Decision with regard to location of an industrial unit involves a careful study of many factors. Proper and right choice of location is instrumental in future success of the business. The various factors are divided into two categories viz., ‘primary factors’ and ‘secondary factors’.
These factors are explained as follows:
(1) Primary Factors:
(i) Availability of Raw Materials:
Raw material form major proportion of the finished product. Unrestricted and regular supply of raw material is very necessary for carrying out unrestricted production. Nearness to the source of raw material is very economical for an industrial unit. On account of this consideration many industries have been set up near the source of supply of raw material.
Sugar factories in Uttar Pradesh, Textile units in Maharashtra and Gujarat, Cement factories in Madhya Pradesh and Jute industry in West-Bengal. Nearness to raw material is important in case of heavy and bulky materials having lesser value such as coal and other weight losing materials.
Raw materials can be divided into three:
(a) raw materials which are weight losing and cannot be preserved for a long time e.g., fruits for juice making (b) raw materials which are bulky, heavy and weight losing in nature, like iron ore etc. (c) raw materials which are not heavy and can be preserved for a longer period of time, e.g., raw cotton.
Industry using third type of raw material can be located anywhere. Alford Weber has given another type of raw materials called ubiquitous like clay sand and water which are found everywhere and as such do not affect the location of an industry.
Another important point to be kept in mind that only nearness of raw materials is not sufficient; it must also be easily accessible. Adequate transportation facilities should be available for carrying the material from the source of supply. A guiding principle should be followed in this regard i.e., “higher the proposition of the cost of raw materials to the total cost, the greater is the possibility of choosing a site near the source of raw materials.”
(ii) Availability of labour:
Labour cost is one of the main constituents of the total cost of production. It influences the total cost of production. Labour implies both the skilled and unskilled workers needed for different types of activities. The supply of un-skilled labour does not create any serious problem because such labour is available everywhere. Skilled labour is available only at specific centres.
Industries requiring highly skilled labour have to select such sites which ensure adequate and regular supply of required labour. Availability of skilled and efficient labour is mainly responsible for the development of various industries in a particular region e.g., cotton textile industry of Great Britain developed at Lancashire mainly on account of availability efficient labour.
On account of mobility of labour, this factor does not materially affect the location of an industrial unit. The labour can be attracted by providing various facilities and incentives like housing, canteen, rest rooms, incentive wage plans etc.
In actual practice, if required skilled labour is not available in a particular region, the available labour can be trained in the required skill or alternatively skilled and trained labour can be migrated from other regions to the plant. But both these methods are time consuming and involve a lot of expenditure which ultimately increase the cost of production.
(iii) Availability of Power and Fuel:
Availability of cheap power and fuel supply sources is another decisive factor in selecting proper location of an industrial unit. In the past, coal was the main sources of power supply for various types of heavy and large scale industries like iron and steel, cement and aluminium etc., the industrial units which used to be located near coal supplying centres.
But at present, there are several other sources of power, e.g. electricity, gas, oil and water power etc. On account of these various alternative sources of power supply, coal, as a main source of power is getting lesser recognition. Rapid development of hydro-electric power has provided wider choice for location of industrial units even at far flung and remote areas. Modern industrialisation could not have been possible without the growth of hydroelectric generating units.
(iv) Availability of Transport and Communication facilities:
Adequate and quick facilities of transport must be kept in mind for quick delivery of raw materials to the factory and finished products to the market. Kimball and Kimball have rightly pointed out that “The ideal plant is one centrally located and directly served by water, rail, trucking and air facilities”.
In certain type of industries transportation is the sole factor which is taken into consideration in deciding location of an industrial unit. For example, a cement factory is always situated near the source of lime stone which is carried usually with the help of trolleys to the factory.
Transportation is the life line of modern industry. The basic aim of selecting a particular mode of transportation should be minimum transportation cost with maximum transportation service. An industry should be located in the areas where there are already developed means of transportation.
Faridabad in Haryana developed as an industrial town on account of availability of both rail and road transportation. Phagwara serves another very good example of this type. Certain port towns like Calcutta, Bombay and Madras have attained significant importance on account of availability of excellent water and rail transportation facilities.
In modern times different modes of transportation and their increased efficiency and flexibility have provided ample choice to the industrialists in the matter of location. Besides transportation, communication services are also used to be of immense importance in deciding the location of an industrial unit. A businessman needs regular information with regard to changes in the price of raw materials and finished products and other valuable information. On account of development of internet, mobile phones etc., this factor does not affect the location of plant now a days.
(v) Nearness to Market:
Market greatly affects the establishment of an industrial unit and is in fact, dominant factor in locating an industrial unit in modern times. The production of goods is undertaken with the aim of selling them quickly which is possible only on account of nearness to market.
Industries using pure raw material (which do not lose their weight when turned into finished products) may be situated away from the source of such raw materials. For example, wool is primarily produced in Australia, but woollen hosieries are found throughout the world.
On the other hand, market as a factor of location will not affect much the location of industries using heavy and weight losing raw material. For example, iron and textile units are situated near the coal supplying centres.
Similarly sugar factories are located very near the sources of raw materials. Nearness to market is important in case of industries producing consumer goods rather producers’ goods, this is because production of consumer goods require constant adjustment of manufacturing programme on account of quick changes in the tastes, preferences and buying habits of the consumers.
Markets may be national or regional. In case where the demand of the product is on regional basis, the factory is usually situated near the major market for the product. For example, a publishing house publishing Punjabi books cannot be located in Calcutta or Bombay. Its ideal location would be Jalandhar, which is a leading publishing centre in Punjab.
(2) Secondary Factors:
Besides the above primary factors, there are some other factors which have bearing on the location of industries.
(i) Nearness to adequate Banking and credit facilities:
For the efficient and smooth running of the business and for meeting working capital requirements, banking facilities play an important role. Nearness to banks and other financial institutions is an important consideration now-a- days in deciding location of an industrial unit.
This is because banking has become indispensable part of modern business. In case of rural and small scale industries, banks and financial institutions play an important role and provide invaluable service in order to cater their financial needs.
(ii) Facilities of Repairs:
In order to maintain uninterrupted production, facilities with regard to repairs of machinery, plant and other components (in case of breakdown), must be kept in mind before setting a factory. A large scale concern can afford to install its own repair workshops, whereas small concerns may rely on various repair shops working near the factory.
(iii) Fire fighting facilities:
In order to protect the factory against the risk of fire, adequate fire fighting facilities must be provided. Internal arrangements pertaining to fire extinguishers, sand buckets and other firefighting equipment must be arranged. In case there arises the necessity of calling fire brigades, proper preparations must be made for the same.
(iv) Soil, Climate and Topography of a place:
Soil and climatic conditions are very important for the establishment of various type of industries like tea, coffee, rubber and tobacco. On account of this factor, jute industry developed in West- Bengal and tea industry in Assam. Similarly topography (e.g., hilly or rocky surface) of a place also influences location of an industry.
Areas which are frequently subjected to earthquakes and other natural calamities may not attract many industries. Climate of a place also considerably affects the efficiency of workers. Efficient workers are found in cool climatic regions.
On the other hand workers from tropical regions are not generally so efficient. This also affects the establishment of an industrial unit. Another important point in this regard is that means of transportation and communication are more in plains rather than in hilly areas. That is why industries have developed largely in plains rather than in hilly areas.
(v) Govt, policies and regulations:
Industrial Development and Regulation Act of 1951 laid down clearly certain rules, regulations and formalities to be complied before setting up an industrial unit. Prior permission and licence is necessary under the Act before the setting up of a new industrial unit. Certain cash incentives and concessions are also given by Govt, in order to promote a particular industry in a particular region.
A careful thought to all these rules, regulations and provisions of Act must be given before the establishment of an industrial unit. In order to develop industries on sound lines, Govt, has declared certain areas as industrially backward or special economic zones.
Certain concession and subsidies like cheap land, power and tax concession and subsidised raw materials etc., are provided in order to develop that particular area. Such measures are undertaken by the Govt, in order to ensure balanced and regional growth of industries in India.
(vi) Momentum of an early start:
This is another important factor affecting industrial location. A few industries start at a place and gradually other similar type of industries start at that particular place. For example, at Manimajra (a small town near Chandigarh) a few small automobile spare parts shops started about two decades back, but now a fully fledged automobile market has developed in that area. Similarly, at Ludhiana a few hosiery units started in the beginning, now Ludhiana has become a very big hosiery articles producing centre in India.
Carpet industry developed gradually at Mirjapur district of Uttar Pradesh. There are various reasons responsible for such a concentration of industries in a particular region viz., (i) availability of required type of labour in a particular region, (ii) facilities of repairs and maintenance on account of many repair shops and workshops operating in the areas, (iii) Availability of transport, communication, banking and insurance facilities, (iv) Facilities of managerial consultations and advice are also available.
(vii) Industrial atmosphere:
This factor refers to the thinking of the people with regard to a particular industry in a particular area. They involve themselves completely in the intricacies and various operations of the machines and implements being used in the industry.
There is a complete industrial atmosphere. Carpet industry at Bhadohi and Mirzapur serves a very good example of this kind. Major population of these cities is engaged in carpet processing, carpet washing, carpet weaving and carpet finishing.
Not only men, but women and children have also engaged themselves in this industry directly or indirectly. Similarly, at Bombay film industry has developed. It is easier and cheaper to produce a film in Bombay than in any other part of the country.
(viii) Personal factors:
Sometimes personal likes had dislikes also influence location of a particular industrial unit. Henry Ford started manufacturing motor cars in Detroit because he belonged to that place. Certain merchants belonging to Ahmedabad have made that place a leading textile centre of India. But such personal likes and dislikes cannot influence location of an industrial unit in the long run.
(ix) Tastes and preferences of people:
Before establishing an industrial unit in a particular region, buying habits, tastes, likes and dislikes of people in that area must be taken into consideration. Purchasing power of the people and composition of population in that region should be carefully studied. These studies and surveys render valuable information which is greatly helpful in establishing and industrial unit in particular region.
(x) Political and economic situation:
Political harmony and peace in a particular region encourage the establishment of industrial units. On the other hand, disturbed political and economic set up discourages the growth of industries in the region.
On account of Naxalites movement in West Bengal, Industries started moving out of West Bengal. Similarly is the case in certain other states where, on account of political disturbances, manufacturers have started thinking to settle elsewhere and further industrial expansion has been greatly affected.
(xi) Possibilities of future expansion:
The area for location should be such as to provide all possible opportunities for future development and expansion of the industrial unit without involving extra cost. Every industrial undertaking is established with the aim to expand in future.
(xii) Existence of competitive industries:
Limited and healthy competition encourages the growth of industrial units in a particular region. On the other hand, unhealthy competition retards the industrial growth in a region.
(xiii) Availability of research facilities:
The main aim of any industrial undertaking is to have maximum production with minimum cost. Constant research and experimentation is undertaken to develop products and improved methods of production.
Large concerns can afford to have a separate research department to meet this end, but in case of small and medium industrial units such facilities may be provided by specialised scientific and research institutions. Existence of such specialised institutions must be kept in mind before starting an industrial unit.