Location of Industry: Definition, Effect & Factors

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What is Location of Industry?

The location of industry is the siting of an industry in a particular place due to the presence of certain factors which favour its establishment.

Location of Industry
Location of Industry

The location of industries throughout the territory is not due to a coincidence, but mainly to a business decision made following criteria of economic profitability, that is, seeking the maximum industrial profits and the minimum production costs.

Therefore, the task of the company will be to analyze all those factors whose costs vary depending on the specific place where the industry is installed.

Factors Affecting the Location of Industries

The factors which account for the location of industries include:

  • Easy access to raw materials: An industry which uses bulky raw materials may be located where it is easy to obtain its raw materials e.g. the cement factory at Ewekoro.
  • Proximity to market: An industry which produces bulky and perishable goods may be located near a market for easy disposal of finished products e.g. furniture industry.
  • Nearness to source of power: Location near a source of power may lower the cost of power consumption.
  • Presence of other firms or industries: An industry may be sited where other firms (industries) exist in order to reap external economies.
  • Government policy: The government may influence an industrial location for a number of reasons. It may be to discourage location of industries in already congested areas, to ensure a more even distribution of industries, or for political patronage e.g. oil refinery in Kaduna.
  • Availability of goods, transportation and communication facilities: Industries may be located where these are available and cheap. A good means of transportation is required for efficient movement of raw materials, workers and finished goods. Adequate communication is required for facilitatin g business contracts.
  • Proximity to source of capital: An industry may therefore be sited where sources of capital such as banks are easily accessible.

7 Factors of Industrial Location

7 are the factors that most influence the location of industries, they are;

Availability and cost of land

The company must analyze and compare the cost of the land where it is going to install its production. Logically, this factor will be more decisive for those companies that require large surfaces for their installation, such as car manufacturers that will tend to be located far from urban centers, in areas where land is cheaper.

Proximity to raw materials

Being close to the raw materials means lower transport costs and time savings. This factor is important especially in industries that consume a large amount of raw material of great volume, such as dairies, which if they were not close to the raw materials would have expensive and difficult transport.

The workforce

The industries in this section will have to observe two conditions: the first one is that there are enough qualified workers to cover the different jobs of the company in the chosen area, and the second one is the cost of the workforce that varies from one area to another.

It is this second condition that explains the worldwide relocation of labour-intensive industries, which move their production centers to underdeveloped countries that offer them much cheaper labor than in developed countries.

The industrial endowment and the infrastructures

The company must consider the industrial level of the area and the existence of other auxiliary companies.

In addition, in the case of industrial plants, their installation must be carried out in areas classified for industrial use, such as polygons, industrial parks, business or technology parks, which are equipped with the necessary service infrastructures, that is, they are equipped with energy, water, telecommunications, sanitation, waste disposal, hospitality, etc…

Transport and communications

It is important that the company values ​​the proximity to communication networks with the rest of the territory such as roads, ports, railways, etc. If there are well-structured and fast transport networks, the ease of access to raw materials and evacuation of goods will increase.

The existence of economic or tax aid

The company must investigate if the Administration of the area grants certain economic or fiscal advantages in the event that the company is installed in its area. This factor is important as it can save large costs.

Other minor factors

Finally, the seventh factor encompasses others of lesser importance such as the economic and social development of the area, the existing labor and social climate, which is nothing more than the attitude of the workers and the trade unions in that area and finally, the business environment that prevails in that region.

Reasons for Government Participation in the Location of Industries

Sometimes the government influences the location of industries for the following reasons.

  • To ensure even development: Sometimes government may locate or encourage the location of industries to ensure industrial dispersal and make for a balanced and even industrial development of the country.
  • To prevent further congestion of the already congested areas.
  • To ensure fuller use of existing infrastructural facilities in certain areas: Government may encourage industries to be set up in areas where infrastructural facilities have already been developed but are under-utilized.
  • To prevent the siting of industries which produce goods that are considered harmful by the government. The government will not allow this.
  • To control rural-urban migration: lndustrialists may be encouraged to set up firms in rural areas to create employment opportunities for the rural population.
  • To prevent industrial pollution of residential areas: The government sometimes intervenes and prevents industrialists from setting up industries in residential areas to prevent pollution of such areas in order to reduce hazards to human life.
  • For political reasons: The location of an industry in an area is sometimes done to favour party loyalists who come from such an area.