LOCATION CONDITIONS AND LOCATION FACTORS

1. LOCATION CONDITIONS ANDLOCATION FACTORS PATRICIA CALLEJA PLAZA & MICHAL GLONDA November 2009

2. Characteristics which vary from place to place and affect the viability of factories. • Tendency to interpret condition and factor like synonyms. • Nishioka and Krume make a distinction: Location factors: specifics interpretations made by individual firms of more general location. Location conditions: differences among locations that exists for all industries.

3. What places offer industry: a typology of location conditions Eleven broad categories of location are recognized: 1.Transportation 2.Materials 3. Markets 4.Labour 5.External economies 6.Energy 7.Community infrastructure 8.Capital 9.Land 10.Environment 11.Government

4. FIRST- Locationcondition are complexcomprisecharacteristic of a tangible and not-tangible nature. SECOND- Locationconditions are hardtomeasure. Tangible cost can bequantifiedpreciselybut non-tangible features can bemappedprecisely. THIRD- Cautionneeds in theinterpretation of individual locationconditions. FOURTH- Various categories of location condition are not mutually exclusive FIFTH- Non-tangible features of location condition are real and important.

5. Materials, market and transportation • Factorieswhichutilizematerialsfrom a variety of sourcesincurtransportationcosts • Locations vary in terms of accessibility to materials and markets • Transportation cost are determined by distance or mode of transportation • Total cost tipically increase with distance and weight • Freight rates decrease with distance • Rail, water and pipeline transportation have high fixed costs • Fixed cost are much lower for road transportation

6. Primary manufacturing activities costs can be reduce by close acces to the raw materials. • Manufacturing activities that utilize imputs which increase in bulk perishability reduce costs locating near markets.

7. Labour • Labour costs comprises wages and non-wage benefits. • Germany 22.17 • Canada 17.31 • US 15.45 • France 15.26 • Japan 14.41 • UK 13.42 • Taiwan 4.42 • Brazil 2.55 • Recent report revealed that Germany pays the highest manufacturing wages. • Industries requiring abundant hand work location in underdeveloped countries. • Industries who need qualified workforce location in developed countries.

8. US has low levels of unionization just 12% of the workforce compared to 36 % in Canada at 1980s. • Respect non-tangible features unionization is an important characteristic. • Skill is another important intangible characteristic. • Skilled workers engage in task which require a long time to learn. • Unskilled workers engage in task that require little time to learnt. • Skills also change over time for the technological change. • Labour as a location condition is complex . • The migration of people creates option for firms to attract labour characteristic

9. External economies of scale • Adavantages of locating in largercityratherthan a smallerone. • Acces more diversified, reliable and cheaper transportation services, acces to alarger labour pools…. • Larger cities imposse diseconomies of scale in the form ogfcongestion, pollution and crime. • Industrial districts which offer positive externalities.

10. Energy • Energysourceswere a significantlocativeconditionfortraditionalidustries. • Electricity energy can be transmitted over very long distances cheaply. • Energy decline as a location

11. Comunity infrastructure and amenity • Allmanufacturingactivitiesrequireaccestocomunity. • In some instances manufacturing investment occurs in ares where new infrastructure has to be provided. • Existing centres of industry have sought to create “industry parks” which provide infrastructure. • Industrial park have expanded rapidly since the 1950s. • Industrial parks increasingly cater for contemporary life styles regarding health, recreation and aesthetics.

12. Capital • Fixed capital are measuredbycosts of construction and relateddesingcosts. • Financial capital is highly mobile and while interest rates vary by location, systematic geographical variations are not evident. • US is the pre-eminent supplier of venture capital for high-tech companies.

13. Land • Land cost varies among countries • Highest cost being in metropolitan areas. • Land prices constitute an important location condition. • Non-tangible features associated with land: shape, accessibility and serviced

14. Environment • Spatialvariations in environmentalamenities and spatialvariations in environmetpolicies and regulation. • Growing interest in environment regulations with respect to air and water pollution. • Legislation has required new factories to incorporate technology to restrict pollution. • Resolving environmental problems at existing location is normally extremely expensive

15. LOCATION FACTORS Location factors express how firms assess places Location conditions have different implications for individual firms contemplating investment in new facilities Firms interpret location conditions as location factors reflecting their specific requirements for specific investment decisions Firms may assess the same location condition in different ways depending on which tangible or non-tangible features are considered important Location factors are influenced among other things also by the organizational constraints, value systems and preferences of individual decision-makers As one way of recognizing the “wide range of factors“ influencing location, the product cycle model is reviewed

16. The product cycle model The PCM was developed in the 1960s to explain international investments by US-based multinationals that were manufacturing consumer durables such as electronic products Since then the PCM has been widely adapted to link product cycle and location dynamics The central (locational) thesis of the PCM is that as products are researched, developed and standardized, the optimal bundle of location conditions shifts from high-wage regions to low-wage regions According to this model, products evolve through various “life-cycle“ stages analogous to human beings Stages of a product cycle: invention, R&D, innovation, rapid growth, maturity, obsolescence, (death)

17. The product cycle model and production inputs

18. The product cycle model During this evolution, technology shifts from laboratory equipment and pilot plants to relatively small-scale operations to large-scale plants utilizing standardized machinery designed for mass production. That is, over time, products shift from (skilled) labour-intensive activities to capital-intensive activities employing unskilled labour. From a geographical perspective, as products evolve through the various stages, the underlying input conditions change, which in turn may lead to related shifts in location conditions and factors The product cycle model argues that during the R&D and innovation stages the optimal location conditions are found within the US, particularly in locations providing access to scientists, engineers, technicians, skilled labour and various kinds of external economies of scale in the form of universities and their expertise and skills, specialized engineering and machine tool firms, the machinery manufacturers themselves and, if required, supplies of venture capital In the late stages of the product cycle, when the product is standardized and mass produced, increasingly strong competiton encourages firms to seek lower costs, for example, by building large-scale factories which fully exploit any available economies of scale. In this mature stage, firms can replace skilled labour with relatively unskilled labour operating sophisticated bud proven technology. If labour is the cost component that geographically varies the most, the optimal bundle of location conditions shifts to low-wage regions at this stage

19. Control functions • For single-plant firms – production, head-office and R&D activities are combined in one location - location decisions are made by individual owner-managers For multi-plant firms – head-office and R&D activities, are typically geographically separate from production activities - locations are chosen by professional managers who may or may not work in the same location • The geographical separation of head-office and R&D activities also permits firms to locate specialized functions according to more specific location factors

20. Head-office location factors • Corporate head-offices are located in major metropolitan centres and in downtown cores or central business districts • The key locational attraction for the geographical concentration of head-offices is to facilitate person to person contact in the exchange of information

22. R&D location factors • The location of R&D laboratories is influenced by a wide range of factors which, for the most part, are difficult to cost precisely for individual firms • Location factors of R&D facilities are, for example, enviromental quality, quality of public education, availability of professionals, community business attitudes, proximity to major airport, cost of housing etc.

23. Ratings of Location Factors by Management and Employees: R&D Facilities of Large US Corporations

24. Innovative manufacturing • Generally speaking, high-tech activities are associated with the early stages of the product life cycle, which emphasizes the importance of access to skilled scientific, engineering and factory workers and to external economies • Location factors by high-technology companies are, for example, labour skills/availability, universities, transportation, overall bussiness climate, goverment incentives, labour costs etc.

25. The Rankings of Location Factors by High-Technology Companies in 4 North American Surveys

26. Branch plants • There are a lot of locations factors underlying new secondary manufacturing plants in particular regions, including those of branch plants controlled by head-offices based outside of the region • Location factors of branch plants are labour factors, accessibility factors, community factors, business climate factors, utility factors, plant site factors, financial and special factors

27. Location Factors for Branch Plants in North Carolina

28. Conclusion • The results from location surveys are admittedly not easy to interpret and measure in precise ways, while the non-standardized nature of research designs also creates difficulties for comparisons of surveys • Anyway, there are many factors which influence factory locations and, it might be added, many of these factors are of a subjective nature • Labour costs have frequently been revealed to be important location factors, but other factors invariably have to be taken into account which affect location choice

29. Thank you for your attention