Changing Economies » Industry Location Factors

What you'll learn this session

Study time: 30 minutes

The key factors that influence industrial location
How these factors vary in importance for different industries
Why industries change location over time
Case studies of industrial location in different contexts
How to evaluate the relative importance of location factors

Introduction to Industry Location Factors

Industries don't just pop up anywhere! Companies make careful decisions about where to build factories, offices and other facilities. These decisions can make or break a business, affecting everything from costs to access to workers. In this session, we'll explore the key factors that influence where industries choose to locate.

Key Definitions:

Industry location factors: The various elements that businesses consider when deciding where to establish their operations.
Primary industry: Activities involving extraction of raw materials (mining, farming, etc.).
Secondary industry: Manufacturing and processing activities that transform raw materials into products.
Tertiary industry: Service-based activities like retail, education and healthcare.
Quaternary industry: Knowledge-based activities such as research, IT and finance.

💪 Traditional Location Factors

Historically, industries were heavily tied to physical resources and transport. These include:

Raw materials (close to mines, forests, etc.)
Energy sources (near coal fields, rivers for water power)
Transport links (ports, railways, roads)
Labour supply (large workforce nearby)
Market access (close to customers)

💻 Modern Location Factors

Today's industries often consider different priorities:

Government incentives (tax breaks, grants)
Skilled workforce (education levels)
Technology infrastructure (internet, research facilities)
Quality of life (to attract workers)
Global connectivity (airports, digital networks)

Key Industry Location Factors in Detail

🌎 Raw Materials

Access to raw materials was traditionally one of the most important factors for many industries. Heavy, bulky materials that are expensive to transport often led to industries locating near their source.

Weight-losing industries like iron and steel traditionally located near mines because raw materials lose weight during processing.
Example: Early steel industries in Sheffield developed near coal and iron ore deposits.
Modern context: Improved transport has reduced the importance of this factor for many industries, but it remains crucial for some sectors like cement production.

🚌 Transport and Accessibility

Good transport links allow businesses to receive materials and distribute products efficiently.

Traditional importance: Industries clustered along waterways, railways and later highways.
Modern context: While physical transport remains important, digital connectivity is now equally crucial for many industries.
Break-of-bulk points (where goods are transferred between transport types) often attract industry.

👥 Labour

Access to appropriate workers is essential for all industries.

Quantity: Some industries need large numbers of workers.
Skills: High-tech industries require educated, skilled workers.
Cost: Labour-intensive industries often seek locations with lower wage costs.
Modern trend: Many companies now follow skilled labour rather than expecting workers to relocate.

💰 Markets

Proximity to customers can be crucial, especially for:

Perishable products (like bakeries)
Services that require face-to-face interaction
Products with high transport costs relative to their value
Industries needing frequent customer feedback

⚡ Energy

Power-hungry industries like aluminium smelting traditionally located near energy sources. Today, reliable electricity supply is more important than proximity to the energy source itself.

🏢 Capital

Access to investment money influences location. Financial centres like London attract businesses needing close relationships with banks and investors.

🌳 Land

Cost, availability and suitability of land matters. Some industries need flat, cheap land with room to expand. Others prioritise prestigious city centre locations.

Government Influence on Industrial Location

Governments often try to influence where industries locate to create jobs and boost economic development in specific areas.

Financial incentives: Grants, tax breaks and subsidies to attract businesses
Infrastructure development: Building roads, railways and utilities
Enterprise zones: Designated areas with special economic incentives
Regional policies: Efforts to direct industry to areas with high unemployment
Planning regulations: Controlling where certain types of industry can locate

Case Study Focus: UK Regional Development

The UK government has used various strategies to attract industry to economically struggling regions:

Enterprise Zones: Areas like Teesside offered reduced business rates, simplified planning and government support.
Inward Investment: The Welsh Development Agency successfully attracted Japanese car manufacturers to South Wales in the 1980s and 1990s by offering financial incentives and highlighting the skilled workforce.
Infrastructure Projects: Improvements to the A1(M) in the North East were partly designed to attract new businesses to the region.
Results: These policies have had mixed success. Some areas have seen new industrial growth, while others continue to struggle despite government intervention.

Changing Importance of Location Factors

The relative importance of different location factors has changed dramatically over time and varies by industry type.

🏃 Footloose Industries

These industries can locate almost anywhere because:

Their products are lightweight and high-value
They don't need specific raw materials
They rely more on skilled labour and technology
Examples: Electronics, software development, financial services
Key factors: Skilled workforce, quality of life, digital connectivity

⛰ Resource-Dependent Industries

These industries remain tied to specific locations because:

They rely on specific physical resources
Transport costs for raw materials are prohibitively high
They need particular environmental conditions
Examples: Mining, forestry, some types of agriculture, fishing
Key factors: Access to specific resources, suitable physical environment

Globalisation and Industrial Location

Globalisation has dramatically changed how businesses make location decisions:

Global production networks: Different stages of production can be spread across multiple countries
Offshoring: Moving operations to countries with lower costs
Just-in-time production: Requires reliable transport and communication
Transnational corporations: Can compare potential locations worldwide

Case Study Focus: Nike's Global Production Network

Nike demonstrates how modern companies locate different functions in different places:

Research & Design: Primarily in the USA, where skilled designers and marketers are available
Manufacturing: Contracted factories in countries like Vietnam, China and Indonesia, where labour costs are lower
Distribution: Regional distribution centres located near major markets
Retail: Flagship stores in major cities worldwide, plus online sales
Location factors: Different for each function - design needs creative talent, manufacturing needs cost efficiency, retail needs market access

Evaluating Location Decisions

When analysing industrial location, it's important to consider:

No single factor usually determines location - it's a combination
The relative importance of factors varies by industry type
Historical inertia - industries may remain in places even after original location factors no longer apply
Personal factors - sometimes business owners locate near where they live
Location decisions involve trade-offs between different factors

When answering exam questions about industrial location, remember to:

Consider multiple factors rather than focusing on just one
Use specific examples and case studies to support your points
Explain how and why the importance of factors has changed over time
Discuss how different types of industry prioritise different factors

🧠 Test Your Knowledge!