Alfred Weber (1868-Alfred Weber (1868-1958)1958)

Alfred Weber was a German sociologist Alfred Weber was a German sociologist and philosopher.and philosopher.– Was a part of the Was a part of the Intellectual Resistance Intellectual Resistance against against

Nazi Germany.Nazi Germany. He formulated the Theory of Industrial He formulated the Theory of Industrial

Location (Also known as the Least-Cost Location (Also known as the Least-Cost Theory).Theory).

Where will factories locate that is the lowest Where will factories locate that is the lowest cost to them? cost to them? – Like Like von Thunen von Thunen (location of agricultural (location of agricultural

activities)activities)

Least-Cost TheoryLeast-Cost Theory The Least Cost theory was developed to resolve The Least Cost theory was developed to resolve

the problem of opposing locational pulls.the problem of opposing locational pulls. Therefore, it aids in determining where a Therefore, it aids in determining where a

processing plant will be located to maximize processing plant will be located to maximize profits and minimize costs. profits and minimize costs. – The theory that an industry will be located were the transportation The theory that an industry will be located were the transportation

costs of raw materials and the final product is at the least. costs of raw materials and the final product is at the least. – A Decision making model of the best location of a particular A Decision making model of the best location of a particular

industry given the material, amount shipped and transport costs.industry given the material, amount shipped and transport costs.

Determines industrial Determines industrial location location of the of the manufacturing plantmanufacturing plant..

Least-Cost TheoryLeast-Cost Theory Weber devised a technique involving Weber devised a technique involving isotim isotim andand

isodopanes.isodopanes. In order to identify the points of In order to identify the points of least costleast cost.. The isotim lines connect the points of equal transport The isotim lines connect the points of equal transport

cost.cost. Where R or S stand for Where R or S stand for Raw MaterialsRaw Materials M stands for M stands for MarketMarket

http://people.hofstra.edu/geotrans/eng/ch7en/conc7en/weberlocationtriangle.html

Least-Cost TheoryLeast-Cost Theory

Least-Cost location is also Least-Cost location is also based on Alfred Weber’s 5 based on Alfred Weber’s 5 formal assumptions.formal assumptions.

These are not the case for These are not the case for all situations.all situations.

Site chosen must Site chosen must consider the following:consider the following:1. Moving raw materials to factory1. Moving raw materials to factory2. Moving finish products to the 2. Moving finish products to the

marketmarket3. Creates a balancing act of the best 3. Creates a balancing act of the best

location possible.location possible.

AssumptionsAssumptions Uniform/IsotropicUniform/Isotropic Plain: Plain: Operates in one country Operates in one country

with an uniformwith an uniform plane and equal transportation paths. plane and equal transportation paths.– topography topography – climate climate – TechnologyTechnology– economic system economic system

One finished product is considered at a time.One finished product is considered at a time.

The product is shipped to a single market location.The product is shipped to a single market location. Transportation cost may vary as they are a function of Transportation cost may vary as they are a function of

the the weightweight of the items shipped and the of the items shipped and the distancedistance they they are shipped. are shipped. – Example: Heavy and Far (cost lots of money)Example: Heavy and Far (cost lots of money)

AssumptionsAssumptions Labor is not mobile. Labor is not mobile. It’s available in unlimited quantities. It’s available in unlimited quantities. There is labor at any production site selected.There is labor at any production site selected. The product has equal desire in the plane and The product has equal desire in the plane and

equal opportunity to purchase the product.equal opportunity to purchase the product. The raw materials are:The raw materials are:

– At a fixed locationAt a fixed location– Which is knownWhich is known

Market location where consumption occursMarket location where consumption occurs – At a fixed location At a fixed location – Which is also knownWhich is also known

FactorsFactors

With these assumptions, the With these assumptions, the location is driven by four location is driven by four

factors to determine factors to determine spatially spatially variable costsvariable costs. .

Transportation, Labor, Transportation, Labor, Agglomeration, DeglomerationAgglomeration, Deglomeration

TransportationTransportation The location of the industry will be located in an The location of the industry will be located in an

area where it ensures the cost will be lowest for:area where it ensures the cost will be lowest for:– Moving raw materials to the processing locationMoving raw materials to the processing location– Moving finished products to the marketMoving finished products to the market

Costs of transportation are affected by distance the Costs of transportation are affected by distance the product is shipped and the weight of the product product is shipped and the weight of the product when being shipped.when being shipped.– Considered to be the most Considered to be the most importantimportant factor! factor!– There are also cases where a company has more than 1 There are also cases where a company has more than 1

mode of transportation.mode of transportation. This is known asThis is known as break-in-bulk break-in-bulk locations.locations.

– ExampleExample: San Francisco, California : San Francisco, California – Methods of TransportMethods of Transport: Ports, Rail, Air, Highway: Ports, Rail, Air, Highway

LaborLabor

The profits of a company are reduced as the cost The profits of a company are reduced as the cost of labor increases of labor increases

In some cases an industry may perform better In some cases an industry may perform better farther awayfarther away from the market and raw from the market and raw materials, due to the availability of cheap labor.materials, due to the availability of cheap labor.

– Example: Outsourcing textiles overseasExample: Outsourcing textiles overseas

LaborLabor Employers look for:Employers look for:

– Low WagesLow Wages– Little unionizationLittle unionization– Young employees (Few healthcare costs)Young employees (Few healthcare costs)– Female employees (Thought to be less Female employees (Thought to be less

demanding and more expendable)demanding and more expendable) If an industry moves to a place to access lower labor If an industry moves to a place to access lower labor

costs, even though transportation costs increase is costs, even though transportation costs increase is called the called the substitution principle. substitution principle.

AgglomerationAgglomeration AgglomerationAgglomeration: the concentration of : the concentration of

businesses in one particular area. businesses in one particular area. Also called an agglomeration economy!Also called an agglomeration economy!

When a large number of companies cluster When a large number of companies cluster in the same area and can assist each other in the same area and can assist each other through shared talents, services and/or through shared talents, services and/or facilities.facilities.– ExampleExample: Research Triangle Park: Research Triangle Park– ExampleExample: Michigan Auto Industry and PA steel industry: Michigan Auto Industry and PA steel industry

They provide assistance to each other through They provide assistance to each other through shared talents, and services. Typically results in shared talents, and services. Typically results in lower prices!lower prices!

DeglomerationDeglomeration When an agglomerated region becomes too clustered When an agglomerated region becomes too clustered

or too crowded from or too crowded from cumulative causationcumulative causation (think (think positive feedback loop), then there are negative positive feedback loop), then there are negative effects. effects. – Pollution, Traffic, Lack of Resources or LaborPollution, Traffic, Lack of Resources or Labor

Then these industries might then choose to move for Then these industries might then choose to move for more space in a process called more space in a process called deglomerationdeglomeration or the or the “unclumping” of factories due to the negative effects “unclumping” of factories due to the negative effects and higher costs of industrial overcrowding. Markets and higher costs of industrial overcrowding. Markets can also become oversaturated with a particular can also become oversaturated with a particular industry forcing businesses to relocate or shut down.industry forcing businesses to relocate or shut down.

Weight-Gaining and Weight-Weight-Gaining and Weight-LosingLosing

Weight-Gaining (Bulk – gaining)Weight-Gaining (Bulk – gaining)– The finished product(s) weight is The finished product(s) weight is more more than the raw materialsthan the raw materials– Cost for shipping the finished product are greater than that of Cost for shipping the finished product are greater than that of

the raw materials.the raw materials.– Industry location would be the closest to the market!Industry location would be the closest to the market!– Industry is said to have a Industry is said to have a market orientationmarket orientation..

Weight-Losing (Also known as bulk-reducing)Weight-Losing (Also known as bulk-reducing)– The finished product(s) weight is The finished product(s) weight is lessless than the raw materials than the raw materials– Therefore, it cost more to ship the raw materials than to ship the Therefore, it cost more to ship the raw materials than to ship the

finished product.finished product.– Industry location would be the closest to the source of raw Industry location would be the closest to the source of raw

materials!materials!– Industry is said to have a Industry is said to have a material orientation.material orientation.

Weight Losing Example: Copper Weight Losing Example: Copper IndustryIndustry

Fig. 11-8: Copper mining, concentration, smelting, and refining are examples of bulk-reducing industries. Many are located near the copper mines in Arizona.

The Lavender Pit Copper Mine in Bisbee, Arizona operated between 1951 and 1974.

Weight Gaining Example: Location Weight Gaining Example: Location of Beer Breweriesof Beer Breweries

Fig. 11-11: Beer brewing is a bulk-gaining industry that needs to be located near consumers. Breweries of the two largest brewers are located near major population centers.

Other considerations and Other considerations and limitations for Weber’s limitations for Weber’s

TheoryTheory Labor costs (labor unions) Labor costs (labor unions) Labor diversity (age, sex, education, gender, etc)Labor diversity (age, sex, education, gender, etc) Labor movement (indeed labor does move and change from place to Labor movement (indeed labor does move and change from place to

place)place) Reality of Transportation Costs Reality of Transportation Costs Land Rent (real estate)Land Rent (real estate) Tax subsidyTax subsidy Pollution (NIMBY factor)Pollution (NIMBY factor) Long-term Availability of ResourcesLong-term Availability of Resources Perishability considerationsPerishability considerations FragilityFragility Hazardous materialsHazardous materials Zoning (residential versus industrial)Zoning (residential versus industrial) NAFTA and other special trade agreementsNAFTA and other special trade agreements Globalization and DeindustrializationGlobalization and Deindustrialization

What if the costs are all the What if the costs are all the same?same?

Some industries maintain the same cost of Some industries maintain the same cost of transportation and production regardless of transportation and production regardless of where they choose to locate. where they choose to locate.

These industries have These industries have spatially fixed costsspatially fixed costs.. These are often called “These are often called “Footloose IndustriesFootloose Industries” ”

because they can locate wherever they want!because they can locate wherever they want! Footloose products are typically small and of Footloose products are typically small and of

very high value. Or locate for other reasons very high value. Or locate for other reasons (tax purposes at offshore locations.)(tax purposes at offshore locations.)– ExampleExample: Computer chip industries: Computer chip industries

Hotelling’s TheoryHotelling’s Theory Hotelling’s theory of Hotelling’s theory of locational interdependence locational interdependence

asserts that industries choose locations based upon asserts that industries choose locations based upon where their competitors are located. where their competitors are located. – Industries do not make isolated decisions without considering Industries do not make isolated decisions without considering

where other, related industries already exist.where other, related industries already exist. High-tech corridor High-tech corridor – agglomeration of technology and – agglomeration of technology and

computer industry. computer industry. A region (such as Silicon Valley) of this agglomeration is A region (such as Silicon Valley) of this agglomeration is

called a called a technopoletechnopole..– Typically Typically ancillary activities ancillary activities will be attracted to will be attracted to

these areas to act as support businesses. (computer these areas to act as support businesses. (computer repair, wiring services)repair, wiring services)

The downside of this is the brain drain of talented The downside of this is the brain drain of talented individuals from a particular area, called the individuals from a particular area, called the backwash backwash effecteffect..