The following points highlight the eight things to determine before finalizing the location of a firm. The determinants are: 1. Personal Preference and Historical Factors 2. Transport Costs 3. The Cost and Skills of the Labour Force 4. The Cost of Renting Land 5. The Nearness of Power Supplies 6. The Nearness of Water Supplies 7. Good Infrastructure 8. The Nearness of other Firms Working in the Same Industry.
Determinant # 1. Personal Preference and Historical Factors:
Many businesses are found in particular places for reasons that are no longer important. Some industries started in a particular area because there used to be a local supply of raw materials., The industries often remain in the area long after the raw materials have been used up. This is called industrial inertia.
Determinant # 2. Transport Costs:
Firms may try to find a site which keeps down the cost of transporting raw materials to the factory, or keeps down the cost of transporting finished goods to the market.
The source of raw materials:
Some industries are called bulk- decreasing industries. This means that the finished product is cheaper and easier to transport than the raw materials used to make it. These industries try to get as near as possible to the place wherefrom they get their raw materials. It is easier and cheaper to transport finished steel than iron ore because iron ore contains much waste.
Some industries are called bulk-increasing industries. This means that the finished product is more expensive and difficult to transport than the factors of production used to make it. Bulk-increasing industries try to get as near as possible to their market. The furniture industry is situated mainly in and around Calcutta because furniture is bulky and expensive to move, and Calcutta is the main market.
Transport costs are fairly unimportant to many industries, and these industries are called footloose industries. A food-processing firm, for example, which produces packaged food like Maggi noodles, cheese and butter, might receive its raw materials from farms spread over a large area, and it may sell its goods throughout much of the country. It could locate its factories in several different areas without making much difference to its transport costs.
Determinant # 3. The Cost and Skills of the Labour Force:
Labour is usually the firm’s largest cost of production, and firms may move to where wages are lowest. Areas where wages are low, however, may be expensive areas in other ways. They might be far from the market, for example. Firms might be more interested in the skills of the labour force than in their wages. If a car firm sets up a new factory in Mumbai, for example, it might find many of the skilled workers it needed already in the area. This would cut down training time and training costs.
Determinant # 4. The Cost of Renting Land:
Compared to other costs, rents lend to be a fairly small cost for most firms. Only in inner cities are rents and rates likely to be so high that they might put a firm off building a factory or other place of work.
Determinant # 5. The Nearness of Power Supplies:
Until the beginning of this century most industries relied on coal for power. This made nearly all of them bulk-decreasing, and they had to be located on the coalfields. Now most businesses use electricity, gas and oil for power, and power supplies make little difference to where they locate.
Determinant # 6. The Nearness of Water Supplies:
Some industries use huge amounts of water, particularly for cooling purposes. This is why some factories like nuclear power stations have to be near the coast.
Determinant # 7. Good Infrastructure:
Infrastructure refers to the facilities which enable industry to work efficiently for example roads, railways, housing, schools, hospitals and water-supply. Poor or out-dated infrastructure may deter a firm from locating in an area.
Determinant # 8. The Nearness of other Firms Working in the Same Industry:
Many industries are localised. This means that firms in the industry tend to be found concentrated together in certain areas of the country. Industries that are localised can benefit from external economies of scale, sometimes known as economies of concentration. These are cost savings gained by a firm by being in an area with other firms in the same line of business.