Factors Influencing Industrial Location

factors for industrial location
Written by Waseem Raza

Generally, the location of industries is influenced by economic and geographical factors. Cost minimization of cost and maximization of profit is the ultimate goal in the selection of locations for industries. Several factors pull the industry to set up in a particular place/location. Some major factors influencing industrial location are as follows.

1. Raw Materials

The availability of Raw materials is the most dominant factor in the localization of industries. No industry can develop without a timely supply of raw materials. The establishment of industry in a particular area is more profitable if it is located in a raw material-producing area. Nearness to the sources of raw materials would reduce the cost of production of the industry. The industry situated far away from raw material production area cost will be higher and it is not possible to compete with other industries. Raw materials include gold, tin, oil, uranium, bauxite, etc. When they are present, they attract industries to that place. Iron smelting, brick making, and cement manufacturing are the best examples.

types of resources

2. Labor

An adequate supply of cheap and skilled labor is necessary for the running of the industry. Labor in a region is an important factor influencing the localization of industries. If skilled labor is not available within the country, then skilled labor is imported from foreign countries which leads to an increase in production cost. Now industries are tending to concentrate in those areas where the supply of labor is available.

3. Market Access

Access to markets is an important factor influencing the localization of industries, which the entrepreneur must take into consideration. Industries deals in perishable goods that cannot be transported over long distances required near markets to time sold out in the market. Industries situated near the markets could be able to reduce the cost of transportation. If the market is quite far away from the place of production transport costs will be high which will lead to a raise in the selling price of the product in the market. It will be difficult to compete with other products and attract customers.

major economies of the world

4. Capital

The development of industries requires a large capital investment. It may come from any source, local or foreign. Finance is the lifeblood of any industrial venture. The availability of adequate funds at low rates of interest is a dominant factor influencing the localization of industries. Capital is required for settling new industries and also for the expansion of already running industries. Industry requires enough capital for its establishment, that’s why many countries are not able to establish industries for transforming their minerals.

5. Climate

The climate also plays a part in the location of industries. Climate determines the laborer’s power of work, efficiency, and economy of the products. It influences manufacturing e.g. Moist/ Humid climate is suitable for cotton, and textile industries while dry weather is suitable for flour mills industries. The stimulating cool temperate climate is more suitable for the development of industries.

natural vegetation

6. Power

Another factor influencing the location of an industry is the availability of cheap power. Water, wind, coal, gas, oil, and electricity are the chief sources of power. The concentration of iron and steel industry near the coalfield lowers the production cost. An adequate supply of power and fuel is an important factor for the uninterrupted operations of any enterprise.

7. Transport Facilities

Transport facilities influence the location of the industry. The modes of transportation (Road, Water, and Air) collectively play a very important role. So, the junction point of these major modes becomes the center of industrial activity. Industries depend upon efficient and cheap transportation systems, which is essential for the movement of raw materials as well as the finished products to their ultimate customers timely.

world trade routes

8. Personal Preferences

In deciding the location of industrial units, sometimes an entrepreneur may have personal preferences and prejudices in the setting up of an industry in particua lar area. In a democratic setup, sometimes political matters also initiate the establishment of certain heavy industries in certain regions. Mr. Ford started manufacturing motor cars in Detroit because it was his hometown.

9. Government’s Incentive

Industry develops from an area where the assistance of the local government can be found. In order to give a boost to industries in the country, the government gives incentives to industrialists, i.e. Low rate of interest, tax exemptions, banking facilities, electricity at concessional rates, subsidies, rail link etc.


10. Site Requirements

Some modern industries require particular types of sites. The government has classified some areas as backward areas where the entrepreneurs would be granted various incentives like subsidies, or provision of finance at a concessional rate, supply of power at a cheaper rate etc. For example, an integrated steelwork needs a large area of flat land, while a chemical plant may need a site where it is possible to dispose easily of dangerous waste.

11. Miscellaneous Factors

Miscellaneous factors like historical incidents and attitude of the community play a dominant role the location of industries. Further, the size of an industrial unit would also have much influence in choosing a location, because the size of industrial units depends upon the circle within which they can profitably distribute their goods within the circle. Read more

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