transported, the lower the cost per kilometer or mile.   * Longer distance transportation is cheaper in part because firms pay workers to load goods on and off vehicles, whether the material travels 10 or 10,000 miles!   * Trucks – short distance delivery because of the ease in quickly loading and unloading. GREAT for one day deliveries.   * Trains – used to ship to destinations further out than a day’s travel. Trains take longer than trucks, but don’t require “rest”.   * Ships – long distance cost is very low. A lot slower than land based travel.   * Air – MOST EXPENSIVE FOR ALL DISTANCES. Usually, small bulk, high value packages.

SITE FACTORS-absolute location

  • Labor   * Labor-intensive industries-need lots of workers     * One in which wages and other compensation paid to employees constitute a high percentage of expenses.     * EXAMPLE – The TEXTILE industry & locally Maquiladoras!!!     * The workforce will come from NIC labor to bring the cost down!
  • Land   * Rural sites-cheap land     * Large, one story buildings are the best layout for the factories and the rural area gives them the space needed so they can sprawl!   * Environmental factors-land gives for cheap/free     * Access to electricity is a big part of the decision on a location.     * EXAMPLE: Aluminum industry needs A LOT of electricity so they produce by dams to take advantage of the cheaper hydroelectric power.
  • Capital-investors   * A location may be chosen because that is where the lenders or investors are located!     * EXAMPLE: The US motor-vehicle industry is in the Midwest because the banks were more apt to give them money than the eastern banks.

LOCATIONAL THEORIES: the WHY of the WHERE

What decisions do businesses make about where to locate factories?

1909 German ECONOMIST - Alfred Weber

  • LEAST COST THEORY   * TRANSPORT     * Getting raw materials to a factory and getting finished products to the market     * Weight matters in the cost!     * Shipping types matter in the cost!       * Ship, rail, truck, or air?     * Remember bulk-reducing and bulk-gaining industries?   * LABOR     * The wages and salaries of employees     * Can you think of an industry that needs A LOT of workers or that needs a skill specific worker?   * AGGLOMERATION-a glob of businesses     * The spatial grouping of businesses in order to share costs     * Can you think of businesses that may share the same type of customers?   * The GOAL of the least cost theory: locate your business WHERE you can minimize transportation costs & maximize agglomeration economies

Now let’s try our hand at applying the Weber theory to our city of Frisco! :)