3. Location Theory
• Attempts to explain the pattern
of the location of an economic
activity in terms of influential
factors
4. The Location Decision (1)
• Primary Industries
– Because these deal with the
extraction of resources, primary
industries must be located where
the resources are
5. The Location Decision (1)
• Secondary Industries
– less dependent on resource location
– raw materials can be transported if
profits outweigh the costs of
transportation
6. The Location Decision (2)
• Alfred Weber: 1868-
1958
• German
• The Von Thunen of
economic geography
• Least Cost Theory
– Accounted for the
location of a
manufacturing plant in
terms of the owner’s
desire to maximize
three costs
7. The Location Decision (3)
Transportation (most important)
moving raw materials to factory and
finished goods to market
Labor
High labor costs reduce margin of
profit
current economic boom on Pacific rim
Agglomeration
number of similar enterprises
clustered in the same area
Shared talents, services and facilities
when excessive, can lead to high
rents, rising wages, circulation
8.
9. Weber
• Some argued that Weber’s model
did not adequately account for
variations in costs over time
– Substitution principle: when one
cost decreases can endure higher
costs in another area (fixed vs
variable costs)
– Model suggests that one particular
site (point vs area) would be optimal
but the business could flourish in
more than one area
– Taxation policies are not accounted
for by Weber
10.
11. Factors of Industrial
Location (1)
– Transportation
• Raw materials to factory and finished
products to market
• steel plants along Atlantic seaboard
because iron shipped in from Venezuela
• Europe’s coal and iron ore regions
– Iron smelters built near coal fields
• Japan’s colonial expansion into E Asia
(China/Korea) due to raw materials
• European colonization for
resources, periphery to core
20. Piedmont: foot of the mountains;
from Italian pied (foot) monte (hill)
21. Factors of Industrial
Location (1)
– Transportation
• highly developed industrial areas are
places that are served most efficiently by
transportation facilities
• alternative systems
• container systems, break of bulk
• for most goods, truck is cheaper over
shorter distances, railroads cheaper over
medium distances, and ships cheapest over
longest distances
• must consider loading/unloading, actual
transportation (cost of transportation
increases with distance at a decreasing
rate), and weight and volume
31. Factors of Industrial
Location (2)
– Labor
• a large, low-wage trainable labor
force will attract manufacturers
• Japan’s postwar success based on
skills and low wages of
workforce, low quality high quantity
initially
32. Factors of Industrial
Location (2)
– Labor
• China emerged with large labor
force in 80’s
• Taiwan and South Korea emerged to
challenge Japan in mid ‘90’s due to
cheaper labor
• Four Tigers today
41. Factors of Industrial
Location (3)
– Infrastructure
• transportation, telephone, utiliti
es, banks, postal, hotel
• China-inadequate local and
regional infrastructure
• Vietnam-inadequate
power, water, transportation
42. Factors of Industrial
Location (4)
– Energy
• used to be much more important
than it is today
• early British textile mills had to
locate near water power
• rarely a problem today, except
industries needing a huge amount of
energy--- metal processing and
chemical industries may locate near
hydropower (TVA or Pacific
Northwest)
44. Other Factors
• agglomeration
• political stability
• regional receptiveness to
investment
• taxation policies
• environmental conditions
(Hollywood)
45. Silicon Valley
• High Tech Heaven, headquartered in
San Jose California, 50 miles south of
San Francisco
• Stanford University
• Silicon is main ingredient in computer
chip making
– 2nd most abundant element in Earth’s crust
(ubiquitous)
• IBM, Netscape, Apple, Yahoo!, Intel, Son
y, Microsoft
