Composite Measure Method:
Illustration: Comparative appraisal of various plant sites with references to the qualitative factors affecting the location decisions:
For the location of an engineering plant, three sites, A, B, and C are under consideration. The costs of various factors and other relevant aspects in respect of each site are listed below. It is required to make the final selection of the site.
Factors Site A Site B Site C
Cost of land
of land 50,000 49,000 45,000
Buildings 4,50,000 4,20,000 4,80,000
Labor charges 40,000 25,000 32,000
Power 10,000 9,000 10,000
Water 5,000 1,000 3,000
Cost of raw material and other
Supplies 1,00,000 80,000 85,000
Incoming 30,000 50,000 52,000
Outgoing 20,000 35,000 40,000
Local taxes 5,000 NIL 3,000
Total Operating Cost 7,10,000 6,60,000 7,50,000
Cost of living Very high Low Moderate
Housing facilities Excellent Poor Good
Community facilities Excellent Poor Good
Community attitude Good Encouraging Indifferent
The observation of quantitative factors reveals that site B avails substantial cost advantage over site A and site C. But in view of the qualitative factors site A is preferable.
The above mentioned illustration is the most simplified version of the decision. In reality, the ascertainment of various costs largely depends on the types of production, scale of production, type of factory building, selection of plant and machines, plant layout, provisions of plant services and so on. It is also relatively difficult to quantify the qualitative considerations. However, the scientific analysis helps in arriving at good decisions.
Location Break Even Analysis (BEA):
Break Even charts (BEC) are drawn for different locations to compare the sites. Fixed costs, variable costs and revenue/ output are taken into account to do so. Mathematically, Break Even volume is
Fixed costs / Contribution or
Fixed costs / Revenue/ unit – Variable cost/ Unit
We can draw up a profit and Loss account of different sites for comparison.
Quantitative Models of Location:
We can make a brief reference to the model[s generally used. Median Model is based upon the assumption that movement of load is done on rectangular / rectilinear pattern. It is useful for a single new facilities location. The Gravity Model is an attempt to establish a Center of Gravity with respect to existing ancillary facilities (like sources of supply S1, S2 and distribution points like D1, D2 etc) Brown Gibsons Composite Model provides a composite location model of the subjective and objective factors. Bridgeman’s Dimensional Analysis is an optimization model where different objectives are represented on different dimensions.
Government Steps to ensure Regional Balanced Development:
Concentration of industries in some cities in the West has already created serious problems for the socio-economic life of the people. Congested cities with in-sanitary working conditions make the city absolutely unhealthy. It creates problems for housing, transport, and education. Enemy bombing was also the result of high concentration of industries in big cities. In India, the political leaders from rural areas under pressure from their voters in the country, began to demand that indu9stries be established in rural areas to provide opportunities of employment and higher incomes to people in those areas. Heavy concentration of industries in some pockets has economic, social and military evils. Decentralization of industries is the only solution to do away with such evils and to establish regional balance.
Government measures for the decentralization of Industries
1) Development and Regulation of industries Act 1951, was passed with a view to prohibit the establishment or expansion of industries in developed areas by formulating the industrial licensing policy in India.
2) Encourage the establishment of industrial estates in rural and semi-urban areas with infra-structure facilities like facto-ry sheds, water, electricity, transport, communication, warehousing etc at concessional rates.
3) Establishment of public sector units in rural areas.
4) State Government followed it up with a package scheme of incentives for listed industries, if they are set up in underdeveloped areas.
5) Refund of capital gains tax paid on profits out of sale of factory premises in big cities, provided the sale proceeds of such land were invested in industrial units in the underdeveloped areas.
6) Relief from duties and taxes: Electricity Board rebate on its tariff to all new industries in the backward areas for five years. Public water sources exempt new industries in undeveloped areas and state government subsidizes them to the extent of 1.6% of the value of such units. New units is backward regions are exempted from payment of non-agricultural assessment for a period of thirteen years from the date of license or registration.
7) Preference in Government purchases: 33 % of the government purchases shall be for a period of 6 years from the date of production.
8) Industrial units which have to pay 25% of the cost of housing scheme under industrial housing scheme will be subsidized to the extent of 10% of their share to be paid up to the housing board.
9) Advance supply of building material to speed up industrial construction.
10) Assistance in technical training in technical high schools for personnel in these units
11) State industrial and Investment Corporation of Maharasthra (SICOM) assistance on plant location.
12) Government contribution to the extent of 75% of the cost feasibility study by government agencies.
13) Financial assistance: Interest free loan equal to the sales tax payable on purchase of raw materials and sale of finished goods for 13 years
14) Refund of sales tax on certain conditions and clearance from SICOM.
15) Guaranteeing of loans to these new units.