Industrial Location Theories

1. Industrial Location Theories

2. 1. Least-Cost Theory Alfred Weber Explains the optimum location of industrial facilities using the locational triangle Triangle illustrates the least-transport-cost location Transportation is the key element

5. 2. Locational Interdependence TheoryHarold Hotelling Locations are most influenced by locations chosen by its competitors Competitive firms with identical cost structures arrange themselves to assure a measure of spatial monopoly in their combined market Major emphasis is on revenue rather than cost

8. 3. Profit-MaximizationAugust Losch The correct location of a firm lies where the net profit is greatest. The production location will be where the difference between production costs and sales income is the greatest. Effected by Substitution Principle Spatial Margin of Profitability Satisfying Locations

10. 4. Agglomeration Economies Savings an individual enterprise derived from locational association with a cluster of other similar economic activities� Multiplier Effect: The cumulative processes by which a given change sets in motion a sequence of further industrial employment and infrastructure growth.

11. 5. Comparative Advantage The principle that an area produces the items for which it has the greatest ratio of disadvantage in comparison to other areas, assuming free trade exists. Outsourcing: Producing parts or products abroad for domestic sale

13. Transportation Terms Line Haul Costs (Variable Costs)�the costs involved in the actual physical movement of goods. Terminal Costs (Fixed Costs)�the costs incurred, and charged, for loading and unloading freight at origin and destination points unrelated to distance. Short Haul Penalty�two short hauls cost more that one long one Tapering Principle�actual costs of transport, including terminal charges and line costs, increase at a decreasing rate as fixed costs are spread over longer hauls. Just in Time Delivery�delivery of products that are highly perishable.