Weber's Theory on Industrial Location

The industrial location is affected by two economic variables, such as the techniques and the scale of production. Many theories have been formulated to find the optimal industrial location where the input costs are at their lowest and the revenues generated out of them are at their highest, obtaining maximum profit. Hence, the locational theories are divided into two groups namely, the least cost approach and the maximum revenue approach theories, out of which Alfred Weber chose the least cost approach to root the location of an industry or a firm.

Historical Background

In 1909, Alfred Weber, the German economist, published his classic work 'Uber den Stanford der Industrien' which later known as 'The Least Cost Location Theory'. He filled a theoretical gap created by classical economists by giving scientific elucidation to locational theories using his deterministic and normative approach. The central aim of his theory was to explain the location of an industry based on three economic factors such as transportation costs, labor costs, and agglomeration costs.

Principles

According to Alfred Weber, the redistributive movement of industries from one place to another is determined by regional and agglomerative factors.

Regional factors

• Transportation costs

Transportation costs play a vital role in determining the location of industry. This cost is influenced by the weight of the product to be transported and the distance to be covered. According to Weber, if the raw material used for an industry is naturally weight losing, such as sugar cane, the location of the industry should be shifted near the source of raw material. Similarly, if an industry uses weight gaining raw materials such as cotton, the industry should be located anywhere between the source of raw material and the market. For the weight losing and weight gaining manufacturing industries that use more than one raw material, Alfred Weber’s location triangle model comes into picture.

• Labor costs

Industries generally tend to be located in areas where the labor cost is low. This factor also depends on the transportation costs. An industry will be relocated optimally if in case, the rise in the transportation cost is less than that of labor savings.

Isodapane is an imaginary line that joins the areas that have the same labor cost.

P represents the least Transporation cost point

M1, M2 are the raw materials

C represents the City/Market

L1, L2 are the different possible locations for the industry

By analyzing the above given, the labor cost saved will be more than the uplifted transportation cost. This makes L1 the more profitable location for industry than point P.

Agglomerative Factors

Agglomeration factors can deflect the location of a factory even from a least cost transport point since they can complement a factory in close association with other industries. Such factors include banking and insurance facilities, the sharing of specialized equipment and services, large-scale marketing among others. As a result, the industries centralize at a particular place. For instance, the agglomeration of software, electronic and ready-made industries in the Bangalore-Chennai-Coimbatore industrial region makes them complementary to one another.

Assumptions

To reduce the complexities of the real-world scenario, he considered certain assumptions as follows.

• There existed a single, isolated country that is homogenous in terms of climate, topography, soil, ethnicity of people, skills of the people, distribution of population, economic system, and technology.

• Labor is geographically fixed. The wages vary from one location to another

• Natural resources are unevenly distributed on the plain. The raw materials can be found in specific locations only.

• There is no regional variation in the costs of labor, equipment or depreciation of fixed capital

• Entrepreneurs focus on minimizing the total production cost.

• There exists a condition of perfect competition without any monopolistic advantage for firm

• Markets are at a specific location and are fixed in nature

• Transportation costs are uniform and influenced by weight and distance.

Criticism

Many of the assumptions made by Weber were quite unrealistic in nature, failing to consider real-world conditions.

• The single, isolated market is nowhere to be found in the contemporary world scenario

• The climate, topography, and soil are heterogenous in nature.

• Laborers tend to migrate nowadays, which contradicts Alfred Weber's view on the static nature of labor.

• The costs of labor, equipment and depreciation of fixed capital undergo regional variation.

• There is no fixed point in the market due to globalization.

• Alfred Weber failed to consider the importance of demand and focused mainly on the supply side.

• Transportation costs do not match proportionately with the weight and distance.

Conclusion

Alfred Weber's theory is applicable to industries with a high material index and has various significance when it is realized in the contemporary world. Considering the industrial development and scientific advancements, this model is getting outdated that question its complete acceptance.

Frequently Asked Questions

What is the main objective of Alfred Weber's model of industrial location?

Alfred Weber's Theory on industrial location aims to find the optimal location for a firm that can maximize the profit and minimize the input cost.

What are the three major principles of Alfred Weber's theory?

These three principles are −

• Labor costs

• Transportation costs

• Agglomeration costs

What is Isodapane?

Isodapane is an imaginary line that joins the areas that have the same labor cost.