CONSEQUENCE OF LOCALIZATION OF INDUSTRY
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.
(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.
