Relevance and Criticism of Industrial Location Theory

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Alfred Weber, a pioneer of locational analysis in Geography, introduced the Theory of Industrial Location in 1909. Weber combined economic parameters with spatial parameters to arrive at a profitable location for industries. It is also known as Least Cost Theory because this theory tries to find a location of least cost for an industrial location. In conclusion, this theory considers transport cost as an overarching factor which controls the location of the industries. The producer will only consider an alternate to least transport cost location only when labor cost (Fig. 1) or externalities outweighs the effect of transport cost. For details read Theory of Industrial Location. In this article, we will focus on the relevance and criticism of industrial location theory.

Fig. 1: Impact of Labor Cost on Industrial Location

Relevance of Industrial Location Theory

Industrial location theory was a step in the right direction in locational studies. It became the foundation of other location theories during the quantitative revolution in the 1950s. Despite wide criticism, this theory is relevant in many ways as following.

  1. The importance of nature and weight of raw material is still a factor which determines the location of industries. An industry prefers a location near the raw material the raw material is weight losing. Similarly, availability of demand and other factors of production determines the location of the weight gaining industries.
  2. Transport cost is a major factor which controls the industrial location. It is primarily true for the products which are heavy and cheap.
  3. Cheap labor is the most important factor for the location of Information Technology multinational companies in India. Here, the cost of transport is negligible due to the nature of industries.
  4. In a globalized world, there is infinite competition and finite resources, therefore, reducing the transport and labor cost is one of the major areas for the profit enhancement.
  5. We can observe that most industrial belts are located on major transport routes. For instance, Mumbai-Pune, Delhi-Mumbai, Chennai-Bangalore etc. are major transport routes with large industrial corridors.

Criticism of Industrial Location Theory

Despite many advantages of industrial location theory, it suffers from many loopholes and demerits.

  1. Transport cost does not increase uniformly and constantly. The marginal transport cost declines with increasing distance i.e. per kilometer transport cost declines with increasing distance.
  2. Agglomeration of industries provide many external economies such as advanced technology, advertising platforms, administrative ease etc. However, increase in other costs such as land cost, labor cost etc. may force the producer to consider alternative locations.
  3. Ignores historical factors: This theory sidelines the role of historical events on the location of industries. For instance, a person established a firm in Ambala, Haryana for manufacturing scientific lab glassware by choice. This initial event led to development of a more complete glassware industry in Ambala whereas there was no advantage of least transport cost, labor cost or availability of raw materials.
  4. The markets, the source of the raw material and intermediate goods are organized in a very complicated manner over space. They do not follow the triangular pattern.
  5. Firms try to locate at locations of maximum profits rather than least cost locations.
  6. The theory also ignores the role of government policies in determining location of industries e.g. tax rebate for locating in backward regions in India.

Unrealistic Assumptions

Apart from the above demerits, this theory has many unrealistic assumptions which render it impractical in most cases.

  1. The producers do not have full knowledge to make a perfect choice.
  2. The suppliers of raw materials do not sell their products at a constant price to every producer.
  3. The availability of a transport network is more important than the transport cost.
  4. The geographic terrain does not allow the establishment of industry at all locations. The rugged surface with thick jungles is not suitable for the location of a firm even if it is near to market or source of raw materials.
  5. Raw materials are unevenly distributed over the surface of earth.
  6. Labor is completely mobile, especially in the modern era. The fast modes of transport and communication promotes the mobility of labor.
  7. In a globalized world, the big MNCs do not let the small firms compete in the market. So, there is a lack of perfect competition. Competition is only among the MNCs.

Conclusion

In short, we can argue that the theory of industrial location is academically sound but does not offer solutions for the practical problems in the economically and geographically dynamic world. However, it provides us with a general idea of minimizing labor and transport cost by choosing a favorable location among many locations.