Alfred Weber's Theory of industrial location

A theory trying to explain the location of a firm

1. INDUSTRIAL LOCATION

2. M EANING OF I NDUSTRIAL L OCATION Industrial location refers to geographical position of industries. The analysis of industrial location shows wide variations in their distributional patterns. Some industries are spread evenly throughout the whole region and some other are found only at a particular place.

3. LOCATION AND LOCALIZATION OF INDUSTRIES An entrepreneur would like to establish his industry where the cost of production is lowest, this is called ‘Location of Industry’. The Concentration of an industry in a particular area is called as ‘Localization of Industry’. Fo r e x ampl e :- the industrial zone in Dar es Salaam

4. WEBER ’ S LEAST COST THEORY OF INDUSTRIAL LOCATION

5. WHO WAS ALFRED WEBER ? Alfred Weber was a German eco n om ist, geographe r , sociologist and theoretician of culture whose work was influential in the development of modern economic geography. Published his Theory on Location of Industries in1909. Earlier to Weber, another German economist Launhardt has given a simple principle transport cost (30July 1868 – 2 May 1958) I NTR O DU C TION

6. Weber’s basic principle is that a firm wou l d c ho ose location where costs are the least. Assumptions:- U n it o f s t u d y is tak en a s s i n gle c o u n try with cons u mption centre. Some natural resources are ubiquitous. E.g.: Water, Sand, Clay etc. Some natural resources are localized in nature. Eg .: Iron ore, Fuel etc. Labou r is n ot u b iq u it o u s bu t it ha s fix e d locat i on an d fix e d mobility. Homogeneous climate.

7. E XPLANATION :

8. TRANSPORT COST b y three b a sic T rans p ort cos t are i n f l uenced elements. The weight to be transported. The distance to be covered. The nature of commodity.

9. E.g. 1000 kg of Gold Ore will give you only10 kg of pure Gold.

10. M ATERIAL I NDEX Material Index= Weight of local materials input Weight of final products I f M I i s greater than on e then the fi r m i s mat erial oriented. If M I i s l e ss than on e then the fi r m i s mark e t oriented. If MI is equal to one then the firm is material as well as market oriented. MI= Material Index

11. L OCATIONAL T RIANGLE Costliest & Shortest to Transport 2 nd Costliest & 2 nd Shortest to Transport Ma r k e t Cheapest & Longest to Transport LEAST TRANSPORT COST POINT Material A (Gold) MI=100 Material B (Silver) MI=10

12. L ABOUR C OST According to Weber, another regional factor for deviation of Industry from one place to another is Labour Cost . It happens due to Difference in labour costs. The Labour costs may differs due to two reasons:- Differences in wage rates. Differences in the level of efficiency. According to him, If savings in labour cost per unit of output are greater than the extra transport cost per unit then the industry take deviation from Least Transport Cost Point to Least Labour Cost Point.

13. T= Least Transport Cost Location L= Cheap Labour Cost Location $3 $6 $9 Labour cost per unit at L are less than $6 than at point T, as L is within isodopane $6, the firm would, other things being equal, will divert its location at the point of reduced labour cost i.e. at ‘L’.

14. A G G LOM E R A TIVE Meaning – Agglomerative refers to the advantages or cheapening of cost production due the concentration of an industry. In others words –minimizing cost of production due to centralization of many industries in a particular area through internal and external economics of various kinds such as:- Sharing of equipments Specialization Large scale of business and selling

15. L OCATING THE CENTRE OF AGGLOMERATION P1 P3 P2 Pa

16. DEGGLOMERATIVE Meaning – Degglomerative is opposite to the agglomerative. Such situation arises due to rise in the cost of production and leads to decentralization of industries. Cost of production increases due to following reasons. Rise in the price of raw materials High price of land Rise in tax rates Government policies.

17. SPLIT IN LOCATION Its means locating industry more than one place. In other words, first stage of production may be near the source of raw materials and later stage may be near the place of final consumption ( market). This results in cost savings. For example : - In gold manufacturing industry, the processing of gold ore ( raw) will be near the source of gold ore and manufacturing of gold ornaments will be near the place of final consumption or market.

18. C RITICISMS OF W EBER ' S THEORY Weber’s treatment of transport costs in terms weight and distance only found to be objectionable. Further, the transport costs in the actual word vary largely with type of transportation and the quality of goods .

19. Weber, in his theory of location, has assumed the existence of fixed labour centers. In real world, it is very difficult to find places with unlimited supplies of labour. Weber’s assumption of the existence of fixed points of consumption has been questioned. According to Austin Robinson in reality there is a wide spread market served by competing producers.

20. Weber has been criticized because he has selected only three factors namely transport, labour and agglomeration as causes of localization. I can thus say that the theory is largely arbitrary. We can analyze other theories for application to the reality.

21. T HANK Y OU .