Factors affecting industry location

What are the factors affecting industry location?

What are the factors affecting industry location?

• Every day, companies make decisions about where to locate their industries

• Different industries require different inputs

  • They also require them to be readily and cheaply available 

• Most companies look for the least-cost but highest-profit location

• Manufacturers need to find the optimum location that will produce maximum profit

• This depends on a number of factors—physical, human and economic

Physical factors

• Raw materials: industries that need heavy or bulky materials will locate as near as possible to these materials - pull factor

• Site availability and cost of land are important

  • Large factories need flat, well-drained land with or without the potential for expansion later on – pull factor

• Industries such as aerospace and film benefit from sunnier climates, which serve as a pull factor for their location

  • A good climate also reduces energy bills and improves the quality of life

• Energy-demanding industries may relocate to countries/areas with readily available or cheaper energy – pull factor

• Natural routeways—harbours, motorways, airports, and railways—provide good locations for ports and industrial complexes, which create access points for inputs but also outputs

  • Poor infrastructure in LICs act as a push factor, as it increases the cost of transporting raw materials and finished goods

• Water supplies: some industries (paper and cotton processing, etc.) require a lot of water in their manufacturing and so need to be near a reliable water supply such as lakes, rivers, etc

  • Poor and unreliable water supplies can be a major push factor for relocation of manufacturing to some LICs

Human and economic factors

• Capital: Some areas naturally attract inward investment, as the returns will be higher

• Markets: The location and size of the potential market are major influences for some industries. However, cultural differences and consumer habits can be a push factor

• Political policies – LICs can encourage inward investment through tax exemptions, free trade zones, and grants. This can make areas attractive for industries to invest in

• Transport: the cost of transport is expensive and accessibility for easy access helps to reduce those costs

  • Motorways, railways, ports and airports can influence where industry locates

• Containerisation increases trade between countries because it is easier and less expensive to do business

  • Standard container sizes enable faster trade and lower shipping costs

  • However, some places can be difficult to get to because container ports have large footprints and storage areas

• Communications: being able to communicate effectively and quickly with employees, customers and suppliers is vital to successful manufacturing

  • This can be a push factor if TNCs do not consider the language barrier (such as instructions on machinery and translation services) along with time zone differences

• Labour force: quality and cost of labour are central to effective manufacturing; having a reliable workforce is necessary, but also mobility, turnover and reputation are also factors

  • In LICs, labour costs are usually lower and this is a pull factor

• Quality of life: highly skilled workers will prefer areas where the work/life balance is good

Changes to manufacturing and location over time

• Raw materials: sources of raw materials often run out

  • Manufacturers will move in response

  • Improved infrastructure means business not tied to energy centres—coalfields, etc.

• Rising costs: wage levels, laws, etc., mean costs go up in MICs so work moves elsewhere (e.g. manufacturing)

• Transport: commuting & migrating easier because there are now fewer barriers to travel

• Competition: fewer people are needed to complete work now, e.g., banking uses ICT

• Technology: advances in ICT mean more work from home, air travel, etc.

• Outsourcing: saves money; work sent elsewhere to save costs (e.g., call centres)