Important points on plant location

Step in location

To be systematic, in choosing a plant location, the entrepreneur would do well to proceed step by step, the steps being;

1.Within the country or outside;
2.Selection of the region;
3.Selection of the locality or community;
4.Selection of the exact site.

Deciding on Domestic or International location

The increasing internationalization of business, the issue of home or foreign country is gaining greater relevance. If the management has to decide on the foreign location, next step will be to decide the particular country for location. This is necessary because countries across the world are vying with each other to attract foreign investments. The choice of particular countries depend on such factors as political stability, export and import quotas, currency and exchange rates, cultural and economic peculiarities, and natural or physical conditions.

The selection of a particular region is the second step to consider the plant location.

Availability of Raw Materials

A Plant location or a manufacturing unit is in the conversion of the raw materials into finished goods, it is very essential that the transport of raw material is at minimum cost. In industries like, sugar, paper, iron and steel are engaged in solvent extraction of oil from rice bran, the china clay washery, factories manufacturing low tension porcelain insulators, and the like should be located near the sources of their raw materials.

Nearness to raw materials offers such advantages as:

1.Reduced cost of transportation
2.Regular and proper supply of materials uninterrupted by transportation breakdowns
3.Saving in the cost of storage of materials.

Raw materials in this context may be classified into two types, viz.

(i)Weight-losing or gross materials
(ii) Non-weight losing or pure materials

Weight-losing materials lose their weight during the manufacturing process. The cost of transporting these raw materials from the source of supply to the place of manufacture is more than the cost of transporting the finished products from the factory to the market. Examples of these raw materials are iron ore, sugarcane, coal, timber etc. Industries using such materials tend to be located at the source to save on the cost of transportation.

The Non-weight losing materials, they grow in weight after they are converted into finished goods. The cost of transporting the finished goods is more than that of raw materials. Examples of such non-weight-losing materials are cotton and woolens

Nearness to the Market

Since the goods are produced for sale they should be near the market. The cost of reduction in the cost of transporting finished goods depends upon the likes and dislikes of the consumers. The Consumer should get some advantages such as:

(i)The Consumer should get or render prompt service.
(ii)Consumer should be provided with after-sales service
(iii)Consumers should get replacement orders without delay.

Industries like non-weight-losing raw materials, industries producing perishable or bulky products and servicing units tend to be located near their market.

Availability of Power

Power is essential to move the wheels of an industry. Coal, electricity, oil and natural gas are the sources of power. Industries using electricity have to be located at a place where electric power is available regularly and at cheap rates.

Transport Facilities

Transport facilities are essential for bringing raw materials and men to the factory and also for carrying the finished products from the factory to the market. A place which is well connected by rail, road, and sea is ideal for a plant location. In extreme cases, transport may follow the industries. If a public sector unit has been started in a remote place, the government has to provide transport facilities and also cater to the requirements of the product.

Suitability of Climate

The climate has its own importance with regard to the location of the plant. The nature of production depends upon the climatic conditions. Some industries are placed where humid conditions may be required for the product like the cotton textile which is in Mumbai, the jute industry in Calcutta etc. The scientific and technological developments have enabled us to create artificial conditions. The entrepreneur would do well to take advantage of a natural climate because the cost of providing an artificial climate is quite exorbitant.

Extreme climatic conditions adversely affect labor efficiency. There is heavy industrial concentration in the cool and temperate regions rather than in the tropical and polar regions.

Government Policy

The influence of Government policies and programs on plant locations is apparent in every country, particularly in planned economies like ours. In India, there are several backward regions, which are selected for the location of the plant, which would generate the economy of the region and on a larger scale canvas, the national economy.

The Government of India has been influencing plant location in a number of ways. Some of these are:

1.Licensing policy;
2.Freight rate policy;
3.Establishing a unit in the public sector in a remote area and developing it to attract other industries;
4.Institutional finance and government subsidies.

The influencing of government policy was only after the Independence. Before the Independence, purely commercial considerations were decided as per industrial locations. Such has been the case with TISCO and IISCO. It was because there was no over solicitous government which was ready to come to the rescue of a sick unit to save it from bankruptcy, no ideologue anxious to give a face-lift to the losing public sector concerns by allowing them to jack up prices, give protection and capitalize losses by converting them into equity.

Competition between States

States vie with each other to attract new industries. Various states offer investment subsidies and sales tax exemption to new units. The incentives may not be of a big help to the big sized plants. But for small and medium-sized plants, the incentive does matter. The owner of these plants certainly consider the incentive while selecting the region.