Localization of Industry: Definition, Causes, Merits & Demerits

Localization of Industries

The localization of industry refers to the concentration of many firms of an industry (i.e. firms producing similar goods or services) in an area e.g. concentration of many leather craft industries in London.

Factors Affecting Localisation of Industries

A number of factors lead to the concentration of many firms which produce similar commodities in a place.

• Availability of raw materials: Many firms which use the same raw materials as inputs may be encouraged to locate their industries in places where the raw materials are found.
• Availability of marketing facilities: Firms which produce identical products may be encouraged to be located close to each other for purposes of carrying out joint marketing or to take advantage of available marketing facilities.
• Presence of a pool of skilled labour: Many firms which produce similar goods may be encouraged to be located in a place where the required type of labour is available.
• Availability of economic and social infrastructures: Many firms which belong to an industrial group may be sited where there is adequate transportation, water supply, electricity, financial institutions etc.
• Government policy: It may be the policy of the government to locate certain types of industries in particular areas.
• Presence of technical economies: Many firms which use the same type of components may be encouraged to be located near an industry that produces the required components.
• Favourable natural conditions: The presence of ideal natural conditions which favour the production of a commodity may encourage the establishment of many firms which produce the commodity in the area.

Advantages of Localisation of Industries

• Easy identification of common problems: It is easier for the firms to identify common problems and proffer solutions to them.
• Improvements in infrastructure: the presence of many firms encourages the provision of improved infrastructural facilities.
• Encouragement of specialization and division of labour: The different firms may produce varieties of products or engage in specific operations in the production of a particular commodity.
• Development of subsidiary firms: subsidiary firms may emerge to cater for the needs of the localized industry.
• Development of a pool of skilled labour: Localization enables local labour to acquire skills in the production of a commodity.
• Reaping of certain external economies of scale: The firm in the area may co-operate for the purposes of joint marketing, bulk purchase of inputs, research and development.

Disadvantages of Localisation of Industries

• Growth of conurbations with attendant congestion and overcrowding due to the attraction of many people to the area.
• Target for enemy attack: In the times of war, areas where industries are localized are usually attacked by the enemy.
• High risk of unemployment: A decline in the localized industry would create serious unemployment problems since local labour is highly specialized, they can scarcely do other jobs.
• Environmental pollution: Areas of localization suffer from large-scale environmental pollution from waste products.
• Uneven development: Concentration of firms in particular localities leads to uneven development.