Locational Changes in Manufacturing

Locational Changes in Manufacturing

Locational change is a process according to which the number, capacity, nature, and location of production are modified with the purpose of making it more productive (cost-effective) and to better service the market. The above figure represents a simplification of the process with four locations and four products with their respective markets and four possible outcomes:

  1. Intensification. Based on a more intensive use of labor to increase production, or a reduction of labor to produce the same quantity. It is often the result of changes in labor practices, technological innovation, and more capital intensive production (e.g. mechanization). Locations and markets do not change, only the intensity of each location.
  2. Specialization. With growing competitive pressures, a locational process of specialization may take place where each location is producing in the sector it has the most comparative advantages. The resulting productivity gains are often accompanied by labor reductions (sometimes more labor if the location has low labor costs). Specialization also forces market expansion and flows between regional markets as the geography of distribution is modified. This is the type of locational change that relies the most on transportation.
  3. Concentration. This implies the closing of the least productive units. If the same level of output is required, then other units will have to increase their production accordingly. Additional production often takes place at the most productive location, allowing it to further its economies of scale. It is also common for concentration to take place when demand is declining.
  4. Rationalization and relocation. The most important locational change, as several production units are closed, and production moves to a new lower-cost location. The market often becomes global. It can be the outcome of a notable technological change, such as automation, that allows entirely new locations to be considered.

These four processes are not exclusive as firms can apply more than one strategy at once. For instance, concentration and specialization are often concomitant.