Transcript Weber`s Least Cost Theory

Industry & Services
De Blij
Chapter 12
Pre Industrialization
• Cottage Industry & Guilds- products made at home
India’s textiles being made in homes on handlooms and spinning wheels.
Preindustrial World
• The industrial Revolution accelerated
development, but it did not begin with it
• Modern age is better classified as Industrial
Intensification!
Where did the Industrial Revolution begin?
• The Industrial Revolution
originated in areas of northern
England in the late eighteenth
century.
• Factories often clustered near
coalfields.
• Densely populated regions called
“Black Country” b/c of this
• Why Great Britain?
– Flow of capital
– Second agricultural revolution
– Mercantilism and cottage
industries
– Resources: coal, iron ore, and
water power
Britain
• 1st to industrialize gave them what we call:
• Comparative Advantage – the ability to produce
something more efficiently than any other
– Ex: able to manufacture products faster and cheaper
since they were the only ones with machines
• As opposed to an Absolute Advantage- when a
region has more of a resource than any other area
– Ex: Saudia Arabia has more oil than any other country, so
they have the Absolute Advantage over Oil
Flow of Capital into Europe, 1775
Industrial Revolution
– Inventions lead to the use
of machines and inanimate
power in the
manufacturing process
– Suddenly whole societies
could engage in seemingly
limitless multiplication of
goods and services
– Rapid bursts of human
inventiveness followed
– Gigantic population
increases
2 main industries diffused with the
industrial revolution:
Iron
• Iron ore is mined - ore is melted
(smelted) - pour iron into molds
that can be transported - now
called Pig Iron
• Pig iron is shipped to be remelted into something useful
• Could be used to make steel with
addition of Coal
• Coal - bulky so factories located
near the coal and iron ore mines
• Transportation took on a new
meaning - canals and railways
were built to transport: people,
products and raw materials
Textiles
• Spinning yarn - turns the short
threads from cotton plants
into continuous yarn needed
to weave cloth. Carding is the
untwisting of the fibers prior
to spinning.
• A lot of energy was needed more than humans could
supply - along comes the
Steam Engine
• All processes to make cloth
could now be housed in one
building - The Factory
Innovations of the Industrial
Watt Steam Engine
Revolution
Water Pumps for Mines
• Machines were water
powered (steam)
which brought in new
uses for coal as an
energy source.
• James Watt & Mathew
Boulton invented the
steam engine
Power Loom
Locomotives
Innovations
• Abraham Darby (1709)
created the process to
smelt iron.
• Mixing the iron ore with
limestone and water
and smelting it with
coke enabled iron
workers to pout it in
molds creating cast
iron.
Ironbridge, England
World’s first cast iron bridge 1799
The first rail lines connected Manchester, a center for textile manufacturing, to Liverpool, a
west facing port to the colonies. Steam powered ships would carry the textiles to distant
markets.
• Textiles Production:
– Liverpool and
Manchester
• Iron Production:
– Birmingham
• Coal Mining:
– Newcastle
Diffusion to Mainland Europe
Same set of locational criteria for industrial zones applied: 1) proximity to coal fields & 2)
connection via water to a port 3) large urban markets for purchasing goods
Diffusion of Industry Around the World
Diffusion to the Northern European Lowlands
Map of Rotterdam – the most
important port in Europe & a
hub of global commerce
• Northern France, Southern Belgium, the Netherlands, the
German Ruhr, western Bohemia in the Czech Republic,
and Silesia in Poland along a belt of iron ore deposits.
• Rotterdam, Netherlands, became a major port at the
mouth of the Rhine River.
Why did Europe have Industrial
Success?
• Availability of Raw Materials
• Colonialism brought in materials from around
the world
• Skilled labor force
• Specialization of major industries
• Trading products
• Trading routes
The Location Decision. . .
• Primary Industries- must locate next to
resources
• Secondary- less dependent on location
– Can transport raw materials if profit outweighs
cost
How Do Location Theories Explain
Industrial Location?
• Improvements to
• LOCATION THEORIES
transportation &
predict where businesses
communication created a
will or should be located.
time-space compression
– Assumptions:
• Decision makers are trying
making secondary
to maximize their
industries less dependent
advantage over
on resource location.
competition
• They want to make as
• Raw materials can be
much profit as possible
transported to distant
• They will take into account
locations to be converted
variable costs
TRANSPORTATION
into manufactured
FRICTION
LABOR
products.
OF
DISTANCE
ENERGY
Variable Costs
• Additional costs due to:
– Energy, Labor, Transportation
• Companies try to minimize these costs because of:
• Friction of Distance- increase in time and cost with
increasing distance of production (serving markets
further away)
• Distance Decay- impact of a function or activity will
decline as one moves away from point of origin
– Says that manufacturing plants will serve close markets
– Variable costs will go up as you serve markets further away
Factors of Industrial Location
Raw Materials
• Very few industries use
raw materials
• Most manufacturing is
based on the further
processing and shaping
of materials already
treated in some fashion
• Transportation costs
affect industry location
Factors of Industrial Location
• Power Supply (Energy)
– Power supplies that are
immobile or of low
transferability may
attract activities
dependent on them
– Current technology
made less important
– Industries requiring large
amounts of energy still
situated near the power
source
Factors of Industrial Location
• Labor
– Spatial variable affecting
location decisions and
industrial development
– 3 major traditional
considerations
• price, skill, and
amount
– Labor Flexibility: highly
educated workers able
to apply themselves to a
wide variety of tasks and
functions
Factors of Industrial
Location
• Market
– Goods are produced to
supply a market demand
– Size, nature, and
distribution or markets is
important in industrial
location decisions
– Ubiquitous industries
• Transportation
– Unifying thread of all
factors of industrial
location
– Modern industry is
immediately tied to
transportation
– Use many different form
of transportation media
Alfred Weber’s
Least Cost Theory
• Created the classical model of industrial
location theory in 1909
• Explains the optimum location of a
manufacturing establishment in terms of the
owner’s desire to minimize three basic
expenses
– Transportation cost, labor, agglomeration
(rent)
Weber’s Least Cost Theory
Expenses to Minimize
1. Transportation: the
site chosen must entail
the lowest possible
cost of
a) moving raw materials to
the factory
b) finished products to the
market. This, according
to Weber, is the most
important.
Weber’s Least Cost Theory
Expenses to Minimizes
2. Labor: higher labor
costs reduce profits, so
a factory might do
better farther from
raw materials and
markets if cheap labor
is available
• -ex: China – today
Weber’s Least Cost Theory
Expenses to Minimize
3. Agglomeration (rent):
when a large number of
enterprises cluster in the
same area, they can
provide assistance to
each other through
shared talents, services,
and facilities
-ex: manufacturing
plants need office
furniture
Agglomeration Continued
• Too many enterprises clustering together can
INCREASE the cost of rent, wages, etc
• This has caused some industries to actually
LEAVE urban areas – deglomeration.
Weber’s Least Cost Theory
5 Controlling Assumptions
1. Area is uniform physically, culturally, and
technologically
2. Manufacturing involves a single product to be
shipped to a single market whose location is
known
3. Inputs involve raw materials from more than one
known source location
4. Labor is infinitely available but immobile in
location
5. Transportation routes connect origin and
destination by the shortest path and directly
reflect the weight of the items shipped and
distance moved
Weber’s Least Cost Theory
Transport costs:
 One market and two sources:
• Equal distance and shipping costs dictates a market
location
• Two weight-losing materials results in an intermediate
location
Weber’s Least Cost Theory
Labor Costs:
Location chosen always has least combined
costs
• A location may have higher transport costs, but less
expensive labor
Weber’s Least Cost Theory
Agglomeration:
 Weber recognized that clustering will result in
a per unit savings
• Shared benefits
•
•
•
•
•
Facilities
Labor force
Infrastructure
Services
Raw materials
Weber’s Least Cost Theory
Limitations of the Theory:
• There are geographic variations in market
demand
• There are terminal costs (payments at break of
bulk points – taxes/tariffs)
• Transport costs are becoming less of a factor
• Labor is mobile and does not exist in unlimited
quantities
• Plants often produce a variety of outputs for
many markets
Weber’s Least Cost Theory
Additional Contemporary Considerations
•
•
•
•
•
•
Access to capital
Access to technology
Friendly regulatory environment
Political stability
Land cost
Inertia
Substitution Principle
• This is the tendency to substitute one factor of
production for another to achieve optimum
plant location and profit
– Must weigh all factors to determine the best,
profitable location
• Ex: you will pay more for transportation costs
if you can save more on labor costs for overall
production costs (Using China)
Hotelling’s Model
• Locational Interdependence- Model seeks to
answer question of where like businesses will
locate
– Ex: why do we see McDonalds right beside
Wendy’s, Burger King, and Sonic???
• Basically, why do businesses that sell the same
thing locate right beside one another?
• Hotelling used ice cream vendors on a beach
as an example.
Hotelling’s Model of
Locational Interdependence
• Location of an industry
cannot be understood
without reference to other
industries of the same kind.
Theory:
• Locational
interdependence:
• indicates that locational
decisions are not made
independently but are
influenced by the actions of
others.
Hotellings, cont.
• Model says:
–
–
–
–
Start at locations far away from one another
Want to MAXIMIZE sales
Constrain the other’s territory to bring sales up
Causes them to move closer together until they are back to back
• Model Shows:
– Industry location can’t be understood without looking at other
like industries
• Downsides
– Only variable is wanting to maximize sales
– Cost for customers is greatest at center of beach
• They have to walk further from end of beach, so they may not come
Losch’s Model – Zone of Profitability
• Manufacturing plants
choose locations where
they can maximize
profit.
• He added the spatial
influence of consumer
demand and production
costs to his calculations.
To the left and right of the zone,
distance decay will make sales
unprofitable.
Major Industrial Regions of the
World Before 1950
Four Primary Industrial Regions:
1) Western & Central Europe
3) Russia & Ukraine
2) Eastern North America
4) Eastern Asia
Western and
Central Europe
Late 18th Century:
Britain
France
Belgium
Netherlands
Germany: 3 districts?
(the Ruhr, Saxony, & Silesia)
Early 20th Century:
Italy: What area?
Spain: What area?
Sweden
Finland
Manufacturing Centers in Western Europe
Fig. 11-6: The major
manufacturing centers
in Western Europe
extend in a north-south
band from Britain to
Italy.
Manufacturing Belts of Germany (3):
The Ruhr – based on the Westphalian coal field;
known for high-quality resources, good
accessibility, and proximity to large markets
Saxony – (near former Czechoslovakia) known for
light manufacturing such as optical equipment,
cameras, refined textiles, and ceramics.
Silesia - (now apart of Poland)based on highquality coal reserves & iron ore
Major Manufacturing Regions of North America
Light
Industry
Chemical
industries
Heavy
Industry
-Benefitted from overseas resources
-Large coal and gas reserves to provide energy to manufacturing plants
-US capitalized on industry after Western Europe destruction during WWI and WWII
American Manufacturing Belt
• Extends from the northeast to Iowa, and from
the St. Lawrence Valley to the Ohio and
Mississippi rivers.
• New York port serves as a major break-of-bulk
point, where cargo is transported from one
mode of transportation (truck/train).
Generates employment, activity, & wealth.
• Erie Canal dug to connect east coast to Great
Lakes
Industrial Regions of North America
Wide Range of
Manufacturing
includes:
Steel Mills
Chemical
Industries
Electrical
Appliances
Auto Industry
Erie Canal was
dug to
connect east
coast to the
Great Lakes
Fig. 11-4: The major industrial regions of North America are clustered in the
northeast U.S. and southeastern Canada, although there are other
important centers.
Other North American Regions
1. Southeastern district – iron, cotton, tobacco
2. Southwestern district – meatpacking, flour
mills
3. Western district – this area has grown due to
increased trade with Asia (part of the Pacific
Rim)
Manufacturing Value Change
Fig. 11-5: The value and growth of manufacturing in major metropolitan areas in the
U.S. between 1972 and 1997.
Agglomeration - note how the parts plants locate near
the assembly plants.
Former Soviet Union
• Ukraine (western region of the USSR) helped
make the USSR and industrial power
• Developed industry in:
– Moscow – large market & labor force
– Leningrad – (formerly St. Petersburg) oldest
manufacturing center in Russia developed by Peter
the Great
– Along the Volga River – dams & hydroelectricity
– Used the Trans-Siberian railroad & rivers for
transportation
– Major resources/manufacturing:
• Coal, timber, machinery, iron ore, and oil
Former Soviet Union – Russia & Ukraine
Machine building, optical
products, medical equipment,
shipbuilding, chemical
production, food processing,
textiles
Fig. 11-7: Major manufacturing centers are clustered in European Russia and
the Ukraine. Other centers were developed east of the Urals.
Major Manufacturing Regions of Russia
“Soviet Detroit”
-Many resources throughout the vast expanse of land
-Volga River provided an energy resource and transportation through canals
Japan
•
•
•
•
Very limited natural resources
Imports raw materials to use in manufacturing
1/25 the size of the US
Economic development started in the late
1800s
• Established colonies, brought raw materials in
• After WWII the US helped Japan recover
Major
Manufacturing
Regions of East
Asia
-Japan imported raw
materials from it’s colonial
empire into Korea, Taiwan,
and China
-3 major belts in Japan?
Kanto Plain (TokyoYokohama-Kawasaki)
Kansai District (KobeKyoto-Osaka)
Kitakyushu District
Where are the Major Industrial Belts
Today and Why?
China
• Major industrial growth occurred when
communist planners took over in 1949
• Has many natural resources
• Four Key Industrial Regions:
– Northeast District – “Chinese Pittsburgh”
– Northern Industrial
– Shanghai & Chang
– Guangdong
Northeast District
Shanghai &
Chang
Guangdong
Why China?
• HUGE labor force, low
daily wages!!
• Most companies send
production portions of
company to China instead
of whole company
because of this
• Certain cities on the
Pacific are SEZs (Special
Economic Zones) or “open
cities” to foreign
investors.
• Today China is moving
manufacturing to the
interior
• Companies sending
manufacturing work to
China is called
outsourcing or moved
offshore
Secondary Industrial Regions
• 4 Asian Tigers- S. Korea, Taiwan, Hong King,
Singapore
– Called this b/c they are challenging Japan for
dominance in Asia
• S. E. Asia- Thailand, Malaysia, Indonesia,
Vietnam
• N. & S. America- Brazil, Mexico
• S. Asia- India
How does this change our world
geographically??
• During last 30 years, industrialized countries
have been going through what we call:
– Deindustrialization- move industrial jobs to other
regions with cheaper labor
– Causes industrialized countries to switch to a
Service Economy
– US and UK are losing their industrial belts b/c of
this shift
What is a Service Economy and
where are Services concentrated?
•Origins of manufacturing boom
• Sharp rise in oil prices in the 1970s
caused increasing difficulty for core
industrial regions to sustain competitive
advantage.
•Movement toward mechanization
•Development of service & information
industries
Services in Broken into 3 Categories
• Tertiary Industries – provides general services
(car wash, landscaping)
• Quaternary Industries – collection of
information (insurance, finance, stocks)
• Quinary Industries – scientific research, higher
education, high level management
Tertiary Industry
• Decline of primary and secondary industries has ushered
in an era referred to as the postindustrial phase
– Part of the postindustrial phases includes:
• Transportation, communication, and utility services
• Highways, railroads, airlines, and pipelines
• Telephones, radios, television, and the Internet
• All facilitate the distribution of goods, services, and
information
• Every industrial district is served by well-developed
transport systems
Tertiary Industry: Netherlands
Quaternary Industry
• Includes those services mainly required by
producers
– Trade, wholesaling, retailing, and advertising
– Banking, legal services, real estate transactions,
and insurance
– Consulting and information generation
• Such activities represent one of the major
growth sectors in postindustrial economies
• Manufacturing is increasingly shunted to the
peripheries
Quaternary Industry: Hong Kong
Quaternary Industry
• If seen on a local scale information-generating
industries seem to coalesce around major
universities and research centers
– Stanford and University of California at Berkeley
helped make San Francisco Bay area a major
center of such industry
– Similar foci developed near Harvard and M.I.T. in
New England
– Triuniversity Raleigh-Durham-Chapel Hill
“Research Triangle” of North Carolina
Quinary Industry
• One of the most rapidly expanding activities
– Scientific research, higher education, high level
management
• With the approach of WWII, the quaternary
sector began expanding rapidly
• During the last three decades the quaternary
and quinary sectors have experienced very
rapid growth, giving greater meaning to the
term postindustrial.
How has Industry changed since the
industrial revolution?
• Ford and the
assembly line:
dominant mode of
mass production
during the
twentieth century,
production of
consumer goods at
a single site.
70
Fordist
Fordist – dominant mode of mass production
during the twentieth century, production of
consumer goods at a single site.
Post-Fordist
Post-Fordist: Current mode
of production
• More flexible set of
production practices
• Goods are not mass
produced.
• Production is accelerated
and dispersed by
multinational companies
that shift production,
outsourcing it around
the world.
China, the birthplace of your Nike's
and socks and underwear and ….
Port of Hong Kong
Significance of container shipping, break of bulk point/entrepot
Time-Space
Compression
Through improvements
in transportation and
communications
technologies, many
places in the world
are more connected
than ever before.
Time-Space Compression
• Called Just-In-Time delivery or production
– No more mass production of products
– Ship goods when they are needed
– Cuts down on warehouse storage, rent, & wasted
parts
– Just ship parts quickly when needed!
Time-Space Compression
• This created a Global Division of Labor
– Ends high labor costs
– Locate in several countries
– Make more money for stocks
• Research & development in core; manufacturing in
periphery
• Why?
• Cheap Labor, Few Regulations, Tax Rates are Low
Geography Dimensions of
Economic Activity
• Wealthier industrial regions were the most
successful in establishing a postindustrial
service economy.
• Deindustrialization did little to change
economic division between core & periphery.
– Even in the manufacturing realm, mechanization
& innovation production strategies allowed core
industrial regions to retain their dominance.
• Dominant manufacturing cores have
experienced economic changes associated
with economic shifts.
• Trade itself is a tertiary economic activity
• Patterns of trade vary by industry
• Dominant flow is among & between core
countries and newly industrializing countries.
• Level of trade between peripheral countries is
low.
New Influences on the
Geography of Manufacturing
• Transportation on industrial location
– Development of infrastructure: containers, refrigeration
– Intermodal connections
• Regional and global trade agreements
– NAFTA, EU
– WTO: ~150 countries, promotes free trade to eliminate
quotas
• Proximity to Energy sources in industrial location less
important
– Pipelines and tankers deliver fuel to far away places
– 2.5 million miles of pipelines in NA
Oil has brought wealth to countries
outside the core:
• Oil cartel formed OPEC (Organization of
Petroleum Exporting
Countries)
• 80% of their money is
tied to oil
• Citizens are
guaranteed:
–
–
–
–
Housing
Education
Healthcare
Pensions for
retirement
High-Technology Corridors
• Found in wealthier core
countries
• By early 2000s, more
than 60 countries had
established such zones
• Located near
universities for
educated work force
Production of Televisions
provides a good example of how changing multinational
networks function
• Three key elements in television production:
– Research and design
– Manufacturing components
– Assembly
• Production of televisions has shifted across the
world over time.
• Read page 378 & jot notes or illustrate how TV
productions shows the global division of labor
New Influences on Location
1. Service industries are not tied to raw
materials & don’t need large
amounts of energy
2. Market accessibility is more relevant
Why Tertiary, Quaternary, & Quinary
Industries Locate Where They Do:
• Tertiary – transportation communication, locate where people are
• Quaternary – banks (near businesses), credit
card company (anywhere) b/c of
communications
• Quinary – government seats locate in capital
cities, research near universities, corporate
management in big cities
Energy Importance in Industrial
Location
• Oil & gas replaced coal as the energy source
• US consumption today (% of the world’s
consumption:
Oil – 27%
Natural Gas – 37%
• US reserves = 4% of world’s total
• US & Europe are very dependent on foreign oil
suppliers
• Japan totally dependent
Technopoles
Several high-tech industries locate together
• Drawbacks
– Pollution (chemicals)
– Required large amounts
of water
– Clear land to make room
for their buildings
– Silicon Valley - - - - - - - - >