Transcript Weber’s Model - Shun Lee Catholic Secondary School

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
– 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
– 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)
Weight of localized raw materials
Material index=
Weight of finished product
Procedures for finding
optimum location
• Stage 1 - Least Transport Cost
• Stage 2 - add in Labour Saving
• Stage 3 - add in Agglomeration
Economies
Situation 1
One market and Single raw material
$
$
Total
transport
cost
Distribution
cost
R.M.
Assembly
cost
distance Market
Pure raw material
$
R.M.
$
distance Market
Weight loss
material
$
R.M.
$
distance Market
Weight gain
material
Situation 2
One market and Two raw materials
Both RM1
and RM2
are
localized
and pure
Market
100 km
RM1
RM2
The Varignon frame
RM1 + RM2 + RM3
2kg
3kg
0.5 kg
Optimum
location
Product
1 kg
RM2
RM3
RM1
Market
Stage 2 - add in Labour Saving
2 sets of
isotim
assembly
cost
+
distribution
cost

Total transport
cost
Isodapane
$30
$25
$20
Stage 2 - add in Agglomeration
Economies
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
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
Exercise
•
•
•
•
•
Total Transport Cost
A = $1016+$238=$1254
B = $944+$118=$1062
C = $508+$294=$802
M=$1652+$0=$1652
Optimal Location
P ric e
P ro d u c tio n
C ost
Tra n s p o rt
C ost
A
$2200
$1000
$1254
B
$2200
$1000
$1062
C
$2200
$1000
$802
M
$2200
$1000
$1652
P ro fit
Criticism
• Unrealistic
assumptions
• Important factors
neglected
Criticism
• Unrealistic
assumptions
• uniform plain
• transport cost
• labour mobility
• economic man
• Single market
• competition
• Important factors
neglected
• profit
• diseconomies
• technology
• institutional factors
• behavioural factors
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
L.I.R. 
Number
Value
employed
of shipment
Scatter diagram=Scattergram
shows correlation of 2 variables
Scatter Best
Diagram fit
line
dependent
variable
a
b
Independent variable
Y=ax+b
positive correlation
Negative
correlation
No correlation
Transport cost/freight rate
• Structure of transport cost
Weber’s idea
Freight rate
Real world
Haulage
cost
Terminal
cost
Distance
Taper off rate
Freight rate
Real world
Diminishing
marginal
transport cost
Distance
Effect of Taper off rate
$
$
Assembly cost
Distribution
cost
R.M.
distance
Market
Different modes of transport
Freight rate
Road/truck
Rail
Water
Distance
Comparison
M ode
R oa d /
tru ck
R a ilw ay
W a ter/sh ip
Term in a l
cost
H a u lage
cost
Ta p er o ff
ra te
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
$
$
Distribution
cost
R.M.
Assembly
cost
distance
Transhipment
point
Market
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
• 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 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 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 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 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
• 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
• 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
Causes
Strategic reasons
Economic reasons
Political reasons
Social reasons
Ways
provision of infrastructure
provision of land
redistribution of population
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
Lean production / Just in Time