There are broadly three possible alternatives open or the selection of the locality of the industrial unit:
1. Urban or City area,
2. Rural area
3. Suburban area.
The relative advantages and disadvantages of each area are discussed as under:
Urban or City Area
Due to certain typical advantages available only in the city area, promoters show preference for city as the location of the industrial unit.
Advantages of City Area
1. Good transportation facilities are available for the movement of raw materials and finished products by rail and road and at times, by water and air.
2. Good and prompt postal and communication services are available.
3. Banking and credit are facilities are available.
4. Services of insurance companies are available in city areas.
5. Sufficient storing facilities including cold storages are available.
6. Ample availability of skilled and unskilled workers.
7. Advantages of vicinity of the market for the product. Due to large population, the local demand for the product is fairly high.
8. Facility of the ancillary and service units, which develop around the industrial strip of the city area.
9. Sufficient passenger transport facilities by road and railways are available to employees.
10. Development of the training institute for workers and management institutes for executives put the city area units into privileged position.
11. Educational, medical and recreational institutes increase the amenities of life for the worker in the city area.
12. Certain specific municipal service facilities are available only in the city areas, like water supply, drainage, fire fighting facilities, sufficient police protection etc.
Disadvantages of Urban or city Area
1. The cost of land is very high as compared to rural area.
2. Even at high cost, sufficient land is not available, which puts constraints on the arrangement of plants and machines. Sometimes multi storey building are used which are not suitable for the installation of heavy plant and machine.
3. Due to high standard of living in city area, the cost of labor is relatively high.
4. Due to possibilities of changing jobs from one unit to another, and tendency of competitors to snatch away the good employees, the rate of labor turnover is very high in city area.
5. The trade union movement is very strong in city area. Militant trade unionists disturb the amiable industrial relations, which give rise to strikes and lock-outs.
6. Various types of taxes are levied in city areas. The rates of taxes are also relatively high; e.g. Octroi is a typical tax of the city area which is not levied in rural areas.
7. Certain municipal restrictions put constraints and involve extra costs due to height of the building, disposal of waters, treatment of affluent water elimination of air pollution caused be smoke etc.
8. The industrialization in the city area birth to slums and dirty residences which creates the typical problems of sanitation and health.
In certain situation, a rural area is also preferred as a site for the industrial unit. The following are its advantages and limitations.
Advantages of Rural Area
1. As compared to the city the land is available at cheaper rates.
2. Large plots of the land are available which can be developed for a factory site, office buildings and residential quarters. Horizontal arrangement of plant and machines in the vast area of land is possible. Provisions can also be made for further expansion.
3. Due to lower standard of living, the rates of labor are relatively lower. Thus, labor cost is reduced substantially.
4. As compared to the city area, the labor force is more or less stable which reduces the rate of labor turnover.
5. The industrial relations between labor and management re relatively and management are relatively amicable. The rural environment and residential staff quarters develop personal relations among employees.
6. The local taxes which are found in city areas are practically non-existent in rural areas.
7. The municipal restriction are found in city areas do not exist in rural areas e.g. height of building, constructed area in total land etc.
8. Slums and dirty residence are not found in rural areas,. The rural environment is conducive to good health of workers.