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Alfred Weber's Model of Industrial Location

Instructor: Beth Loy

Dr. Loy has a Ph.D. in Resource Economics; master's degrees in economics, human resources, and safety; and has taught masters and doctorate level courses in statistics, research methods, economics, and management.

This lesson reviews Weber's Model of Industrial Location. This model discusses the location triangle, which includes costs of moving raw material and costs of moving the good to the market. Cost and agglomerative factors are detailed.

What is Weber's Model of Industrial Location?

Chris was recently tasked with determining where to put his company's new tractor seat manufacturing plant. He knows he has to look at the most cost effective location. As a part of his formula, Chris considers two transportation costs: the transportation of tractor seat components to the plant and the transportation of tractor seats from the plant to where they will be sold. He decides to use Weber's Model of Industrial Location as his guide to find the perfect plant location.

Alfred Weber, a German economist and industrialist, used sociology and geography to develop a theory called Weber's Model of Industrial Location. Living from His most influential work, Theory of the Location of Industries, was published in German in 1909. It focused on something he called the location triangle. Once Weber's book was published in English in 1929, the theory took hold in predicting the best location for producing a good based on this triangle.

The triangle included the fixed location of the market and two raw material sources. Based on these, his goal was to determine:

  1. The cost of moving raw material from both raw material sites to the production facility.
  2. The cost of moving the good from the production site to the market.

Weber references two factors affecting these costs, regional and transportation. He also looks at the effect of agglomerative and deglomerative factors. Let's examine these in more detail.

Cost Factors

Weber looks at regional factors in his model of industrial location. The cost of production in a region differs from other regions based on labor and transportation. In other words, if labor costs have a greater effect on production costs than transportation costs, the plant should be located where labor costs have the least influence. If transportation costs influence the cost of production more than labor costs, the plant should be located where these costs have less of an effect. Weber determines the influence of labor and transportation by using two coefficients: Material Index and Labor Cost Index.

Material and Labor Cost Index

Material index is determined by the formula:

Material Index = Weight of Localized Gross Material / Weight of Finished Good

If the material index is larger than 1, an industry should move close to the raw material sites. If it is less than 1, the plant should be located near its market. If the formula equals 1, it is the company's discretion on where to locate. There may be less influential factors that then affect the final location.

Labor cost index is calculated by the formula:

Labor Cost Index = Labor Cost / Weight of Product

The higher the labor cost index, the closer the plant should locate to comparatively lower wage earners. Labor includes both unskilled and skilled labor. The higher the Labor Cost Index, the more transportation costs should influence the plant's location. Factors that influence labor costs are unionization, competition, education level, and skill-set.

Example of Material and Labor Cost Index

In the case of Chris' company, regional factors do influence the plant's location. Chris wants the least-cost location, so he begins by looking at the material index. Chris calculates 2500 / 3000 as 0.83. This coefficient is less than 1 so this plant has a low material index and is not material oriented.

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