In deciding where to produce, a business firm has to weigh the advantages of a particular locality against certain other considerations like the cost of land or the rent it will have to pay their compared to that in other places.

A business firm has a tendency to set up plants (or concentrate) in those areas which provide certain natural advantages. These are known as locational advantages.

These are discussed below:

(a) Locational Advantages:


The advantages of producing in a particular locality are of three types:

(i) Natural,

(ii) Acquired, and

(iii) Institutional (i.e., government-sponsored).


(i) Natural advantages:

Alfred Weber has emphasised the role of trans­port cost in influencing location. Weber’s theory may be briefly reviewed.

Weber’s Theory:

Weber has argued that basically an industrial unit will be located near the source of raw materials or near the markets. The choice will be largely determined by the character of raw materials. He has classified raw materi­als into two broad classes, viz., weight-losing and non-weight-losing-Costs are incurred both in assembling raw material and in distributing the fin­ished product.


With some goods the weight of raw material is far greater than that of the finished good, e.g., pig iron which is produced with the help of coal, limestone and iron ore. Suppose 1¾ ton of coal, ¼ ton of lime­stone and 2 ton of iron ore are required to produce 1 unit of the pig iron. So, pig iron is a ‘weight-losing’ industry. Here transport costs are saved by producing where raw materials are located, e.g., on coal and iron ore fields, or where they are easily accessible, e.g., near a port.

On the contrary, in some industries the costs of transporting the finished products may be higher than those of assembling the raw materials, e.g., ice cream, furniture, cotton-textiles, etc. In such cases it is cheaper for a Arm to produce near the market for its goods. For example, the textile mills are located near important markets and not near cotton producing areas.

It is sometimes said that Weber’s theory of industrial location is based on unrealistic assumptions. This is not correct. The theory lays emphasis on relative transporation cost of raw materials and finished products which is valid consideration for making a choice of location. Industries have been influenced, in their location, by the pull of weight-losing materials, because, in that case, there is large saving in transporation costs compensating adequately for additional costs incurred in transporation of finished goods to distant markets.

The transporation costs will obviously be affected by the transporation facilities available. But, the assumption that labour and other materials are available everywhere and do not affect location appears to be somewhat unrealistic. There is also the assumption that labour and capital are both mobile. It is possible that a particular type of labour is not; in that case the industry will have to move to the place where the right type of labour is available.

Social considerations have certainly not figured in the theory and these have now assumed considerable importance, because governments these days aim at balanced regional development. In the location of public sector undertakings, social considerations are an important factor.

Even for pri­vate undertakings, several monetary and fiscal incentives are provided for directing industries to backward areas which are otherwise unsuitable. The government policy to provide infrastructural facilities of transportation 2- throughout the country has also affected the pattern of location of industries specially the consumer goods industries.


Suitability of climate may also affect location. Thus, Gujarat’s humid atmosphere helped the cotton-spinning and weaving processes.

Labour Supply:


An abundant supply of labour may also be included under natural advantages’. All the jute mills of West Bengal are situated in Calcutta partly due to availability of cheap labour.

(ii) Acquired Advantages:

Jack Harvey points out that “improved meth­ods of production, the development of transport, inventions and new sources of power may alter the relative importance of natural advantaged and so change an industry’s location”. For example, as best quality iron ore fields get exhausted and improved techniques reduce coal consumption, it is now cheaper to transport the coal than the iron ore to produce pig iron. So, the industry may shift from the coal fields to low-grade iron ore fields.

(iii) Institutional Advantages:


Certain social problems are created by concentration of industries in already established centres like Calcutta, Mumbai and Chennai, like environmental pollution and unemployment. And both the central and state governments often try to encourage indus­trial dispersal in selected backward areas like Haldia, Siliguri, Hosur, Aurangabad, Vapi, Raichur, etc.

Certain special concessions like land and industrial estates at low prices, tax holiday for initial years, marketing facilities, health, housing and recreational facilities, etc. are offered to indus­tries desirous of moving to backward areas or growth centres. So there is need for an integrated infrastructure. So, government policies also affect industrial location.

(b) The level of rents in different areas:

Locational advantages have to weighed against the cost of land or rent of land. This cost varies from one locality to another. Thus it is not the absolute advantages of an area which decide where a firm locates, but the advantages relative to those of other areas.


(c) Other factors influencing location:

Certain other factors are also observable as far as actual location of plants is concerned. Thus it is largely a historical accident that accounts for the presence of the Hindustan Motors at Uttarpara.

Moreover, energy, or more specifically electricity, has now practically eliminated dependence on coalfield site. Yet firms are often found to move to the original areas because of the advantages acquired over time. Other may choose to stay near the markets. There are certain ‘footloose’ firms which are capable of being set up anywhere.

Social Considerations:

Certain non-economic factors also affect the choice of industrial location. Too much of concentration of industries in a particu­lar location raises problems of heavy congestion, pollution and labour relations. There is widespread demand for industry from backward regions, not endowed with natural bounties, for creating job opportunities for the local people.

The Government of India’s Industrial Policy Resolution of 1956 also emphasised proper regional distribution of industries. The Industrial Policy announced in 1977 provided that no new licence would be given for setting up of industries around metropolitan cities or urban areas with population exceeding 5 lakh. To ensure decentralised development governments these days offer various extra monetary and fiscal incentives to industries. They also start public enterprises in relatively underdeveloped (backward) areas.


In general, the location of public sector projects is influenced, in part, by such socio-economic considerations as employment generation and devel­opment of the backward regions so as to remove poverty and ensure balanced regional development.

But, in the location of public sector steel projects, the consideration of the availability of raw materials like iron ore and coal which fortunately have been found in the vicinity of each other, influenced the location of large steel plants in the country. The other advantages like the availability of power, water, etc. were also available in those locations.

Agglomerative and deglomerative forces:

So the chief consideration in the choice of location of an industry is mini­misation of transport costs. But other factors are also important. In economic geography a distinction is drawn between agglomerative and deglomera­tive forces.

The former refer to those forces which contribute to further concentration, e.g., the growth of skills, infrastructure facilities. After a certain stage there are bottlenecks of different types, particularly of trans­portation which make it necessary to decentralise industries. The location decision is affected by the relative strength of the pull and push factors.

External Economy:


Location of an industry in area or place is an example of regional speciali­sation or external economy. In truth, modern industries need a great many things in addition to their prime raw materials—machinery of different types, power and labour to work them, and transport to get the finished products to market, and it may quite well happen that it pays to carry the raw materials over long distances, in order to avoid transporting machinery or fuel or workers.

The businessperson wants to produce his goods as economically as he can, and get them to the purchaser in the cheapest and most convenient way, and it would be a very remarkable coincidence if he found a particular spot which was most advantageous from every point of view—basic materials, power, transport, labour and markets.

He has to balance advantages against disadvantages and make up his mind whether, for example, it is better to have the expense of carrying his raw materials a long way in order to be near his market for the finished goods or save the carriage on raw materials but have to meet the extra cost of transporting his finished goods.

As circumstances change, so do different factors take the determining place in this calculation.

Advantage and Disadvantage of Concentration:

Whatever the reasons that account for the establishment of the nucleus of an industry in one locality, there are certain disadvantages of location.


The following are worth mentioning:

1. Firms specialise in particular processes, thus gaining all the advan­tages of long-run on their machines.

2. Subsidiary industries grow up to provide the necessary specialised tools or to do repair and maintenance work or to make use of the by-products of the main industry.

3. Markets for the benefit of all can be organised more efficiently, whether it is for raw materials, for disposing of the finished products’ or for the different types of skill needed.

4. Packing, handling and transport facilities, specially designed for the products, can be provided.

5. The industry comes to be part of the common interest and concern of the locality. Research centres can be set up from which all can gain.


However, there is another side of the picture. A high degree of speciali­sation may, a t times, bring disaster to a region if the whole population comes to depend for its living on the prosperity of only one or two industries, whose fortunes may suffer a serious reverse.

So, regional specialisation may and do create the problem of unemploy­ment and poverty.