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Location theory

Location theory. International Business Environment. Location theory. Alfred Weber (1909): 1. A part of the costs are stable 2. To gain as much as possible 3. Cost depending of the geography 4. Transportation costs 5. Agglomeration. Location factors. 1. raw materials 2. energy

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Location theory

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  1. Location theory International Business Environment Tuija-Liisa

  2. Location theory Alfred Weber (1909): 1. A part of the costs are stable 2. To gain as much as possible 3. Cost depending of the geography 4. Transportation costs 5. Agglomeration Tuija-Liisa

  3. Location factors 1. raw materials 2. energy 3. working force 4.size of the market 5. transportation Tuija-Liisa

  4. Location economy 1. How important is the place? 2. Why do some regions do better than the others? 3. One sector and one place - why? 4. Why is one place/region specialised? Tuija-Liisa

  5. Competitive advantage of nations Michael Porter: Firm strategy, structure and rivalry Demand conditions Factor conditions Related and supporting industries Tuija-Liisa

  6. Competitive advantages of nations Factor conditions: • capital, land, jobs and raw material Demand conditions: • not the size of the market but the quality of the demand Tuija-Liisa

  7. Competitive advantages of nations Related and supporting industries • distribution  co-operation - cluster Firm strategy, structure and rivalry • many companies, same branch, same region  competition  innovation Tuija-Liisa

  8. Uneven growth What is important for economic growth? • geography: harbours, raw materials • a specific economical, political, technological or social situation • historical factors • in the beginning outside factors, later inside factors Tuija-Liisa

  9. What is growth and welfare? • Traditionally: BNP growth of 5-7% or more • BNP / capita is growing faster than population • non-economical factors( literate rates, healthcare, unemployment) • minimising poverty and employment Tuija-Liisa

  10. The unindustrialised countries Differences • size (geography, population, incomes) • history • natural resources • relation between public and private sector • structure of industry • external political, economical and cultural factors Tuija-Liisa

  11. The unindustrialised countries Similarities • low standard of living • low production • population growth • unemployment rates are high • dependency of exporting primary products • dependency on international relations Tuija-Liisa

  12. Location factors today • the importance of innovations • innovations are more than high-tech • innovations in co-operation with the industry • closeness • know how is more important than raw materials Tuija-Liisa

  13. Geographical blocks 1. The “first world”: North America, West Europe, Japan, Oceanic 2. The “second world”: China, Russia and the former East Europe 3. The “third world”: Latin America, Africa, Arab world, rest of the Asia Tuija-Liisa

  14. Different types of regional economies 1. High technology 2. No diversified economical structure educated inhabitants 3. Old structure in economics uneducated inhabitants, low wages ex. textile industry Tuija-Liisa

  15. Regionalism • control on this level • co-operation • networks • barriers against others (trading blocks: EU, NAFTA, PAFTA…) Tuija-Liisa

  16. Agglomeration Companies and people concentrated to one place ex. Silicon Valley, Detroit, The City of London Esbo, Uleåborg och Salo in Finland • background in traditional location factors • when one is successful, others follow • industry: concentration to one place Tuija-Liisa

  17. Advantages of agglomeration economy 1. Cost efficiency in production 2. Cost efficiency in transportation 3. Specialised working force 4. Stimulating environment -dynamic, flexibility Tuija-Liisa

  18. 1. Traditional location factories 2. Imitation 3. Local networks 4. Local culture, infrastructure,institutions 5. City = “brand” 6. External attraction 7. Consolidation 8. Stagnation and crises 9. A new start? The agglomeration “cycle” Tuija-Liisa

  19. The role of IT • base to internationalisation and globalisation • a new arrangements of the economic activities • creativity and innovations - concentration time and space have a different meaning Tuija-Liisa

  20. The role of IT Transports and communication: • faster, specialised (ex. stocks) Production and processes • new machines and new products • a shorter product life cycle Tuija-Liisa

  21. The role of investments Who & where? • The biggest investors: USA, United Kingdom, Germany and Japan Sectors: • finance, marketing, telecommunication, business services and consumption Tuija-Liisa

  22. The role of the MNC • to take advantage of geographical differences  more effective places for production • political reasons • the role of space becomes different but we still need special knowledge (ex. international marketing) Tuija-Liisa

  23. Product life cycle Tuija-Liisa

  24. Product life cycle I New market; introduction II Fast growth, big investments, more production III Peak, the demand does not grow IV Demand is going down • under the periods III and IV the production will be changed/moved to an other area Tuija-Liisa

  25. Product life cycle Tuija-Liisa

  26. RAIN FOREST DESTRUCTION DESERTIFICATION ACID DEPOSITION Very high degree of desertification hazard Present distribution of forest area 4.0 most acid 4.5 High degree of desertification hazard 5.0 least acid Area originally forested (Estimated acidity of precipitation in the northern hemisphere) Environment Tuija-Liisa

  27. GDP PER HEAD(In US Dollars) 17,500 or more 15,000–17,499 12,000–14,999 10,000–11,999 7,500–9,999 5,000–7,499 2,500–4,999 1,000–2,499 Less than 1,000 Data not available American Samoa Andorra Anguilla Bahamas Barbados Bermuda Cape Verde Is Cayman Is Christmas Cocos Is Comoros Is Cook Is Dominica Faeroe Is Fiji French Polynesia Gibraltar Grenada Guadeloupe Guam Guernsey Hong Kong Isle of Man Jersey Kiribati Liechtenstein Macao Maldives Malta Mauritius Mayotte Montserrat Nauru Netherlands Antilles Niue Norfolk Is Reunion St. Helena St. Kitts & Nevis St. Lucia St. Pierre & Miquelon St. Vincent San Marino Sao Tome & Principle Seychelles Singapore Tonga Trinidad & Tobago Turks & Caicos Is Tuvalu UK Virgin Is US Virgin Is Vanuatu Wallis & Fortuna Western Samoa Economic Strength Tuija-Liisa

  28. AVERAGE INDUSTRIAL GROWTH RATE (In percent) 8.0 or more 6.0–7.9 4.0–5.9 2.0–3.9 0–1.9 Less than 0 Data not available Industrial Production Tuija-Liisa

  29. ENERGY CONSUMPTION PER CAPITA, 1982 (Kilograms coal equivalent) Asia 20% Oceania 1% Former USSR 19% 10,000 or more 6,000–9,999 3,000–5,999 2,000–2,999 1,000–1,999 500–999 Less than 500 Data not available North America 30.5% Africa 2.5% South America 3.0% Europe 24% Energy Consumption Tuija-Liisa

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