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Weber’s Model. Industrial Location. Locational Model. What is a model? Simplified representative / common key features. Weber’s Model. Aim: find out the optimum location of a factory Optimum location = least cost location Assumptions isotropic surface / uniform plain

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Weber s model

Weber’s Model

Industrial Location


Locational model
Locational Model

  • What is a model?

    • Simplified

    • representative / common key features


Weber s model1
Weber’s Model

  • Aim: find out the optimum location of a factory

  • Optimum location = least cost location

  • Assumptions

    • isotropic surface / uniform plain

    • different labour cost at different locations but labour is not mobile

    • single mode of transport and transport cost is direct proportion to distance and weight


Weber s model

Weight of localized raw materials

Weight of finished product

  • perfect competition(same product, same quality, same price)

  • entrepreneurs are economic rational (minimize cost)

  • resources (raw materials)

    • ubiquitous (everywhere)

    • localized (fixed)

    • pure (no weight change)

    • gross (weight loss)

Material index=


Procedures for finding optimum location
Procedures for finding optimum location

  • Stage 1 - Least Transport Cost

  • Stage 2 - add in Labour Saving

  • Stage 3 - add in Agglomeration Economies


Weber s model

$

$

R.M.

distance

Market

Pure raw material

Situation 1

One market and Single raw material

Total transport cost

Distribution cost

Assembly cost


Weber s model

$

$

$

$

R.M.

R.M.

distance

distance

Market

Market

Weight loss material

Weight gain material


Weber s model

Market

100 km

100 km

100 km

RM1

RM2

Situation 2

One market and Two raw materials

Both RM1 and RM2 are localized and pure


Weber s model

RM2

Optimum location

RM3

RM1

Market

The Varignon frame

RM1 + RM2 + RM3 Product

2kg 3kg 0.5 kg 1 kg


Stage 2 add in labour saving

$30

$25

$20

Stage 2 - add in Labour Saving

2 sets of isotim

assembly cost

+

distribution cost

Total transport cost

Isodapane



Exercise
Exercise

  • Assembly cost

  • A=land (114)x$1x4 +lake (160+120)x$0.5x4 = $1016

  • B=lake (120+120)x$0.5x2+land (176)x$1x4 = $944

  • C=lake (120+160)x$0.5x2 + land(114)x$1x2 = 508

  • M= lake (120+120)x$0.5x2+land (118)x$1x2 + land (176)x$1x4+ land(118)x$1x4

  • =$1652


Exercise1
Exercise

  • Distribution cost

  • A to M = lake (120+120)x$0.5x1+land (118)x$1x1=$238

  • B to M = land (118)x$1x1=$118

  • C to M = land (176)x$1x1+land(118)x$1x1=$294


Exercise2
Exercise

  • Total Transport Cost

  • A = $1016+$238=$1254

  • B = $944+$118=$1062

  • C = $508+$294=$802

  • M=$1652+$0=$1652



Criticism

Unrealistic assumptions

Important factors neglected

Criticism


Criticism1

Unrealistic assumptions

uniform plain

transport cost

labour mobility

economic man

Single market

competition

Important factors neglected

profit

diseconomies

technology

institutional factors

behavioural factors

Criticism


Labour
Labour

  • Spatial mobility of labour

  • industrial mobility of labour

  • structure of labour cost - wages, holiday, fringe benefit, training cost

  • other than cost, quantity and quality


Labour intensity ratio
Labour Intensity Ratio

Scatter diagram=Scattergram

shows correlation of 2 variables


Weber s model

dependent variable

Scatter Diagram

a

b

Independent variable

Best fit line

Y=ax+b



Weber s model

Negative

correlation



Transport cost freight rate

Weber’s idea

Freight rate

Real world

Haulage cost

Terminal cost

Distance

Transport cost/freight rate

  • Structure of transport cost


Weber s model

Freight rate

Real world

Distance

Taper off rate

Diminishing marginal transport cost


Weber s model

$

$

R.M.

distance

Market

Effect of Taper off rate

Assembly cost

Distribution cost


Different modes of transport

Road/truck

Rail

Freight rate

Water

Distance

Different modes of transport



Break of bulk transhipment point
Break of bulk/Transhipment point

  • A point where there is a need to change mode of transport due to

  • physical reason - port

  • artificial - national boundaries


Weber s model

$

$

R.M.

distance

Market

Transhipment point

Distribution cost

Assembly cost


Impact of technology
Impact of technology

Production technology

use less amount of raw materials and/or power

use of substitutes (raw materials or power) e.g. use of scrap in iron and steel industry

Transport technology

lower freight rate

refrigeration

standardization(use of containers)

Automation - less labour and skilled labour


Impact of information technology
Impact of Information technology

  • What are the uses of computers and internet in manufacturing?

  • Computer aided design CAD

  • Computer controlled production

  • Computer controlled logistics

    • getting raw materials, products to market

  • e-business / e-commerce

    • buying raw materials, sale of products

  • e-recruitment


Impact of information technology1
Impact of Information technology

  • Impact on getting raw materials?

  • Impact on seeking labour?

  • Impact on mobility of capital?

  • Impact on transportation and logistics?

  • Impact on market?

  • Impact on industrial location?


Impact of information technology2
Impact of information technology

  • Information about price and supply of raw materials is widely spread

  • More information for labour to seek employment

  • Recruitment and online interview over internet

  • Information on job vacancies is widely spread

  • Decrease the reluctance of labour to migrate to othre countries

  • Increases mobility of labour

  • Increase demand for skilled labour

    TNCs shift to countries with cheap labour


Impact of information technology3
Impact of information technology

Promotion of world trade

Better monitoring of investment

Mobility of capital is greater

Lean production method and Just-in-time production is possible

Industries may be shifting away from sites closed to raw materials and power resources or nodal points of transportation as the influence of transport cost is diminishing

Better flow of market information


Impact of technology1
Impact of technology

  • Information technology

    • With the ease of making foreign investment, it may become more and more popular to set up new factories in other countries, especially in the less developed countries, for the sake of lowering the production cost with cheaper land and labour

    • Decrease the need to move industries to other countries for labour with special skills

    • Development of Transnational corporations / cross-border production is more common

    • Clustering / agglomeration of industries


Locational change
Locational change

  • Declining importance of traditional factors

  • relative importance of other factors rise

  • more flexible / footloose

  • importance of research and development

  • market / large urban centres

  • Cross-border production / international division of labour / TNCs


Behavioural factors
Behavioural Factors

  • Not all decision-makers are economic rational

  • perception , knowledge and information

  • satisficers rather than optimizers

  • psychic income

  • advantages :

    • lower rent because of weaker competition

    • reduce over-concentration-pollution, etc.

    • provide employment to inferior areas


Institutional factors
Institutional Factors

Causes

Strategic reasons

Economic reasons

Political reasons

Social reasons

Ways

provision of infrastructure

provision of land

redistribution of population


Weber s model

Favourable terms of trade

e.g. Shenzhen Special Economic Zone

tax holiday / concession rate

land use planning / zoning

protection of local industries

e.g. tariff, quota

Anti-pollution laws and traffic control regulations