IAD - Industry Lesson

Industry Lesson

Introduction

• Industrialization is the growth of manufacturing activity, which normally goes along with the decrease of agricultural involvement (but not production due to agricultural innovations)
• Steel was the greatest change agent of the shift to the industrial sector (the same could be said for the plow for the agricultural sector and the computer for the service sector)
• The Industrial Revolution marked the beginning of rapid change towards the secondary sector, but production did exist before that time
• People would make foods, clothing, etc. in the home, a cottage industry

• Most were located near cities and natural resources

The Industrial Revolution

• The Industrial Revolution began in England in the 1750s
• England was the perfect location because of the natural resources and waterways
• Machines replaced human labor and new forms of energy were discovered
  • Coal was the first energy source so major cities were founded around the coal fields in NE England, Manchester and Liverpool
  • These processes led to the creation of factories, cleared industrial space and workers

Results of the Industrial Revolution

• The Industrial Revolution created improved infrastructure , specifically in transportation
• New technology not only improved industry, but it also created machines to increase farming productivity
• Early factories were located near the market places in large cities, but the use of coal allowed these buildings to move to large open spaces
• By early 1800s the ideas had reached other western European nations and America
• Rich coal deposits in Ohio and Pennsylvania, Ukraine (Russia) and Ruhr region (Germany)
• Along with the other ideas of technology - the assembly line was perfected by Henry Ford

Changes in Transportation

• Industry and manufacturing requires low cost, reliable transportation in order to reach markets and customers
  • The transportation innovations of this time period (as well as current innovations) have added to the changes in time-space compression internationally
  • When transporting goods the two main considerations are distance and weight (and an increase in either or both is an increase in cost)
    • Trucks are an efficient method of transportation and are the most used method currently
      • Goods can be moved relatively quickly and there is high flexibility because of the many routes that can be taken – there are drawbacks in the form of pollution, high fossil fuel usage, and maintenance fees
    • Trains are very efficient and cost effective
      • Heavy and high freight items can be moved over great distances, however, there is little flexibility because of limited tracks and this type of transportation requires a break-of-bulk, meaning the goods must be moved to another form of transportation to finish the route (i.e. trucks)
    • Airplanes are the fastest transportation option and can offer the only option to truly isolated locations
      • They provide high flexibility, but are limited in the weight that they can carry, are very expensive and require break-of-bulk changes
    • Pipelines are the ideal method for moving gas or liquid products
      • The use of pipelines are very efficient and safe, however, the usefulness is limited to gas and liquids only, there is no flexibility, the pipelines are expensive to build and are the source of demonstrations and disagreements about placement
    • Ships are the most energy efficient and cost effective method for transportation
      • Ships can overcome the obstacles of oceans, however, they also represent the slowest method and require break-of-bulk changes if a company is not located directly on a port

Locational Theories for Industrialization

• There are several theories regarding the placement of industry, factories and plants
• Geographers attempted to create models to answer these questions as the impacts and effects of the Industrial Revolution became more widespread

Weber's Least Cost Theory

• Alfred Weber - German economist who created the Least Cost theory regarding industrial locations in the early 1900s
• Based on the following assumptions:
  • Similar to von Thunen but focused on industry
  • The cost of transportation is a direct function of weight and distance: the greater the distance, the greater the cost; the greater the weight the greater the cost
  • Most raw materials are localized (found in certain locations)
  • Markets are in fixed locations
  • Labor only exists in fixed locations
  • Physical, political and cultural geography is all the same
    • Isotropic plain (physically, politically, culturally uniform)
  • Aim is to minimize costs and maximize profits
• Assuming these factors, Weber believed the location of industry will be decided by transportation costs (weight and distance)

Weber's - Transportation

• Transportation: the site chosen must entail the lowest possible cost of A) moving raw materials to the factory, and B) finished products to the market.
• Need to consider situation factors (relative location) to be nearer to either the markets or the resources based on:
  • Weight-loss processing (bulk-reducing) – in this case you have very heavy resources, and a product that weighs less than the resources when it is complete, so you would locate by the resources (material orientation). Plant is located nearer resources than market.

• Weight-gain processing ( bulk-gaining ) in this case you have resources that are lighter than the finished product, so they would locate by the market (market orientation). The plant is located closer to the market.

• There are some industries that have spatially-fixed costs that stay the same no matter where they are located, normally lightweight expensive products
• These are known as footloose industries because they are not tied to location
• Brick Bunny industries have one very heavy resource and one very light, so the plant would be located closer to the heavier resource. Plant is located closest to the heaviest resource.

Other Characteristics of Weber's Model

• Labor: higher labor costs reduce profits, so a factory might do better farther from raw materials and markets if cheap labor is available

• Includes availability of industrial capital (money) to buy machinery, technology and labor
• In the long run the lower cost of labor will balance the higher cost of transportation, (or land or capital), substitution principle meaning one cost replaces another
• Labor is part of site factors (the make-up of the area)
• Agglomeration : when a large number of enterprises cluster (agglomerate) in the same area for mutual advantage, they can provide assistance to each other through shared talents, services, and facilities
• Costs can be shared - power, resources, infrastructure
• Can benefit industry and customers as well
• If agglomeration becomes negative (pollution, decreased revenues, traffic) the industries might leave, deglomeration
  • Silicon Valley in CA is an example of a high-tech corridor
• Can also create ancillary activities that support the major industry (food, retail, energy)
  • The pull of one agglomeration can hurt other areas by draining talent (backwash effect – leaving only the undereducated or unskilled workers in an area)

• Criticisms of Weber's Least Cost Theory:
  • Did not account for variation over time (changing labor & land costs - substitution principle )
  • Model determined one point (site) as most profitable, it might have be the same over a larger area
  • Didn't take into account taxation policies and changes in consumer demand

Theory of Locational Interdependence - Hotelling

• Companies may also want to ensure they get a share of the business in one location (think of fast food restaurants and gas stations) - locational interdependence
• Harold Hotelling created the theory in 1929 which stated that you cannot understand the location of one industry, without understanding the locations of others
• This model looks at revenue (profit) as opposed to cost (Weber)
  • Market area analysis model concerned with profit maximization, not cost minimization
• The location that generates the greatest profit will be preferred and the greatest profit comes from the most customers
  • This can be determined by identifying production costs at various locations, and then taking into account the size of the market area that each location is able to control
  • Producers/suppliers will monopolize as many consumers as possible - they seek spatial monopoly (locational interdependence )
• Hotelling's Assumptions:
  • production costs are uniform
  • product selection is uniform
  • demand is uniform

Hotelling's Theory Links to an external site.

Profit Maximization - Losch 

• August Lösch (1906-1945) was a German economist focused on market area analysis
• According to Losch's Profit Maximization , the correct location of a firm lies where the net profit is greatest
• It is difficult to pinpoint a single "best" location since it is possible to replace a declining amount of one input (labor) by another (automated technology) or increase transportation cost while reducing land rent ( Substitution Principle)
  • With substitution, a number of different points may appear as optimal locations
• The series of connected points is the Spatial Margin of Profitability -define the area within which profitable operation is possible
  • Location anywhere within the margin assures some profit
  • Includes spatial influence of consumer demand and production costs into his model
• Losch's Assumptions:
  • isotropic plain
  • population evenly distributed
  • identical preferences among population
  • consumer paid cost of shipping product (as distance rose, so did cost)
  • people acted economically rationally
  • new production plants could enter market if profitable

Zone of Profitability Graph

Zone of Profitability description Links to an external site.

IMAGES CREATED BY GAVS (Creative Commons License Attribution)