Suburban Industrial Location. Locational Interdependence and Agglomeration

The factors we have discussed so far can also affect the location of industries at smaller geographic scales. Many firms have relocated from urban to suburban locations in recent years. Suburban location may be more attractive for several reasons. In the first place, land values in suburbs are generally somewhat lower than in central cities. Not only is the value of suburban land lower, but land in outlying locations is more likely to be held in larger parcels. Fewer land purchases are needed for a firm to assemble a large enough tract of land to build its plant.

In addition, suburban location facilitates transportation of raw materials and finished products. Anyone who has attempted to drive an eighteen-wheeler through the downtown area of a large city knows the difficulties associated with transporting goods in and out of central-city factories. Suburban location is also attractive to employees seeking to avoid the hassle of inner-city traffic.

Locational Interdependence and Agglomeration.It is often advantageous for a company to be located nearother firms, whether in the same industry or in differentones. Thus, many firms are characterized by locationalinterdependence. Locational interdependence impliesthat the profitability of a given firm is dependent on itslocation near other industries.

One factor that accounts for locational interdependence is the production of goods that are purchased by other firms rather than by consumers directly. Many of the important parts of an automobile are themselves finished products. Engines, motors, brake systems, radios, and many other components of automobiles themselves go through complicated production processes before their assembly into finished automobiles. An airplane engine alone contains over ten thousand individual parts, most of which must be manufactured prior to assembly into the engine and prior to assembly of the engine into the airplane itself.

Many firms specialize in the manufacturing of these components. Some firms concentrate on the manufacturing of transmission systems, steering wheels, car stereos, or other components of automobiles. The market for these firms is not the general public but other firms that produce automobiles, such as General Motors. Ford, and Chrysler.

Increasingly, production of finished products has come to be divided among several firms that manufacture components. Naturally, firms that specialize in products purchased by other producers will tend to cluster near the other producers. Thus, firms that manufacture automobile components are often found in the Great Lakes states, while those that manufacture computer components are concentrated in the Silicon Valley of California and other areas associated with computer manufacturing.

In many industries, firms producing components of large artifacts maintain long-term contracts with other companies. A small company producing steering wheels will maintain contracts with one or more large automobile producers to deliver a fixed number of steering wheels each year.

Locational interdependence also may be explained by the cost-saving opportunities associated with location near other industries. Firms located near one another can share the costs of electric and water power, maintenance of transportation lines, and computers. The cost advantages associated with the concentration of industry in a single place are known as agglomeration economies.

Recognizing the possibility of agglomeration economies, many communities have encouraged the construction of industrial parks (Figure 8-9).

Figure 8-9 An Industrial Park in San Jose, California. Many firms are opting to locate their factories in industrial parks.These locations offer many advantages to their tenants, includingthose associated with agglomeration economies

Firms that locate their production facilities in an industrial park profit from sharing costs associated with water, electricity, sewage, street and road maintenance, security, and other necessary production inputs. The firms within an industrial park might also share the cost of sophisticated computers and other high-technology equipment beyond the means of an individual firm.