Factors Affecting Localization Of Industries
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Factors Affecting Localization of Industries
One of the important problems in launching an industrial enterprise is the choice of suitable location which will help in minimization of production costs and maximization of profit. In order to select an optimum location, the entrepreneur must carefully study the impact of the following factors:
1. Availability of Raw Materials. The availability of the required quality and quantity of raw materials at reasonable prices is an important factor for determining the location of an industrial unit. In many industries, the cost of raw material forms more than 50% of the total cost of their products. The impact of a raw materials on location depends upon their nature and the source of their deposits. Weber classified raw materials into ubiquities and localized materials. Generally, ubiquities like water, clay ad and which are found at all places have very little influence on location. That means the place of production would be fixed independently. But in the some cases, materials of ubiquitous nature may so vary in quantity and quality that they are in fact regarded of a large fixed. For example, paper manufacturing plats required a regular supply of a large quantity of pure water and they are, therefore, located near the banks of the rivers.
Localized raw materials may be further sub-divided into pure materials such as raw cotton and wool, and gross materials such as sugarcane, iron ore and coat. The latter type of raw materials loses their weight in the process of production. If a large quantity of weight losing materials is to be used during production, it is better to locate the plant near the source of material because there will be greater savings of transportation costs. For instance, iron and steel industry which uses coal and iron ore as raw materials has localized near the coal and iron ore mines.
2. Labour Supply. Every plant requires an adequate supply of labour with appropriate skills. Weber deduced that an industrial unit will deviate format eh point of minimum transpiration cost to the cheaper labour centre if the additional cost of transportation at the new centre is more than compensated by the savings in labour cost. but this hypothesis has lost its significance in the recent years because of many reasons. Labour is easily mobile concern cannot go. Moreover, certain industries are capital intensive and they require less labour. Therefore, it can be said that supply of labour, particularly in a country where there is a large scale unemployment, is not as important as it used to be half a century ago.
3. Proximity to the Market. Industrial units using non-weight losing raw materials tend to locate near the markets because of so many advantages. A manufacturer can improve his customer relations and render raid services to his customers. Industries producing perishable commodities and those producing for a local market are also draw towards the market, because it would reduce the cost of transport in distributing the finished products. The industrial units tend to disperse only if they find new markets for their products.
4. Transport and Communication Facilities. Transport services are required for assembling of materials and distribution of products. Whole selecting the location, it should be seen that transportation facilities are easily available at reasonable rates. The junction points of waterways, roadways and railways have the tendency to become industrial centers because of this reason only. It an industrial unit is directly linked with the mans of transpiration, its transpiration costs are lower. Besides transpiration, communication services also play an important role in the location of industrial units. Every business firm requires information as regards raw materials, finished goods and market price which can be made available only when there are communication facilities. Since transport and communication facilities are not adequately available in rural areas, entrepreneurs are reluctant to start their operations in those areas.
5. Power and Fuel. An adequate supply of power and fuel is an important factor for the uninterrupted operations of any enterprise. in the initial days of industrial revolution, industrial units were located near coal deposits because coal was the major source of power and fuel and is of weight losing nature and quite bulky. But with the introduction of other sources of power like electricity, gas, oil, etc., the power factor has become more mobile. This has helped in dispersal of industries. The industrial units which mainly depend on electric steel industry, where coal is still the major source of fuel, is located near the coal mines.
6. Climatic Consideration. Natural and climatic considerations like level of ground, topography (hilly and rocky surface) of a region, and drainage facilities influence the locating of industries in certain cases. For example, cotton textile mills required a humid climate. The humid climate of Bombay offered great scope for the development of cotton textile industry. But the development of artificial humidification and air-conditioning has reduced the importance of climate to some extent. Entrepreneurs do not prefer to locate their units in hilly and rocky areas because of higher transport cost. Similarly, regions which are subject to frequent floods, earth-quakes, etc. do not attract industrial units.
7. Supply of Capital. Finance is the life-blood of any industrial venture. Availability of adequate funds at low rates of interest is an important factor influencing industrial location. But these days, capital has become a highly mobile factor of production. Despite this fact, availability of funds at cheaper rates of interest is an important consideration. For instance, there are State Financial Corporations in various states which offer loans at a very low rate of interest if the entrepreneurs start their projects in the notified backward areas. Similarly, technocrat entrepreneurs who do not have sufficient to implement their projects will naturally be attracted towards those areas where they can get sufficient supply of finance.
8. External Economies. Sometimes, industrial units are located in those caters where other industrial units are already located. It is because of the fact that transportation, warehousing, banking communication and other services are easily available. Secondly, the raw materials may be easily available at cheaper rates. For instance, by-product of one unit may be the raw material for other distilleries are located near the sugar factories because molasses which is a by-product of sugar industry is a raw material for the distilleries.
9. Personal Factors. Personal preference and prejudice of an entrepreneur may also play an important role in the choice of location. For instance, Mr. Ford started manufacturing motor cars in Detroit because it was his home town, and Lord Nuffield selected Cowley because the school in which has father was educated happened to be for sale. The success of the entrepreneur in such a location depends upon his extra-personal efforts.
10. Government Policy. The government policy encourages entrepreneurs to set up industrial units in backward areas by giving various tax incentives in the form of remission of excise duty and sales tax. It also offers certain non-tax incentives like loans at cheaper rates, factory sheds, etc. The Government has also put restrictions on granting of licenses to certain industries to be set up in metropolitan cities with a population of more than 10 lac and urban areas with more than 5 lac population. However, the government has made it mandatory for all new enterprises to obtain environmental approval from the appropriate authority.
11. Legal Environment. Legal environment determined by various laws and court decisions also put pressure on the business and managers. For instance, in 1992, several tanneries in Kanpur were ordered to be closed down by the Supreme Court as they were polluting the Holy Ganga. In August 1993, the Supreme Court passed an order for the closure of iron foundaries in Agra round the famous Ta Mahal because air pollution caused by them has an adverse impact on the beauty of Taj Mahal.
12. Miscellaneous Factors. Miscellaneous factors like historical incidents and attitude of the community influence location of industries. In Mughal days, cottage industries thrived near the courts of rulers due to the patronage of state. Industrial relations atmosphere in the region may also affect the location of certain industrial units.
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1. Availability of Raw Materials. The availability of the required quality and quantity of raw materials at reasonable prices is an important factor for determining the location of an industrial unit. In many industries, the cost of raw material forms more than 50% of the total cost of their products. The impact of a raw materials on location depends upon their nature and the source of their deposits. Weber classified raw materials into ubiquities and localized materials. Generally, ubiquities like water, clay ad and which are found at all places have very little influence on location. That means the place of production would be fixed independently. But in the some cases, materials of ubiquitous nature may so vary in quantity and quality that they are in fact regarded of a large fixed. For example, paper manufacturing plats required a regular supply of a large quantity of pure water and they are, therefore, located near the banks of the rivers.
Localized raw materials may be further sub-divided into pure materials such as raw cotton and wool, and gross materials such as sugarcane, iron ore and coat. The latter type of raw materials loses their weight in the process of production. If a large quantity of weight losing materials is to be used during production, it is better to locate the plant near the source of material because there will be greater savings of transportation costs. For instance, iron and steel industry which uses coal and iron ore as raw materials has localized near the coal and iron ore mines.
2. Labour Supply. Every plant requires an adequate supply of labour with appropriate skills. Weber deduced that an industrial unit will deviate format eh point of minimum transpiration cost to the cheaper labour centre if the additional cost of transportation at the new centre is more than compensated by the savings in labour cost. but this hypothesis has lost its significance in the recent years because of many reasons. Labour is easily mobile concern cannot go. Moreover, certain industries are capital intensive and they require less labour. Therefore, it can be said that supply of labour, particularly in a country where there is a large scale unemployment, is not as important as it used to be half a century ago.
3. Proximity to the Market. Industrial units using non-weight losing raw materials tend to locate near the markets because of so many advantages. A manufacturer can improve his customer relations and render raid services to his customers. Industries producing perishable commodities and those producing for a local market are also draw towards the market, because it would reduce the cost of transport in distributing the finished products. The industrial units tend to disperse only if they find new markets for their products.
4. Transport and Communication Facilities. Transport services are required for assembling of materials and distribution of products. Whole selecting the location, it should be seen that transportation facilities are easily available at reasonable rates. The junction points of waterways, roadways and railways have the tendency to become industrial centers because of this reason only. It an industrial unit is directly linked with the mans of transpiration, its transpiration costs are lower. Besides transpiration, communication services also play an important role in the location of industrial units. Every business firm requires information as regards raw materials, finished goods and market price which can be made available only when there are communication facilities. Since transport and communication facilities are not adequately available in rural areas, entrepreneurs are reluctant to start their operations in those areas.
5. Power and Fuel. An adequate supply of power and fuel is an important factor for the uninterrupted operations of any enterprise. in the initial days of industrial revolution, industrial units were located near coal deposits because coal was the major source of power and fuel and is of weight losing nature and quite bulky. But with the introduction of other sources of power like electricity, gas, oil, etc., the power factor has become more mobile. This has helped in dispersal of industries. The industrial units which mainly depend on electric steel industry, where coal is still the major source of fuel, is located near the coal mines.
6. Climatic Consideration. Natural and climatic considerations like level of ground, topography (hilly and rocky surface) of a region, and drainage facilities influence the locating of industries in certain cases. For example, cotton textile mills required a humid climate. The humid climate of Bombay offered great scope for the development of cotton textile industry. But the development of artificial humidification and air-conditioning has reduced the importance of climate to some extent. Entrepreneurs do not prefer to locate their units in hilly and rocky areas because of higher transport cost. Similarly, regions which are subject to frequent floods, earth-quakes, etc. do not attract industrial units.
7. Supply of Capital. Finance is the life-blood of any industrial venture. Availability of adequate funds at low rates of interest is an important factor influencing industrial location. But these days, capital has become a highly mobile factor of production. Despite this fact, availability of funds at cheaper rates of interest is an important consideration. For instance, there are State Financial Corporations in various states which offer loans at a very low rate of interest if the entrepreneurs start their projects in the notified backward areas. Similarly, technocrat entrepreneurs who do not have sufficient to implement their projects will naturally be attracted towards those areas where they can get sufficient supply of finance.
8. External Economies. Sometimes, industrial units are located in those caters where other industrial units are already located. It is because of the fact that transportation, warehousing, banking communication and other services are easily available. Secondly, the raw materials may be easily available at cheaper rates. For instance, by-product of one unit may be the raw material for other distilleries are located near the sugar factories because molasses which is a by-product of sugar industry is a raw material for the distilleries.
9. Personal Factors. Personal preference and prejudice of an entrepreneur may also play an important role in the choice of location. For instance, Mr. Ford started manufacturing motor cars in Detroit because it was his home town, and Lord Nuffield selected Cowley because the school in which has father was educated happened to be for sale. The success of the entrepreneur in such a location depends upon his extra-personal efforts.
10. Government Policy. The government policy encourages entrepreneurs to set up industrial units in backward areas by giving various tax incentives in the form of remission of excise duty and sales tax. It also offers certain non-tax incentives like loans at cheaper rates, factory sheds, etc. The Government has also put restrictions on granting of licenses to certain industries to be set up in metropolitan cities with a population of more than 10 lac and urban areas with more than 5 lac population. However, the government has made it mandatory for all new enterprises to obtain environmental approval from the appropriate authority.
11. Legal Environment. Legal environment determined by various laws and court decisions also put pressure on the business and managers. For instance, in 1992, several tanneries in Kanpur were ordered to be closed down by the Supreme Court as they were polluting the Holy Ganga. In August 1993, the Supreme Court passed an order for the closure of iron foundaries in Agra round the famous Ta Mahal because air pollution caused by them has an adverse impact on the beauty of Taj Mahal.
12. Miscellaneous Factors. Miscellaneous factors like historical incidents and attitude of the community influence location of industries. In Mughal days, cottage industries thrived near the courts of rulers due to the patronage of state. Industrial relations atmosphere in the region may also affect the location of certain industrial units.
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