CPDS Home Contact Summary paper   Attachment E


This attachment is not an authoritative account of location theory or practice. It merely illustrates what the Industrial Location and Tourism papers (Attachment C and D) might profitably have expressed a view about.

HISTORICAL BACKGROUND: 'Classical' location theory was devised by Webber in 1909. He attempted to explain location on the basis of minimising the costs of labour, transport and materials. Palander, in 1935, added market area analysis to Webber's work. Losch (The Economics of Location, 1954) was first to describe general location theory as set of equations. He rejected Webber's least cost assumptions, and introduced the notion of demand, to base his model of industrial location on maximising revenue. By the 1950s these earlier ideas were paralleled by those emphasising the locational interdependence of industry. Both were then criticised for: pre-occupation with optimality (when reality is suboptimal); inability to deal with actual industrial organisation; and ignoring political economy (Smith D. Industrial Location: An Economic Geographical Analysis 1981). Around 1980 major changes in thinking were occurring (Rees J Industrial Locations and Regional Systems, 1981). Dimensions of these shifts include: much greater micro-focus on firms (a behavioural approach to decision making); linkages between firms were seen as important location issues (in organisation, interindustry interconnections, financing) in addition to 'classical' location factors; technological innovation and diffusion came to be seen as a key to location ie utility of industry and product life cycles explains location; key labour requirements changed; and corporate ownership and control have been seen as important. Emphasis has also been placed on the process of change. Firms make decision affecting their productivity which deal with: scale of operation; techniques to be used; and location (interdependent). Internal factors affect of location decisions as much as characteristics of regions themselves.

WHAT AFFECTS INDUSTRIAL LOCATION? Many factors influence location decisions eg land attributes; availability of finance and equipment; materials and power; labour and management; markets and price; transportation; agglomeration, linkages and external economies; public policy, planning; organisational behaviour; and chance (Smith op cit). Models exist of how location decisions are made (eg Solderman S., Industrial Location Planning, 1975).

Relevant location factors identified in a recent literature survey by the author included: market access (mainly near USA, Europe); transport (a cost, rather than strategy, factor; centralised distribution is in fashion); existing critical mass (provides support services and know how); technology (internal factors determine what is important); exchange rates / tax (especially on property, differential taxes); international orientation; human resources (low labour costs, made to measure skills); universities (good R&D capabilities); qualitative factors (ie non cost issues such as labour, housing); incentives (can be effective but very costly); easy environmental requirements; supply capability (eg special skills, information, prestige, production costs); and industry self regulation.

Recent studies of plant location criteria include conclusions such as:

Globalisation of manufacturing results in labor costs driving location decisions. However, advanced manufacturing skills and lower professional labor costs can generate distinct competitive advantages. Basic products with high raw materials or energy costs prefer close access to low-cost sources or efficient transport. Access to important markets drives many location decisions.

Industrial location requires first considering production requirements; costs; markets. If this results in choices then: quality of life (cost of living differentials, employee preferences, journey to work costs, price versus quality aspects of housing, and the public services versus taxation relationship) and business climate (community attitude to plant, personnel, upper management) should be considered.

Foreign location decisions involves firstly deciding on general region, and then on specific locations.

Studies show: 1. Traditional location factors, such markets, labor, transportation, and raw materials, are important, but this varies by type of industry and firm. 2. Technological change and more efficient transportation have reduced the importance of access to raw materials. 3. unionisation, quality of education, quality of life, and business climate are becoming more important. 4. Taxes and other financial incentives have little impact on choice of location. To some extent, business taxes can be shifted to consumers and workers.

GLOBALISATION: There have been changes in the world economy (new division of labour; fragmentation of production; increasing importance of capital over production; better transport and communications). As a result, markets for goods and services are increasingly globalised and:

ATTRACTING INDUSTRY IS NO LONGER SO IMPORTANT: Traditionally, communities sought to attract 'footloose' industries as a key to industrialisation. However, as a result of the globalisation of production, being able to attract investors has ceased to be seen as the most important issue. Competition by low wage cost countries for capital intensive industry requiring low / medium grade skills means that such industrial relocations do not usually now involve industries which generate high value added. Because 'footloose' industries may no longer be highly productive, industrial development theory and practice shifted (in the 1970s and 1980s) from exogenous growth (ie attracting investment) to endogenous development (eg Wadley D Restructuring the Regions: Keynote of Recent OECD Studies, 1984). Thus emphasis on industrial relocation has often given way to development of indigenous technology based ventures through more effective innovation. Empirical evidence suggests that politically popular industrial 'recruitment' efforts have very little effect on business location decisions. Moreover, large manufacturing businesses will not provide a significant source of future new jobs.

GOVERNMENT'S ROLE: Handouts to attract investment are not seen to be the key, nor is minimal government. What is arguably required to be attractive to industry is a constant effort to maintain a balance between tax and supportive infrastructure which is internationally competitive, and a regulatory framework which inspires confidence that business can be conducted effectively (Kasper W, Bennet J, Jackson S and Markowski S The International Attractiveness of the Gladstone Fitzroy Region, 1992)

ASIA / PACIFIC CONTEXT: Any consideration of SE Queensland's attractiveness for investment must consider its dynamic regional context:

SE Asia is now the main target for manufacturing sites rather than Korea, Taiwan, Singapore and Hong Kong. Taiwan and Korea are both aggressively moving manufacturing to low cost countries (eg in SE Asia), due to high costs and currency fluctuations. Mexico is also a target for relocation of Asian manufacturing. Cebu City is outstripping Manila. Factors include entrepreneurial business culture, business oriented political leadership, geography with central location and protection from seasonal storms. Despite the many difficulties of investment in the Philippines Asian firms continue to take a long term view.

Hong Kong is profiting immensely from investment in China's special economic zones. Increasingly it has a service oriented economy. While telecommunication systems in are being upgraded throughout Asia, Hong Kong is already well served. Taiwan is an ideal location for firms specialising in high technology or infrastructure. Its growing middle class population also attracts investments linked to consumer goods. Singapore is site for high tech, capital intensive businesses. Singapore is very attractive business location with stable government, good investment incentives, good work ethic and efficient banking. Though Singapore is the alternate financial centre of the Asia / Pacific, Indonesia, Malaysia and Thailand are challenging it.