This article throws light upon the ten main factors which determine the location of an industry. The factors are: 1. Availability of Raw Materials 2. Proximity to Markets 3. Transport Facilities 4. Motive Power and Fuel 5. Availability of Labour 6. Financial Facilities 7. Climatic Factors 8. Historical and Personal Factors 9. State Assistance 10. Early Start.

Factor # 1. Availability of Raw Materials:

Areas abounding in industrial raw materials obviously exert greater pull on location of industrial undertaking. But it is not invariable truth that all firms should be located at sources of raw material supplies. The influence of raw materials on selecting the location depends on the bulk of materials and their use in the manufacturing process.

Raw materials are classified into two categories for the purpose of assessing their influence on location:

(1) Gross or weight losing materials; and


(2) Pure materials.

Gross materials are those which lose their weight in the process of their transformation into finished products, e.g., iron ore, coal, sugarcane, limestone, timber, etc.

Pure materials are those that add their weight to the finished product in the process of manufacture.

In the words of Spriegel, “Nearness to the source of raw material is of special importance when this material is bulky in relation to its value and when the volume and weight are greatly reduced during the processing.” Also “raw materials that are rendered less perishable by the manufacturing operation are nearly always processed near their source.”


Pure materials add to the weight of the finished product, which would be bulkier and hence costlier to transport to markets than the raw materials. Hence these industries are pulled towards market centres.

Similarly, if finished products are perishable they will be located at the centres of their consumption, example cotton textiles, woolen, silk fabrics whose material is ‘Pure’ adding itself into the finished product are located into the heart of the markets. Bakeries, ice factories etc. whose finished product is perishable are also established nearer the markets.

To sum up:

(1) (a) Industries using perishable materials-fruit canning, fish canning, etc.;


(b) Industries using bulky raw materials; and

(c) Industries whose materials lose their weight in the process of manufacture are located near to the sources of raw material.

(2) (a) Industries whose finished products are perishable;

(b) Industries whose finished products are bulky than their raw materials; and


(c) Industries whose materials add their weight to finished products are set up in the neighbourhood of their markets.

Factor # 2. Proximity to Markets:

Naturally industries tend to grow in areas close to the market where sufficient demand for the concerned products exists. Location of industries in the heart of markets enables the entrepreneurs to dispatch the finished products with minimum cost of transport.

Nearness to markets will also make it possible for the manufacturers to render rapid services to the consumers, to provide after-sale servicing facilities and to execute replacement orders with least delay.

Factor # 3. Transport Facilities:

The selection of site is governed by the availability of transportation media and their cost compared to the total cost of operations. For frequent short-distance hauls, enterprises may equip themselves with their own transportation vehicles, specially trucks. This would give greater flexibility to entrepreneurs in selecting the industrial spot. By and large, transportation costs are to be invariably taken into account while deciding upon location.


Nearness to sources of raw materials and easy accessibility to market rarely coincide. And therefore existence of transportation facilities is quite essential of locating any plant at a particular site.

The need for transport arises because:

(i) Raw materials and fuel are to be moved to the factory site; and

(ii) Finished products are to be dispatched from the factory to the markets.


The costs of transport on these counts can be minimised when dependable, prompt and cheap media of transport are available in and around different areas being considered for location. Regions well served by means of transportation are, other things being equal, most suitable for industrial location.

Markets tend to be local if wider transportation facilities are not created. Hence industries having other advantages and being located elsewhere will thrive greatly if complemented by convenient transportation facilities. As D. Philip, Locklin said, “Plants tend to be located in the locality where the aggregate transportation costs are the least.”

Also, “if the transportation charges are small, then the one or the other or both labour and power, may be predominating factors, and both raw material and finished product may be economically transported to considerable distances to take advantage of the market.”

Factor # 4. Motive Power and Fuel:

Proximity to cheap power and fuel is another decisive factor in industrial location. Electricity, coal, oil, natural gas are motive power or fuel essential for many large-scale industrial plants, notably iron and steel, electro-chemicals, glass, aluminum, paper, cement, etc.


Industries requiring bulk consumption of fuel and power are attracted towards regions of availability of such power. Regular, reliable and cheaper availability of electricity of required voltage has induced promotion of many enterprises in the concerned areas. Small-scale and cottage industries are also fostered by cheaper electricity.

Coal has been the most dominant factor governing location. Iron and steel industry in Germany, Pennsylvania (USA), Jamshedpur (India) are located in areas adjoining coal mines. Now, hydroelectricity to a large extent is becoming the gravitating point of industrial location.

The long distance transmission of electricity has made it possible for wider dispersal of light manufacturing industries. Similarly, huge pipelines traversing long distances have kept up oil supplies to different regions for use of industries located therein.

Factor # 5. Availability of Labour:

The availability of adequate, skilled and unskilled labour of normal wage rates is a critical factor favouring manufacturing activity in the related regions. If an area has overriding natural advantages or geographical endowments, then absence of local labour will not hinder the location of the industry in that area.

Labour can be recruited from the adjoining regions. But, by and large, industries requiring permanent personnel have to be located in densely populated areas which have the potentials of labour supply.

It is not, however, absolutely necessary that there should be prior existence of abundant labour in an area being considered for location. The region or the site should be such as to attract adequate and skilled labour of the required type from distant as well as adjoining areas.


If labour is mobile, locational pattern need not be rigid. Industry can be located in a suitable area to which labour can be attracted by proper incentive and amenities. Fair remuneration, continuous work, housing and other amenities, transportation facility, etc. encourage the mobility of labour towards areas having other natural advantages for industrial location.

Factor # 6. Financial Facilities:

Finance is the prime factor determining the advisability of starting an industry. But capital being mobile, location of an industry may not be rigidly influenced by availability of capital in an area.

Capital or financial resources can be brought from other areas, even from foreign countries to locate the industries in a region otherwise deemed suitable. But possibility of raising finance in a region certainly exerts locational pull. Modern industries require huge capital which cannot be provided by a single individual.

Moreover, besides capital for initial investment, money is also required for meeting day to day expenditure (working capital).

Factor # 7. Climatic Factors:

Suitability of climate is an additional factor influencing the location of industrial firms. Humidity and temperature ranges determine the design and cost of plant and therefore areas having climatic advantages for designing, installing and operating the plants of particular industrial process will induce the concentration of firms. For example, humid climate is an additional advantage for cotton textiles.

Therefore, Bombay with its humid climate is suitable for the location of cotton textiles industry. Similarly, moderate or balanced climate is essential for efficiency on the part of employees. Extreme cod or hot climates are repugnant to standards of efficiency. Dry climate is essential for flour milling industries etc. They are located in Kanpur. Poona etc. Which do not have damp climate.

Factor # 8. Historical and Personal Factors:


Entrepreneurs often like to locate the firms in and around places of their living even though other regions may have better natural advantages. Existence of managerial talent certainly exerts its influence on location. Many a time personal preferences of business promoters, managers for certain areas or places tend to have greater weightage in industrial location.

E.A.G. Robinson observes:

“Business management occasionally succeeds in attracting production to itself. In that case, the spur seems to be that of sentiment more often than of economics. Mr. Ford started manufacturing motor cars in Detroit because it was his hometown. Lord Nuffield selected a place (Cowley) because the school in which his father was educated happened to be for sale.”

In India industries have flourished, for example, in Kanpur or Bombay because of historical coincidence and also due to attachment of industrialists with the places.

Factor # 9. State Assistance:

Assistance of the Government to start industries in particular areas is one of the significant factors reckoned in location. State may provide cheaper land, power, raw material etc. to locate small-scale or large-scale industries.

In India, Central and State Governments have offered these facilities to speed up the tempo of industrialisation, industrial estates established in India are meant to provide infrastructural facilities for location of industries.

Factor # 10. Early Start:


Once an industry has been started in a particular region or area and it has been successful, the labour and entrepreneurs develop a sort of attachment to that locality.

First, once an industry is established in a locality an industrial community with all the necessary supporting units such as shops, laundries, hotels etc. get built up in that area. It is difficult to transport this whole community from that locality.

Secondly, with the prosperity of the business units started earlier other units are attracted. Subsidiary business, servicing units, etc. grow up. Large amount of local capital get involved in a big way.

Thirdly, people generally have confidence in an undertaking which is started in a locality where other business units in the same line have prospered.

All these factors give momentum to the growth of new industries in such an area. Examples of Bombay, Jamshedpur, Kanpur, etc. are before us.