March 19, 2018 | Author: Tyler Smith | Category: Transport, Labour Economics, Taxes, Environmental Impact Assessment, Market (Economics)



FACTORS TO CONSIDER WHEN ESTABLISHING DESCRIPTION OF FACTORS TO CONSIDER ANINDUSTRY Thunen developed the general framework for the economic analysis of Location Theory (Thunen, 1875 and Isard, 1956). He was primarily concerned with the aggregate analysis of location of industries. He utilized the "least-cost" approach to location. This approach required that industries be located in areas where the least costs will be incurred on the day to day running of the industry. Of the early theorists, Launhardt, whose work appeared in 1885, provided the most significant contributions to the study of industrial location. According to Launhardt (1875) “…there is a difference in the location of industry by variations in cost and demand factors at alternative locations”. He demonstrated the importance of transportation costs. Other contemporary theorists such as Weber developed a much more comprehensive theory in 1909 for the location of industries generally. While he looked at a number of factors, three determinants or factors stood out and these included: transportation costs, labor costs, and what Weber referred to as agglomeration forces. [(Friedrich, C. (1929)] Many industrial location studies use the Weberian theory to better understand the decision making process. World over, nations are industrializing in a bid to increase economic growth and development. Zambia, just like any other developing country, has also come up with an industrialization policy that has seen the setting up industrialization incubation centers called Multi Facility Economic Zones (MFEZ) in Chambishi and the Lusaka South MFEZ. So many scholars have defined an industry. According to Matimba (2000:8), an industry is explained as “being concerned with the extraction of raw materials and the subsequent transformation of such raw materials into finished goods”. Like production, industries are classified as Primary industry, Secondary Industry and Tertiary industry Primary industries are concerned with the actual extraction of raw materials from natural resources such as the extractive industries. On other hand, secondary industries are concerned with the transformation of raw materials into finished goods. The location of industries is an important aspect of the sustainability of such industries once established. If certain factors are not considered, industries cannot thrive and as such the need for proper industrial location is crucial. This exposition will describe the various factors that are considered when establishing an industry as explained by the Weberian theory and other industrial location theorists. Environmental Reasons are also important factors affecting the establishment of industries. The environment forms an organized ecosystem in which various species of animals and plants thrive some of whose existence is beneficial to the existence of man. The Government through Zambia Environmental Management Agency (ZEMA) is charged with the responsibility to ascertain whether a particular industry 1 | Page can be established or not. Sometimes, the agency may after carrying out an Environmental Impact Assessment (EIA) stop an industry from taking off unless certain benchmarks are met. The other factor considered when establishing industries is that of availability of raw materials that are necessary for the sustenance of the industry. Most industries locate where the raw materials come from. The reasons for this are that the cost of raw materials adds up to the cost of production. The cost structure of most businesses is that they need to minimize the costs and maximize profits. Industries locate near the source of raw materials in order to reduce the cost of doing business. For example, most ginneries are located in the central and eastern provinces because the regions are the major producers of the raw material; cotton. In Kabwe, the defunct Mulungushi Textiles joint venture between Zambia and china was located in there to take advantage of abundant raw materials (cotton) in the town. This aspect of labour in relation to the location of industries is based on a number of factors which in summary can be Low cost labor, attitude of workers towards work, managerial labor, skilled labor and the general Wage rates. Others include unskilled labor, unions, educational level of labor and the ultimate dependability of labour. The other factor that determines the location of industries is the aspect of transport network. Transport facilities here include Pipeline facilities, airway facilities, highway facilities, rail and road facilities. Other important transportation services include; trucking services. Waterway transportation, shipping cost of raw materials, cost of finished goods transportation, availability of postal services as well as warehousing and storage facilities. Availability of wholesale outlets is all critical aspects that are needed or critical to the location of industries. According to Wokorach (2000:23) transport is the “movement of people, raw materials, and goods from one place to another”. Transport, like raw materials is a direct cost of production. Transport is an important factor to consider when establishing an industry due to the following reasons; Transport, like stated above is used in the movement of people from one place to another. This is because industries are labour intensive and these need to be moved from their homes to the places of work- the industries. In addition to this reason, transport ought to be considered as a factor because it is used to transport raw materials from the point where they are produced to the industry or plant. For example, the wood processing industry located in Ndola needs a reliable form of transport for transporting raw materials from the plantations. Further the importance of transport in the establishment of industries is that once finished goods have been produced, they need to be transported to the market where they are demanded. This is possible through the use of the various modes of transport such as road, rail and air, including water transport in areas where it is developed. In Zambia, the line of rail from Chingola to Livingstone is industrialized because of the fact that there is a readily available transport system for the quick transportation of goods to the markets once manufactured. 2 | Page The other factor that is considered when establishing an industry is the cost of doing business in a particular economy. The cost of doing business can be defined as the aggregate (combination) of all factors relating to costs incurred in the registration and subsequent running of business. In Zambia, for example, the Zambia Development Agency Act of 2006 spells out a number of fiscal incentives to various forms and categories of businesses registered in Zambia such as tax holidays, and zero rating the importation of certain capital equipment for certain sectors of the economy (Mwiiya; 2009:12). Clarity of corporate investment laws in a given country such as regulations concerning joint ventures and mergers, regulations on transfer of earnings out of country. Taxation of foreign owned companies, foreign ownership laws and requirements on what percentage of employees may be foreign are important factors that influence the location of industries world over. The time that it takes to register a company, is also a factor necessary as when it takes long the implication is that there is unnecessary prevalence of bureaucratic red tape. The establishment of Multi Economic Facility Zones as incubation centers for industrialization is one such innovation by the government aimed at lowering the cost of doing business thereby attracting so much Foreign Direct investment (FDI) to set up industries in the country. So when investors are looking for a destination to locate industries in, they consider such a business environment where the cost of doing business is very competitive. This is the reason why governments struggle to market their countries as preferred destinations for business. Any ‘negative’ shifts in the fiscal policy especially that regarding taxation is passed; most industries threaten to close operations because they consider the business environment detrimental to business development in terms industrial location. Recently, the government announced a hike in the mineral loyalties tax from about 8% to 20% and already companies are threatening to close operations. Another notable factor that is considered when establishing an industry is the availability of a reliable source of power. Energy keeps the wheels of industry turning and as such without reliable source of electric power in a given area; it is difficult to locate an industry there. For example, the extractive industry such as the mining sector is power intensive. North western province is dubbed the new copper belt but this tag is threatened by the lack reliable power in the area. While availability of a reliable power source is important, it is important to consider the cost of the power as well as fuels and other petroleum products. In the North Western Province, Only Solwezi and Kasempa are currently connected to the national grid. The rest of the towns run on thermal power implying that major mining industries cannot locate their despite having the raw materials. Other utilities that are important in locating industries other than power supply include the attitude of utility agents. Water supply, cost and quality is also an important utility that is necessary in the location of industries especially for those industries that require water as a component of the industrial processes. In many industrial processes, water is either used as an ingredient of the process of as necessity to production, hence the need. 3 | Page Disposable facilities of industrial waste are also important as a factor necessary to consider when establishing an Industrial processes emit a lot of effluent or wastes on a daily basis. This is so because not all the components of the raw materials are required in the process of production. In considering the location of an industry therefore, space for the dumping of wastes far from where such wastes can be detrimental to the ecosystem is an important factor. Hamilton, (1974) asserts,”… that once produced, finished goods are taken to the target population; people who demand the goods produced… This group of consumers constitutes the market for the goods produced”. It is useless and it does not make any business sense to produce goods where is no market for the goods that are produced. Industrial location theorists such as Weber argue that the location of an industry to a large extent is affected by the availability of a ready market for the products that the industry will be producing. The foregoing reason accounts for why companies that manufacture explosives will for example locate on the copper belt because that is where their target market is. The market for the goods that are produced in industries including covers the existing consumer market, existing producer market, and Potential consumer market. This factor includes the need to anticipate growth of markets. Shipping costs to market areas. Marketing services, Income trends are also important to look at in addition to demographic factors such as population incomes and consumption behaviours and dynamics Keeble, D. (1976:34) indicates that “Competition is a term that has been used to refer to having a number of players on the market”. It is the opposite of monopoly; a situation where one industry dominates a particular sector. While competition is good as it plays a part in enhancing of the quality of goods on the market, it is important to note that when establishing an industry, a less competitive environment is considered. This is an important factor because if the business environment is not very competitive, an industry will have a larger market share thereby being profitable. As indicated, this does not suggest that the company must monopolize the market because the ills of monopoly are poor service delivery, price instability and poor product quality. In a nutshell, it is trendy nowadays to create industries in countries as a surest way of both creating employment for the general citizenry as well as improving national development and the balance of trade and payments. It is however important to note that industrial location is critical before an industry is located if full benefits are to be realized from its existence. The exposition in the foregoing has outlined the important factors that are influential in industrial location in any given economy. 4 | Page BIBLIOGRAPHY Cameron,G. & Clark, B. (1966) Industrial movement and the regional problem. Glasgow: University Press Chapman, and Walker, D.(1991) Industrial Location, Principles and Policies (2nd Ed.) London: Blackwell. Friedrich, C. (1929). Alfred Weber's Theory of the Location of Industries Chicago: University Press. Hamilton, F.(1974). Spatial Perspectives on Industrial Organization and Decision Making. London: Wiley. Keeble, D. (1976). Industrial Location and Planning in the United Kingdom London: Methuen Matimba, A (2000) Distinction in Commerce, Livingstone Mwiiya, C (2009) Business Law, Kabwe: Mulungushi University Wokorach, J.B (1999) Commerce: A Complete Course, Mochudi: Salama Publishers 5 | Page
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