The document discusses factors to consider when determining an ideal location for a new industry or business. It identifies primary factors such as proximity to raw materials, markets, transportation routes, infrastructure and availability of labor. Additional factors that can influence location selection are climate, costs of transportation, government incentives, and personal preferences of business owners. The document also compares advantages and disadvantages of urban, rural and suburban areas for potential plant locations.

1. By
Asst. Prof. Joseph George Konnully

2.  Plant location refers to the choice of region and
the selection of a particular site for setting up a
business or factory.
 An ideal location is one where the cost of the
product is kept to minimum, with a large
market share, the least risk and the maximum
social gain. It is the place of maximum net
advantage or which gives lowest unit cost of
production and distribution.

3. The location of an industry is determined by taking into consideration the following
factors:
PRIMARY FACTORS:
a) Climate: Companies requiring controlled temperatures , humidity and ventilation
should consider the climatic factor while locating the plant. For example textile
factories in india requiring high humidity are located in Mahrashtra and Gujarat etc,
which are near the sea coast and have adequate humidity for the textile mills.
b) Nearness to the sources of raw material : In general perishable products
manufacturing companies are located to the source of raw materials. For example .
food processing industries should be located nearer to canning factories, meat
packing plants. Firms locate near their suppliers because of the perishability of raw
materials and products and transportation costs. Bakeries, dairy plants, and frozen
seafood processors deal with perishable raw materials, so they often locate
themselves close to suppliers. Another Guiding principle in such cases is “ weight
Losing”. If the raw material loses a lot of weight while processing, then the plant
should be located nearer to the source of raw materials. Another principle is “ weight
balancing”.i.e. relative cost of transporting raw materials must be weighed against the
cost of shipping the finished goods. Thus “Steel Industries” must be located near the
coal and Iron ore supply. Most of the Steel plants are located in the region where coal,
iron ore and other related raw materials are available. Tata Steels and steel plants
under SAIL are examples to justify this guideline.

4.  c)Transportation costs: In obtaining raw material and also
distribution or marketing finished products to the ultimate users
is an important criteria. Some Companies find it desirable to be
located near the seaport or near one of the inland waterways to
take advantage of the lower costs of transporting raw materials
(eg. Coal, iron ore, petroleum products etc) by boat , barge or
ship. Access to railroad and trucking facilities is also a desirable.
 d)Proximity to Markets: Small businesses in retail or wholesale or
services should be located within the vicinity of densely
populated areas or near to consumers market. Plants related to
cements, bricks, roofing and gypsum board are located nearer to
the market. For many firms it is extremely important to locate
the plant near customers.. Specially service organisations like
drugstores, restaurants, post – offices, or barbers find this
criteria as a primary location factor. Manufacturing firms find it
useful to be located close to the markets if transporting goods
is expensive especially if they are bulky, fragile or heavy.

5. e) Availability of Infrastructural facilities such as developed industrial sheds
or sites, link roads, nearness to railway stations, airports or sea ports,
availability of electricity, water, public utilities, civil amenities and means of
communication are important, especially for small scale businesses.
f) Availability of Labour: Availability of skilled and non-skilled labour and
technically qualified and trained managers. This explains why glass and
bangles industries are located in Firozabad (India). It is also desirable to
have no labour problem. Location of facility shall also depend on prevalent
wage rates, history of relationship of trade-union between management in
the area under consideration. Rural labours can be hired at a lower wages
and Steel industries needs a lot of rural labour. Perhaps this is the reason
why most steel plants are located in rural areas.
g) Banking and financial institutions : These should be located
nearby.
h) Locations with links: to developed industrial areas or business centers
result in savings and cost reductions in transport overheads, miscellaneous
expenses.Thus a truck assembly plant located close to steel plant bcause
the two plants can act as complimentary to each other. Example TELCO and
Tata Steel are located in Jamshedpur nearer to each other.
Factors Affecting the Plant Location

6. i) Strategic considerations of safety and security should be given
due importance.
j) Government influences: Both positive and negative incentives to
motivate an entrepreneur to choose a particular location are made
available. Positive includes cheap overhead facilities like electricity,
banking transport, tax relief,subsidies and liberalization. Negative
incentives are in form
decentralization of industries.
k)Personal factors: Residence of small business entrepreneurs want
to set up nearby their Homelands
Miscellaneous Factors :
Suitability of the land
Disposal of waters
Availability of Water and Fire-fighting Facilities
Community attitudes

7.  Urban or City area.
 Rural area.
 Suburban area.

8.  Good transport facilities are available for the movement of raw-materials
and finished products by rail and road and at times, by water and air.
 Good and prompt postal and communication services are available.
 Banking and credit facilities available.
 Services of insurance companies are available in city areas.
 Sufficient storing facilities including cold-storage , are available.
 Ample availability of skilled and unskilled workers.
 Advantages of vicitinty of the market for the product. Due to large
population,
 The local demand for the product is fairly high.
 Facility of the ancillary and services units, which develop around the
 industrial strip of the city area.
 Sufficient passenger transport facilities by road and railways are
available
 to employees.
 Development of the training institutes for workers and management
institutes for executives put the city area units into privileged position.
 Educational, medical and recreational institutes increase the amenities of
lives in the city area .
 Certain specific municipal services facilities are available only in the city
areas, like water supply, drainage, fire fighting facilities, sufficient police
protection etc.

9.  The cost of land is very high as compared to rural areas
 Even at high cost, sufficient land is not available, which puts constraints
on the arrangement of plants and machines. Sometimes multi-story
buildings are used which are not suitable for the installation of heavy
 plant and machines
 Due to high standard of living in city area, the cost of labour is relatively
high
 Due to possibilities of changing jobs from one unit to another, and
tendency of competitors to snatch away the good employees, the rate of
labour turnover is very high in city area
 The trade union movement is very strong in city area. Militant trade
unionists disturb the amicable industrial relations, which gives rise to
strikes and lockouts
 Various types of taxes is levied in city areas. The rates of taxes are
relative high. Eg. Octroi is a typical tax of the city area which is not
levied in rural areas.
 Certain municipal restrictions put constraints and involve extra cost due
to height of the building, disposal of waters, treatment of affluent water
, elimination of air pollution caused by smoke etc.
 The industrialization in the city areas gives birth to slums and dirty
residence which creates the typical problems of sanitation and health.

10.  As compared to the city area, the land is available at cheaper
rates.
 Large plots of the land area available which can be developed for
a factory sites, office buildings and residential quarters.
Horizontal arrangement of plant machines in the vast areas of
land is possible.
 Due to lower standard of living, the rates of labour are relatively
lower.
 As compared to the city area, the labour force is more or less
stable which reduces the rate of labour turnover.
 The industrial relations between labour and management are
relatively amicable.
 The local taxes which are found in the city areas are practically
nonexistent in rural areas.
 The municipal restrictions which are found in city areas do not
exist in rural areas. E.g. height of buildings.
 Slumps and dirty residence are not found in rural areas. The rural
areas is conducive to good health of workers.
 Due to lack of congestion, there is danger of fire caused by
surrounding units.

11.  Transportation facilities are not available in good condition and
sufficient quantities.
 Banking and credit facilities are also not available. The indigenous
money-lenders are charging exorbitantly for these services.
 Absence of insurance facilities.
 Storing and warehouse facilities are not available in rural areas.
 Passenger transport facilities are not available, as are available in city
area.
 Like in city areas, the advantage of ancillary and service units is not
available.
 Such units are very far from the market place and this increases the cost
of distribution of finished goods.
 Sometimes the means of transport are not available.
 It is not possible to tap the advantage of industrial training institutes or
management development pragrammes which is possible in city areas.
 It is generally not easy to get skilled workers in rural areas.
 Municipal facilities like water supply, drainage, fire-fighting etc. are not
available in rural areas.
 There is absence of recreation facilities, good educational institutes,
good and sufficient medical facilities.

12.  Land is available at a cheaper rate as compared to urban areas.
 Adequate land is available for future expansion unit. The
machines can be installed horizontally and still the provision for
future expansion can be made.
 Infrastructure facilities like road, water supply, drainage,
banking, warehousing,
insurance etc. are developed Government, municipal authorities
or industrial associations.
 As city area is nearest, the skilled and unskilled, both type of
labour are available.
 It is possible to tap the advantage of industrial training
institutes, management development programmes, research
institutes etc. which are available in nearby city area.
 The nearby city area provides a substantial market for the
products of the unit. This reduces the cost of marketing the
finished products and other ancillary advantages of marketing
are available.
 Educational institutes, medical facilities and other recreational
facilities are available in the suburban area itself as well as in the
nearby city area.