Webers Model

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Webers Model

• Industrial Location

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Locational Model

• What is a model?
• Simplified
• representative / common key features

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Webers 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

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• 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
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Procedures for finding optimum location

• Stage 1 - Least Transport Cost
• Stage 2 - add in Labour Saving
• Stage 3 - add in Agglomeration
  Economies

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Situation 1
One market and Single raw material
Total transport cost
Assembly cost
Distribution cost
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Weight loss material
Weight gain material
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Situation 2
One market and Two raw materials
Both RM1 and RM2 are localized and pure
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The Varignon frame
RM1 RM2 RM3 Product
2kg 3kg 0.5 kg 1 kg
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Stage 2 - add in Labour Saving
2 sets of isotim assembly cost distribution
cost ? Total transport cost Isodapane
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Stage 2 - add in Agglomeration Economies
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Exercise

• Assembly cost
• Aland (114)x1x4 lake (160120)x0.5x4 1016
• Blake (120120)x0.5x2land (176)x1x4 944
• Clake (120160)x0.5x2 land(114)x1x2 508
• M lake (120120)x0.5x2land (118)x1x2 land
  (176)x1x4 land(118)x1x4
• 1652

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Exercise

• Distribution cost
• A to M lake (120120)x0.5x1land
  (118)x1x1238
• B to M land (118)x1x1118
• C to M land (176)x1x1land(118)x1x1294

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Exercise

• Total Transport Cost
• A 10162381254
• B 9441181062
• C 508294802
• M165201652

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Optimal Location
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Criticism

• Unrealistic assumptions

• Important factors neglected

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Criticism

• Unrealistic assumptions
• uniform plain
• transport cost
• labour mobility
• economic man
• Single market
• competition

• Important factors neglected
• profit
• diseconomies
• technology
• institutional factors
• behavioural factors

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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

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Labour Intensity Ratio
Scatter diagramScattergram shows correlation of
2 variables
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Best fit line
Yaxb
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positive correlation
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Negative correlation
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No correlation
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Transport cost/freight rate

• Structure of transport cost

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Taper off rate
Diminishing marginal transport cost
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Effect of Taper off rate
Assembly cost
Distribution cost
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Different modes of transport
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Comparison
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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

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Assembly cost
Distribution cost
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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

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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

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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?

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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

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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

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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

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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

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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

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Institutional Factors

• Causes
• Strategic reasons
• Economic reasons
• Political reasons
• Social reasons
• Ways
• provision of infrastructure
• provision of land
• redistribution of population

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• 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

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Lean production / Just in Time