Lesson 5: Theories of industrial location - I

Structure:
5.1 Introduction
5.2 Webers theory of Industrial location
5.2.1 Regional factors
5.2.2. Secondary causes.
5.2.3 Influence of Transport Cost
5.2.4 Influence of labor cost
5.2.5 Critical Appraisal of Webers theory
5.3 Sargent Florences Inductive Analysis
5.3.1 co-efficient of Localization
5.3.2 Location Factor
5.3.3 Critical Appraisal of Sargent Florences theory
5.4 August Loschs theory of industrial location
5.5 Summary

Objectives:
After studying this lesson, you will be able to understand
Meaning of industrial location
Factors for industrial location
Importance of different Location theories

5.1 Introduction:

Industrial location is a field of study that interests both economists and geographer,
because the location of industries is of particular importance in studying the internal
structure of regions and in many cases, guides the pattern of spatial development.
The theory of industrial location attempts to explain answers for three important
questions. They are;
Why the industries are located where they are
Why the locations are shifted,
And what can be the best location for a particular industry keeping in view the
resource endowments of different regions, transport network , existing demand,
potential demand etc.,
There are different versions developed by different economists on the theory of
industrial location. Each one of them tries to find out the reasons for industrial
location in an economy. Among them, the first attempt in developing a theory of
location was made by a German scholar, Von Thunen, in regard to agricultural
location. Thunen, considered the problem of location for various forms of agricultural
production in relation to markets.

But our interest in this chapter is on industrial location,

therefore let us concentrate immediately on industrial
location theories. Important location theories in industrial
sector are:
Webers theory of location
Sargent Florences theory of industrial location
August Loschs theory of industrial location

5.2 Webers theory of Industrial Location :

The first comprehensive effort at developing a theory of location was made by
Alfred Weber in 1909 in his book Theory of the Location of Industries. Webers
theory is to be considered as a deductive theory. And he emphasized the cost
factors in affecting the location of industry.
He assumed competitive pricing (a situation where individual firms were
powerless to influence the price of their product which was the same everywhere).

Therefore, according to him, to achieve the maximum profit, they had to minimize
cost. It follows that a rational producer would choose a location where lowest
costs were incurred. This is the reason why Webers approach is known as the
least cost approach to the theory of industrial location.

Weber classified the causes influencing industrial location into two

categories:
a) Regional factors
b) Secondary causes
5.2.1. Regional Factors:
Weber points out three general regional factors of location. They are:
the relative price range of deposits of materials
the costs of labor

the costs of transportation

By assuming that the influence of material cost can be reduced to
that of transportation cost, only two regional factors, namely,
transportation and labor costs remain. These two are termed as the
primary causes of industrial location.

5.2.2. Secondary causes:

To the above primary causes, Weber adds two secondary causes:
they are:
Agglomerating factors
Degglomerating factors

Agglomerating refers to an advantage or cheapening of production

due to the concentration of industry. For instance, availability of
external economies in the form of cheap availability of labor, finance,
at one place causes industry to concentrate at one place.
Degglomeration implies dispersal or decentralization of industry
One more interesting information which we should learn that Weber
divides all raw materials into two groups, namely ubiquitous and
localized materials. First one are those materials that are available
everywhere, so they have very little influence on location. Localized
materials are those that tare available in certain areas only therefore
excerpt an important influence on location.

Weber explained his theory interims of influence of each factor on industrial

location. Thus, now let us consider the influence of following costs separately
on industrial location: they are:
Transportation costs
Labor costs
Agglomeration
Degglomeration costs

5.2.3. Influence of Trasportation Costs:

Weber shows the impact of transportation costs on location and then demonstrates how
labour costs and agglomeration and degglomeration may change this situation.
Assuming that transport cost is directly proportional to the distance covered and weight
carried, Weber gives his famous locational triangle as shown in fig.1

M and N are two material sources and C is the consumption centre. The entire weight of
the material from M has to traverse a distance a and material N a distanceb to reach
the point of location T. the weight of the product has to move the distance C to reach the
consumption point. To determine where the location will actually lie, Weber calculates
the ratio between the weight of localized material and the weight of the product. This he
designates as the material Index. If the Index is less than one, the location is oriented
towards the consumption centre, while if the index is greater than one, the location is
material oriented.

5.2.4 Influence of labor costs:

The changes of location can take place only if the rise of cost of ton of
product which it causes is compensated, or more than compensated, by
savings of labor costs. A location can be moved from the point of minimum
transportation cost to more favorable labor location only if the savings in
the cost of labor which this new place makes possible and larger than the
additional costs of transportation which it involves.
5.2.5 Agglomerative and Deglomerative Factors:
Weber discusses the influence of agglomerative and deglomerative factors
on location of industry. The two tendencies of agglomeration and
deglomeration work in opposite direction and the final determination rests
on the side of greater economy. Here the technique of Isodapanes is applied
and agglomeration is supposed to take place whenever the saving in cost is
greater than the extra transport charges involved.

If the deviation occurs from a point of lower labor costs the

expected economy from pure agglomeration should more than
outweigh the economy of labor and of any accidental
agglomeration at the labor centre. However, the actual behavior of
particular industries will depend on the index of value added
through manufacture. If we relate this index of value to the weight
to be transported we get the coefficient of manufacture. Whenever
it is high, an industry has a tendency to agglomerate.

5.2.6 Critical Appraisal:

The assumption of Weber is oversimplified and unreal.
With regard to labor deviation Weber assumes fixed labor centers, but
Dennison points out that location is not only the result but the cost of
distribution labor.
Weber thinks only in terms of external economies and excludes a discussion
of internal economies.
Weber assumption of fixed points of consumption does not square well with
the actual market conditions in a competitive structures.
Austin Robinson points out that in reality there is a widespread market
served by competitive producers. Besides, potential market is said to
depend not only on the situation of consumers but on the situation of
competitors.
Andreas Predohl has pointed that Webers theory is more a selective theory
than a deductive theory.
August Losch has criticized Weber for vomiting the demand considerations.
He says; Webers solution for the problem of location proves to be
incorrect as soon as not only costs but also sales possibilities are
considered. His fundamental error consists in seeking the place of lowest
cost. This is an absurd as to consider the point of largest sales as the
proper location. Every such one sided orientation is wrong. Only search for

5.3 Sargent Florences Inductive Analysis

Sergeant Florences mode of analysis is inductive in character. On

account of the very tangible results it yields regarding the trends of
industrial distribution, Florences analysis has acquired great popularity.
Sargent Florence has introduced two new concepts in the theory of
location, namely Location Factor and Co-efficient of Localization
5.3.1 co-efficient of localization:
Co-efficient of Localization measures the degree of geographical
concentration of a given industry. Judging the extent of the industrial
activity by labor inputs, the formula for the coefficient of localization can
be written as follows:
The value of C varies from 0 to 1 and the relative magnitude of C
characterizes the dispersal or localized nature of a given industry.

5.3.2 Location Factor:

The location factor is an index of the degree of concentration of an
industry in a given region and is given by the following formula:
If the location factor is unity, the industry is evenly distributed over a
whole country because the proportion of the total industrial workers
engaged in industry in the region would be equal to the proportion of
the total industrial workers engaged in the same industry in the country
as a whole.
If the location quotient is greater than one, the region has a higher
share of the industry compared with the country as a whole and if it is
less than one, the region has a lower share than the country as a
whole.

5.3.3. Critical Appraisal:

a) According to BAL Krishna, Sargent Florence contribution cannot be placed
in the category of a theory of location. Indices provided by him can only
reveal the existing state of distribution of industries in a particular country.
They are incapable of assigning reasons for a particular form of concentration
and much less through any useful light on the question of a correct allocation
of industries among different regions. Therefore, Sargent Florence
contribution cannot serve as a guide in framing any policy for the future
location of industries in a country.
b) The Co-efficient of localization is based essentially on the pattern of
distribution in each country so that it would vary from country to county
according to local conditions and may also vary within each country with
further industrialization. It would be difficult to conclude merely on the basis
of coefficient whether an industry has a tendency for concentration. At best it
can have only a verification value.
c) the location factor is based on the number industrial workers employed in
each area but a numeric reckoning of this nature is not always a sure guide
the degree of concentration of an industry. A better basis of comparison
would be the output in each area. For instance a combination of higher
proportion of capital in the form of more unto date machinery and
consequently a smaller proportion of labor might yield a higher output than
another region with a larger proportion of labor.

5.4 August Loschs Theory:

We are aware that Weber theory concentrated only on supply and cost
considerations and leaving out demand completely. In contrary to it, Losch theory
tended to neglect supply almost to the extent that Weber had neglected demand.
In his theory, therefore, Losch tried to incorporate demand by considering the size
of the market and maintained that the best location would be that which would
command the largest market area since this would bring in the highest sales
revenue.
Losch assumes an isotropic plane, that is a homogeneous land surface with an
evenly distributed population of self-sufficient farm households each having the
same tastes and similar technical capabilities; in short, a surface from which all
irregularities and non economic factors have been abstracted. He further assumes
identical production, identical demand curves for each buyer of each product, and
that transportation cost are proportional to distance. In such a situation, the
shape and size of market area will depend on the price of the product and the rate
of transport cost.

To take an illustration, let us consider the example given by Losch. Suppose

there is a farmer who produces beer over and above his requirements. If OP
is the price at the
(Fig1)

(Fig2)

Brewery, which at P (see fig 1); those living there will buy PQ bottles of beer. Further
away the price is higher by the amount of the frieght and the demand consequently
shrinks. When the weight costs are PF, the total price rises to OF and the demand
shrinks to zero. Thus PF will be the extreme sales radius for bear. By rotating the
triangle PQF on PQ as an axis we abstained the demand cone (see fig 2) whose
volume gives the total sales of the brewery at point P and thus denotes the market
area of brewery

It is possible that other farms may also produce surplus beer which they would
like to sell in the market. As long as profits are made, new breweries will come
to be established, each brewery having a circular market area.
As the number of breweries increase the circular areas touch other but even
now the whole space is not covered, and some area remains unnerved the only
possibility by which the total area can be covered is through overlapping circles
in the former cases, firms will continue to be set up to serve the unnerved
market while in the latter, consumers in the shaded region will choose a centre
that is nearest to them and leave others. Ultimately hexagons of the shapes are
formed.
The hexagonon form is the most efficient one since among all the possibilities
of utilizing the corners; the hexogon retains the most of the advantages of the
circle.
Each product will have a different network of market areas. When we
considered different products each having its own network of market area, we
can see the emergence of an economic region or landscape.

5.5 Summary
The theory of industrial location attempts to explain answers for three important
questions. They are; Why the industries are located where they are, Why the locations
are shifted, And what can be the best location for a particular industry keeping in view
the resource endowments of different regions, transport network , existing demand,
potential demand etc.,
The first comprehensive effort at developing a theory of location was made by Alfred
Weber. Webers theory is to be considered as a deductive theory. And he emphasized
the cost factors in affecting the location of industry. He assumed competitive pricing (a
situation where individual firms were powerless to influence the price of their product
which was the same everywhere). Therefore, according to him, to achieve the maximum
profit, they had to minimize cost. It follows that a rational producer would choose a
location where lowest costs were incurred. This is the reason why Webers approach is
known as the least cost approach to the theory of industrial location.
Sergeant Florences mode of analysis is inductive in character. On account of the very
tangible results it yields regarding the trends of industrial distribution, Florences analysis
has acquired great popularity. Sargent Florence has introduced two new concepts in the
theory of location, namely Location Factor and Co-efficient of Localization
August Losch tried to incorporate demand by considering the size of the market and
maintained that the best location would be that which would command the largest
market area since this would bring in the highest sales revenue.

5.8

Self-Assessment Questions

Short answer type questions:

1. What is meant by industrial location?
2. Define the Agglomerative and Degglomerative factors.
3. What is coefficient of localization?

4. Enlist the assumptions of August Loschs theory.

Long answer questions:
1. Critically evaluate Webers theory of industrial location.
2. Examine the importance of location factor in Florencess theory.
3. Discuss August Loschs theory of location