causes and consequences of industry localization

Introduction

Localisation means the concentration of a certain industry in a particular area, locality or region. Localisation is related to the territorial division of labour, that is, specialisation by areas or regions. A certain town or region tends to specialise in the production of a particular commodity.

Switzerland specialises in watches, Brazil in coffee and India in tea. In India, iron and steel industry is concentrated in Bihar, tea industry in Assam, cotton textile industry in Maharashtra and Gujarat, sugar industry in UP and Bihar, jute industry in Bengal, and so on. Town-wise, hosiery industry is localised in Ludhiana, brass-wares in Moradabad, bangles in Ferozabad, shoes in Agra, scissors and knives in Meerut, etc.

Causes of Localisation:

What factors influence the location of an industry in one area rather than in another? “When a firm chooses its location it may be influenced by a wide range of factors from the relative costs of alternative sites to the irrational whims of the businessman. Fancy and chance play a part; liking for a particular district, the accident of having been born in it, and so on.” But all factors are influenced by low costs of production, and minimum transport costs. These causes may be enumerated as under:

(1) Climatic Conditions:

Climatic or soil conditions in certain areas are suited for the production of a particular product. Such an area has got an overwhelming advantage over other areas. If efforts are made to develop other areas by artificial means, the cost of manufacture would be very high. This is the reason for the concentration of tea industry in Assam and North Bengal and of coffee industry in the Nilgiris.

(2) Nearness to Raw Materials:

Nearness to raw materials is a dominant factor in the location of an industry, especially that industry which uses bulky raw material that is expensive to transport and looses weight in the manufacturing process. The concentration of iron and steel industry in Bihar is due to the availability of iron ore and other smelting materials there. Similarly, the localisation of sugar factories in UP and Bihar is due to the widespread cultivation of sugarcane which is bulky and costly to transport to other regions.

(3) Nearness to Sources of power:

Nearness to the sources of power is another important cause of localisation of industries. This explains the concentration of iron and steel industry near the coal-fields. The farther coal is carried away from the coal mines, the higher become the costs of transportation. But with the development of hydro-power and atomic-power, coal as a source of power has become less important because the former can be carried to hundreds of kilometres with comparatively less cost. The concentration of the cotton textile industry in Bombay region may be attributed to the establishment of the Tata Hydro-electric Works.

(4) Nearness to Markets:

Before starting an industry, an entrepreneur has to take into consideration the market potentialities of his product. If the market is quite away from the place of manufacture, transport costs will be high which will raise the selling price of the product in comparison with other similar products which are manufactured near the market. The former will thus decay soon.

The establishment of sugar industry in the South, of the cotton textile industry, especially in UP, Punjab, and Bengal has been motivated to meet the demand of these areas. On the other hand, export-oriented industries are concentrated near the port- towns because the transport costs of carrying exports to the ports are low for such industries.

This explains the concentration of the majority of industrial houses in the port cities of Mumbai, Chennai and Calcutta. Besides, industries also tend to be concentrated around railway junctions because their products can be transported to other regions with lesser transport costs.

(5) Adequate and Trained Labour:

Industries tend to be concentrated in those areas where adequate supplies of trained labour are available. New industries are also attracted to such areas. The growth of many industries around Mumbai, Calcutta, Chennai and Delhi is due to a regular supply of labour in these areas from far and near.

(6) Availability of Finance:

Finance is the life of every industry. Industries are located in those areas where banking and financial facilities are easily available. As a matter of fact, capital is attracted to those areas where industries are localised which, in turn, attract more industries. Mumbai, Calcutta, Chennai and Delhi being the centres of industry have better banking and financial facilities than other cities.

(7) Momentum of an Early Start:

Sometimes an industry is concentrated at a particular place simply by chance, or due to the whims of the entrepreneur, or due to his attachment to that place. It was by chance that the hosiery industry was started at Ludhiana which later on attracted a number of other manufacturers. The establishment of a chain of industries at Modi Nagar in UP has been due to the whims of G.M. Modi rather than any economic consideration. The setting up of the motor car industry at Detroit in America by Henry Ford, and at Oxford in England by William Morris was due to their attachment to these places as their birth places respectively.

(8) Political Patronage:

Political causes have the greatest influence in the concentration of industries. The patronage given by the Hindu and Muslim rulers led to the concentration of silk industry in Varanasi and ivory work in Delhi. In recent years, the various concessions provided by the State Governments in India in the form of cheap land, credit, power and transport facilities have led to the development of new industrial centres.

Consequences of Localisation:

Localisation has both advantages and disadvantages.

Advantages:

When an industry is localised in a particular locality, it enjoys a number of advantages which are enumerated below.

(1) Reputation:

The place where an industry is localised gains reputation, and so do the products manufactured there. As a result, products bearing the name of that place find wide markets, such as Sheffield cutlery, Swiss watches, Ludhiana hosiery, etc.

(2) Skilled Labour:

Localisation leads to specialisation in particular trades. As a result, workers skilled in those trades are attracted to that place. The localised industry is continuously fed by a regular supply of skilled labour that also attracts new firms into the industry. Besides, there is the local supply of skilled labour which children of the workers inherit from them. The developments of the watch industry in Switzerland, of the shawl industry in Kashmir, and of the brassware industry in Moradabad are primarily due to this factor.

(3) Growth of Facilities:

Concentration of an industry in particular locality leads to the growth of certain facilities there. To cater to the needs of the industry, banks and financial institutions open their branches, whereby the firms are able to get timely credit facilities. Railways and transport companies provide special transport facilities which the firms utilise for bringing inputs and transporting outputs. Similarly, insurance companies provide insurance facilities and thus cover risks of fire, accidents, etc.

(4) Subsidiary Industries:

Where industries are localised, subsidiary industries grow up to supply machines, tools, implements and other materials, and to utilise their by-products. For example, where the sugar industry is localised, plants to manufacture sugar machinery, tools and implements are set up, and subsidiary industries crop up for the manufacture of spirit from molasses and for rearing poultry which utilise molasses in feed.

(5) Employment Opportunities:

As a corollary to the above, with the localisation of an industry in a particular locality and the establishment of subsidiary industries, employment opportunities considerably increase in that locality.

(6) Common Problems:

All firms form an association to solve their common problems. This association secures various types of facilities from the government and other agencies for expanding business, establishes research laboratory, publishes technical and trade journals, and opens training centres for technical personnel. As a result, all firms benefit.

(7) Economy Gains:

Localisation leads to the lowering of production costs and improvement in the quality of the products when the firms benefit from the availability of skilled labour, timely credit, quality materials, research facilities, market intelligence, transport facilities, etc. Besides, the trade gains through the reputation of the place, the people gain through larger employment opportunities, the government gains through larger tax revenue, and thus the economy gains on the whole.

Disadvantages:

But localisation is not an unmixed blessing. It has its disadvantages.

(1) Dependence:

When an industry is localised in a particular locality, it makes the economy dependent for its requirements of the products manufactured there. Such dependence is dangerous in the event of a war, a depression, or a natural calamity because the supplies of the products will be disrupted and the entire economy will suffer.

(2) Social Problems:

Localisation of industries in a particular locality creates many social problems, such as congestion, emergence of slums, accidents, strikes, etc. These adversely affect the efficiency of labour and the productive capacity of the industry.

(3) Limited Employment:

Where an industry is localised, employment opportunities are limited to a particular type of labour. In the event of a recession in that industry, specialised labour fails to get alternative employment elsewhere. Again, if such specialised labour organises itself into a powerful trade union, it can force the employers to pay higher wages which may raise the cost of production and adversely affect the industry.

(4) Diseconomies:

With the passage of time, the concentration of industries in a particular locality, economies of scale may give way to diseconomies. Transport bottlenecks emerge. There are frequent power break-downs. Financial institutions are unable to meet the credit requirements of the entire industry due to financial stringency. As already noted above, labour asks for higher wages and better living conditions. All these tend to raise costs of production and reduce production.

(5) Regional Imbalances:

Concentration of industries in one region or area leads to the lop-sided development of the economy. When one industry is localised in a region, it attracts more entrepreneurs who establish other industries there because of the availability of infrastructure facilities like power, transport, finance, labour, etc. Thus such regions develop more while the other regions remain backward.

Employment opportunities, the level of income, and the standard of living increase at a much higher rate in these regions as compared with the other regions of the country. The people of the backward regions feel envious and jealous of the people of the developed regions and the government has to start its own industries or encourage private enterprise to start industries by giving a number of concessions.

Decentralisation of Industries:

To overcome the disadvantages of localisation of industries, decentralisation is recommended. Decentralisation refers to the policy of dispersal of industries, whereby an industry is scattered in different regions of the country.

Besides removing the defects of centralisation of industries, the policy of decentralisation is essential from the strategic and defence points of view. The policy of decentralisation of industries requires the development of sources of power and means of transport in all areas of the country.

To encourage private enterprise to set up industries in backward areas, the state government should provide land, power and other infrastructure facilities at concessional rates. The central government should give tax concessions and various financial institutions should provide cheap credit facilities. It is in this way that the disadvantages of localisation can be removed and the different regions develop in a balanced way.