Site vs. Situation • Situation factors: involve transporting materials to and from a factory • Minimize cost of transporting inputs to the factory & finished goods to the consumers • Site factors: related to the costs of factors of production inside the plant • Land, labor, capital
Least Cost Theory (1909) • Alfred Weber’s model – owners of manufacturing plants seek to minimize three costs: • 1) Transportation, and • 2) labor
Least Cost Theory (1909) • Weight-losing case: final product weighs less than raw materials; location = source • Copper industry: only 0.7% of mined is copper, rest is waste (gangue) • Then concentration process (crush, grind, mix, filter, dry) results are about 25% copper • Then smelting to reduce impurities • Bulk-reducing industry (steel is too) • Where should the concentration plant be in relation to the mine and the customer?
Soft drink bottling • Empty cans or bottles • Syrup concentrate • Water • =finished product • Bulk-gaining industry (fabricated metals – cars, refrigerators) • Where should the bottler be located in relation to the can manufacturer and the customer?
Perishable Products • Must locate near market • But not an issue of bulk-reducing or bulk-gaining
Labor Intensive Industries • textiles
Energy Intensive Industries • Aluminum
Footloose Industries • Micro-chips
Break-of-Bulk Points • The location where transfer among transportation modes is possible • Costs rise each time cargo has to be loaded and unloaded • Ship • Rail • Truck, or • Air
Labor-intensive Industry • Labor • Labor-intensive industries: Ex. Textiles – less-skilled, low wages • 6% of dollar value but 14% of employment • Land • Factors to consider: Climate,Topography, Low-cost energy sources • Capital
Location Models Weber’s Model Manufacturing plants will locate where costs are the least (least cost theory) Theory: Least Cost Theory Costs: Transportation, Labor, Agglomeration Hotelling’s Model Location of an industry cannot be understood without reference to other industries of the same kind. Theory: Locational interdependence Losch’s Model Manufacturing plants choose locations where they can maximize profit. Theory: Zone of Profitability
Hotelling’s Model • Harold Hotelling (1895-1973) • Locational Interdepedence • Originally locate near customers – but will gravitate to each other to maximize profits • The costs for some customers will be greater if the 2 sellers cluster – further to walk. Also fewer customers aware of service. But can’t move for fear of losing customers.
Changing Markets • Outsourcing • New international division of labor • Moving industry to low-cost labor • Just-in-time Delivery • Post-Fordist system – more flexible, less mass produced (time-space compression) • deindustrialization
High tech corridors – area designated by local or state government to benefit from lower taxes and higher technology infrastructure (Silicon Valley) • Technopole – area planned for high tech where agglomeration built on synergy among tech companies occur (from Dulles Airport – DC has AOL, MCI, Orbital Sciences)
Formal economy • Informal economy