Factors Affecting Plant Location
Plant location must be selected properly by entrepreneurs while planning to set up their business units. While taking such a decision, they must consider some important factors.
The following image depicts important factors affecting a plant location.
Image credits © Prof. Mudit Katyani.
The ten main factors that affect a plant location are as follows:
- Law and order situation,
- Availability of infrastructure facilities,
- Good industrial relations,
- Availability of skilled workforce,
- Social infrastructure,
- Investor friendly attitude,
- Nearness to market,
- Nearness to raw-materials' source,
- Nearness to supportive industries and services, and
- Must meet safety requirements.
Now let's discuss above factors affecting the location of a plant.
1. Law and order situation
Plant location must be at that place where law and order situation is in control. Entrepreneurs give a lot of importance to this factor while locating a business unit in any state or region. If a state has bad law and order situation, then the business must not be located within that state, unless it has other important factors such as availability of heavy or bulky raw materials.
2. Availability of infrastructure facilities
Plant location which is selected must have proper infrastructure facilities. Without good infrastructure facilities, it will be difficult to do business efficiently. The infrastructure facilities are the backbone of all industries. Without it, business cannot be done.
Crucial infrastructure facilities that help industries to grow:
- Transport and communications,
- Banking and insurance services,
- Regular fuel supply,
- Continuous supply of electricity and water, etc.
3. Good industrial relations
Plant location must be at those places where good industrial-relations are maintained. Industrial relations become bad, because of militant and selfish trade unions. Entrepreneurs do not want to locate their business at places where anti-social elements are rampant, although there are other favorable factors such as good infrastructure facilities, cheap labor, etc.
4. Availability of skilled workforce
Plant location must be convenient and easily accessible to skilled workforce. Most businesses require skilled-labor force such as engineers, management experts, computer programmers, etc. The entrepreneurs must consider the availability of competent and skillful-workforce at a particular place to locate their business.
5. Social infrastructure
Plant location must have good a social infrastructure. There is a need for social-infrastructure not only for employees but also for the development of their families. The availability of social-infrastructure will increase the employees' welfare.
There must be suitable social infrastructure facilities like;
- Education institutions,
- Hospitals and health centers,
- Community centers like worship place, garden, meditation center, etc.
- Recreation facilities like theaters, clubs, communication facilities, etc.
6. Investor friendly attitude
Plant location must be in those states whose governments have an investor-friendly attitude. Government must give attractive incentives and concessions to those who start business units in their states. There must not be any bureaucratic control for starting a business.
An investor-friendly attitude will not only attract investment, but will also result in the overall development.
7. Nearness to market
Plant location must be near a market. Every business unit depends on a market for selling its goods and services. The goods and services must reach the market on time, and it must be available to the consumers at a low price. Therefore, this factor is given importance while selecting location of a plant.
Locating a plant near the market is preferred, when the product is fragile (easily breakable), perishable, heavy or bulky and when quick service is required.
8. Nearness to raw-materials' source
Plant location must be usually near to the source of raw-material. Raw-materials' costs are about 50% of the total cost. So, it is important in the business to get the raw materials in time and at a reasonable price. Therefore, a business must be located close to the source of raw material, especially in the case of “Gross Materials.”
Gross Materials are those which lose weight in the production process. Examples of Gross Materials are sugarcane, iron ore, limestone, so on.
However, if the raw material is a “Pure Material,” then the business may be located away from the source of raw materials.
Pure Materials are those which add their weight to the finished product. Examples of Pure materials are cotton textiles, bakeries, silk fabrics, etc.
9. Nearness to supporting industries
Plant location must be near its supporting industries and services. If it purchases spare parts from an outside agency, then these agencies must be located very close to the business. If not, the business will have to spend a lot of extra money on transport. It will also be difficult, to control the quality of the spare parts because of the distant location.
10. Must meet safety requirements
Plant location must meet all essential safety requirements. Due to air, water and sound pollution, some factories have a bad effect on the health of the people. Therefore, these factories must be located away from residential areas. Safety of environment must also be given priority in this regards.
10. Miscellaneous factors
Following miscellaneous factors also affect a plant location:
- Availability and cost of land,
- Suitability of land - soil and topography,
- Climatic conditions,
- Location of a similar unit, etc.