The problem of the selection of a factory or a plant can be solved in the following two stages:

(a) The general location of the plant.

(b) The selection of a particular site.

(A) The General Location of the Plant:

Following factors must be considered for selecting a region where the factory is to be lo­cated:


(i) Availability of Raw Materials:

As far as possible, the site selected should be near the source of raw materials, so that the cost of transporting the raw materials to the site may be minimum. Further, if the raw materials are bulky and heavy, it becomes very essential to select the site near it.

This is the main reason that early localisation of most of the iron and steel industries in Orissa and Bihar is basically due to the proximity to raw-materials.

Again, if the raw materials are perishable, as sugarcane, proximity to supply of raw materi­als is an advantage. Hence most of the sugar factories in Maharashtra and Uttar Pradesh are situated in areas growing sugarcane.


(ii) Proximity of Markets:

The cost of transporting finished goods, advertising and distribu­tion, etc., will be greatly reduced if the factory is situated near the market. So the goods can be sold at cheaper rates.

Secondly, it will help in quick service to the customers and their requirements can also be studied quickly and easily.

(iii) Transport Facilities:


Transportation cost of raw material plays an important role, spe­cially when the raw materials are bulky arid of low value. Therefore, most of the iron, coal and other heavy chemical industries are located at the raw material centres. Similarly when fin­ished product is heavy, nearness to the market is economical.

Now, with the development of diesel trucks road transport has become a successful com­petitor of rail-transport on account of the advantage of quickness and convenience of door to door service and lead to the location of some of the new factories on the roadside.

(iv) Availability of Efficient and Cheap Labour:

While selecting a site, it is necessary to consider that whether right kind of labour at suitable rates is available or not, because labour cost is an important item of the total production cost in manufacturing.


The famous glass and bangle industries at Firozabad, that of woollen carpets at Mirzapur and silk sarees at Kanziwaram (Madras), etc. are mainly due to the highly skilled labour for that particular industry available at these places.

(v) Availability of Power and Fuel:

In the last century, the industries were situated near coal mines or places to which coal could be carried easily and cheaply. But due to development of high tension grid system this factor is not of much importance now.

As cheap electricity was available at Mumbai, in the past most of the industries were con­centrated there. Since in Punjab, Kota (Rajasthan), and similar other places, enough Hydel- Power was available, a large number of factories have come up in these regions.


(vi) Climatic and Atmospheric Conditions:

It is a governing factor for several industries, as cotton industry require moist climate that is why, most of the textile mills have been located at Mumbai and Ahmedabad. But now-a-days with the development of air conditioning process, it has been possible to control the atmospheric moisture contents in factory according to the re­quirements.

(vii) Availability of Water:

All factories need soft and pure water, hence its search should be made whether good quality of water is available or not. If not available, then its cost of trans­port has to be given prime consideration.


(viii) Availability of Capital:

The supply of capital is an important factor on the rate of development of a factory. Amount of capital available helps in determining the size of the plant and its future plans.

(ix) Social and Recreational Facilities:

Usually big factories are located away from the pub­lic, social and recreational centres. During off hours, the employees require some social and recreational amenities which are the necessities of life. Therefore, it is essential that suitable parks, co-operative stores, cinemas and education centres should be provided by the employer or Government near factory site, if these are located away from the local towns or cities.


These amenities will keep the worker healthy, build good habits and workers, therefore, will take much interest in work.

Major public and private concerns have provided welfare and recreational centres. They have provided subsidised and good canteens, free education for workers’ children and other facilities.

(x) Business and Commercial Facilities:

Availability of the financial and banking facilities is an important consideration for the factories, which require constant feeding of the working capital.

(xi) Existence of Related Industries:

Specially, in the case of small scale industries, repairing is a problem. If such facilities are available in the existing areas, repairs are carried out imme­diately without affecting the production.


(xii) Other Factors:

The factors like Local bye-laws, Taxes. Fire protection facilities, Post and Telegraph facilities should also be considered.

(B) Selection of a Particular Site:

After selecting a general area for the plant, next step is to select a suitable site in that area. This is most important decision. Therefore, while selecting a site, the owner must consider technical, commercial and financial aspects so as to take maximum advantage.

Important points which should be considered while selecting a site are:

(i) Community attitude

(ii) Community facilities


(iii) Transportation facilities

(iv) Topography

(v) Waste disposal

(vi) Ecology and pollution

(viii) Size of land

(viii) Supporting Industries.


Survey for Establishing an Enterprise:

Before starting a new unit, a thorough survey should be undertaken to ascertain whether the venture can give sufficient profit to justify the expenditure of time and investment.

Proce­dure for the survey and starting a business unit is as under:

1. Analyse the product and survey the market.

2. Make an economic survey.

3. Determine the major objectives.


4. Design the product.

5. Determine the volume of production and size of plant.

6. Select the location.

7. Decide whether to buy or make parts.

8. Develop and select the manufacturing process and equipment.

9. Develop a plant layout and select a type of building.


10. Determine the capital requirement, financial plan and profitability.

11. Develop an organisational structure and select personnel.

12. Launch the enterprise.