Industrial Location Theory and Factors

In building an industry, many considerations are needed, one of which is in determining the location of the industry. We must pay attention to the theory of industrial location and industrial location factors as well as possible so that in the future, industries that are built can run smoothly and generate maximum profits.

To consider determining the location of an industry, there are many factors that must be considered. The factors determining the location of this industry are essentially intended so that industrial output can have good quality in terms of quality and price so that it can ultimately compete in the international market.

To be able to win the competition in the market, the implementation of the production process or industry must pay attention to the level of efficiency of the production process carried out. In general, the factors to determine the location of the industry can be divided into main factors and additional factors, as follows:

  • main factors, including the location of raw materials, sources of labor, transportation costs, marketing areas and energy sources.
  • additional factors, including climate, government policies in industry and water availability.

Basically, industry is a human activity that aims to achieve prosperity through processing existing resources. Forms of industrial activity can take place in various fields of activity, such as the processing of raw materials, to become semi-finished or finished materials.

To be able to produce industrial products, various considerations are needed so that the process can be carried out as efficiently as possible. The efficiency of the production process is needed to maximize the benefits obtained.

For this reason, one of the first steps that needs to be taken is to analyze the location of the industry. Analysis of industrial location can be determined through several general factors, such as:

  1. raw materials;
  2. transportation facilities;

These three factors are common things to consider in determining whether a location can be used as an efficient industrial location.

Besides being able to be distinguished in these general factors, industrial location factors can also be broken down into more specific points. The industrial location factors that are commonly used as considerations in determining the location of an industry specifically include:

Chapter List 

Raw materials

Raw materials become an important determinant of industrial location because raw materials are the basic ingredients in producing an item or product. An industry clearly cannot run its production process when there is no raw material,

Therefore, the smooth production process and its efficiency depend on this raw material. When an industrial location is close to access to abundant raw materials, smooth production will be guaranteed. Conversely, if the location is far from access to raw materials, production will be hampered.

For example, the location of the cement industry is ideally close to producing limestone containing lime because the raw material for cement is lime. Thus, the production process can run more smoothly because it is easier to access lime as the raw material.

Likewise the palm oil industry must be close to access to palm oil raw materials, the dairy and cheese industry must be close to areas where there are dairy farms.

Power Resources

Resources or energy sources referred to here are those related to the energy needed for the production process. For example, such as hydropower or electricity whose function is to drive industrial machinery.

Material driving the engine or power resources can also be in the form of engines and gas. In connection with this power source, an industrial location should ideally be located on the coast or a port close to the oil and gas trade routes.


Workers are parties or people who carry out industrial activities. In this case, the location of the industry must pay attention to how the supply of labor is related to the quality and quantity of labor.

Quality means that the workforce recruited must be based on certain technical skills and the quantity of means related to the number of workers recruited.

There are industries that require a large number of workers and some that require a small number of workers. If an industry needs a large supply of labor, the industry needs to be located in an area with a large number of residents / laborers available so that labor costs are not expensive.


An industry was built with the primary goal of producing goods that could be sold on the market. Therefore, marketing is important in the industry. Marketing will smoothly depend on two things, namely the extent of marketing concerning market turnover and buying and selling power in the market.

For this reason, the location of the industry must consider access to its marketing area. If a product tends to be damaged quickly, the location of the industry must be placed close to the marketing area. If the production is durable, the determination of the location of the industry can be placed anywhere.


Industry will need transportation to smooth its performance, whether by water, land or air. Transportation is needed to bring in raw materials and deliver production to the market.

So, the location of the industry must have the support of an adequate transportation system so that it does not hamper industrial activity due to inadequate transportation.

Land Prices

The determination of industrial location can also be influenced by land prices. High land prices will certainly make a higher production budget. If an industrial location can get a location with low land prices, this is certainly more attractive and more profitable for the industry.


Determining the location of the industry must also consider the topography. An industry that is founded on a place with a flat topography will be more profitable. Industrial locations in areas with topical fluctuations and winding will make transportation costs higher.

Requirements for Industry

There are several conditions for the establishment of an industry in general. These requirements include:

  1. availability of raw materials or raw materials
  2. the availability of skilled workers and workers in the field of production
  3. market or consumer availability, domestically and abroad
  4. availability of venture capital
  5. availability of adequate transportation and communication networks
  6. established political stability
  7. willingness to work hard from the community

Industrial Location Theory

To analyze the factors of existing industrial location, we can apply various theories of existing industrial location. Industrial location theory is based on the consideration of location placement in an area that can be reached by various components of the society as users of industrial products.

This industrial location theory emerged to find the best location for the industry economically. There are several industrial location theories, such as Weber, Losch, Hotelling and Pred theories. The following statement.

# Industrial Location Theory from Weber

In Weber’s theory, the main thing to emphasize is the choice of industrial locations which must be located in the locations with the least cost. That is why, this theory is also called the least cost location .

# Optimal Industrial Location Theory of Losch

In the theory of optimal industrial location from Losch, the choice of industrial location is recommended based on demand . Losch revealed that the optimal location for an industry is a location that can control the widest marketing area.

# Theory Analysis of the Hotelling Model Market Area

The analysis of the Hotelling model’s market area is the location strategy of two competing industries in the market area. Hotelling said that the elasticity of demand would be able to drive industrial diffusion.

# Behavior Approach model Pred

Pred creates a matrix of behavior that can be used to analyze decision making about various locations. According to Pred, the location of the industry is in principle determined by the behavior of decision makers.

For example, a person who does business with limited knowledge but has high ability in making decisions is different when compared to people with extensive knowledge, but with limited skills

by Abdullah Sam
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