Part I: Theory
Transportation and Manufacturing:
The evolution in transportation has allowed manufacturing to be spread out, both here in the US and around the world. What are factors that determine the location of manufacturing plant? How are they affected by transportation? Be sure to discuss the role of various types of transportation within your discussion, as well as all the factors that determine location of manufacturing.
Answer 1. Transportation has changed the world manufacturing and trade scenario entirely. Firms wanting to minimize their physical distribution costs, such as transportation, warehousing, packaging, inventory control and material handling, are being highly calculative in determining their processing unit (manufacturing unit) locations. With faster and advanced modes of transportation now providing superior transport options to buyers and sellers, location proximity of manufacturing plants to market places is no longer an obligation. The location of a manufacturing plant or a processing unit depends on two major factors, from transportation point of view:
The cost of assembly – the cost involved in bringing the inputs together from different sources;
The cost of Distribution – the cost of distributing the outputs or finished goods in the market.
If the cost of assembly is greater than the cost of distribution, then it is prudent to locate the manufacturing plant close to the source. However, if the cost of distribution is greater than the cost of assembly, then it is wise to locate the manufacturing plant close to the markets. In addition to these factors, other factors to be considered while determining manufacturing plant locations are:
The cost of raw material sourcing;
The cost of land (for the processing unit);
The cost of labor (minimum wages, industry pay average, competition);
Future plans based on capital and technology;
Taxes and tariffs;
Community and environmental concerns.
The ultimate decision of finalizing the manufacturing plant location depends on all these factors and it would be wise to find out the location where tradeoffs between all types of costs bring down the net cost of production.
As per the Median location principle, the main objective of finding a suitable manufacturing location is to bring down the delivery (transportation) cost. Also as per Weber’s theory, transportation cost contributes to a major chunk of the net capital to be involved in any manufacturing operation. To find a suitable transportation medium, one must consider the following:
Distance to be travelled – for shorter distances (up to 300 miles), truck or road transport is economically most feasible transport mode. However for longer distances (300-2000 miles) railways provide a more viable transportation solution. For even larger distances (>2000 miles) transportation via water is most suitable.
Services to be offered – if speed of delivery and convenience is to be offered in delivering products, then airways also become a mode of transportation.
Thus relative flexibility in manufacturing unit locations depend heavily on combinations of all aforementioned factors and the intent of the manufacturer, as to how and when the manufactured product must reach the markets.
Define suburbanization. Discuss the evolution of cities from a central zone to the multiple nuclei of suburban centers. What role did transportation play in this evolution? What role did governments play in this evolution? What is the current trend? Explain.
Answer 2. Suburbanization is the concept of the rise of numerous urban centers and economic hyper-activity spots in the suburbs of the large urban centers. It can also be described as the multiple nuclei of suburban centers. Conservatively, most cities developed in a concentric fashion with the Central Business District (CBD) remaining in the center, manufacturing and wholesaling operations forming the second zone and the peripheral zone being the residential area. However, with expansion in population size and mushrooming of business options and resources having just one CBD per urban city no longer remained economically prudent. Coupled with the problem of spatial constraint in fast expanding cities, central zone dependent cities started evolving into multi-nuclei suburbs. These suburbs held smaller but concentrated zones of economic activity away from CBD but connected to it via roads. With their own residential and wholesaling zones around these suburban economic centers, cities started evolving into multiple nuclei.
Development of newer and faster modes of transportation has greatly supported this shift in city structures. While previously employees preferred staying in vicinity of their workplaces, with housing cost soaring in large urban centers and transportation cost and time coming down, city dwellers have started migrating to take residence farther from workplaces.
Government involvement has also affected the evolution of cities in a number of ways –
Agricultural land subsidies have increased the cost of residential options;
Restricting land usage depending on environmental concerns has also led to dramatic fluctuations in land cost;
Externalities in differential land developments having impact on surrounding areas, both negative and positive.
Due to all these factors, the current trends have changed markedly in all multi nuclei cities. While before most city traffic was directed from suburbs towards CBD, it is now heavily directed from one suburb to another suburb. Companies seeking larger spaces for their operations are also increasingly shifting from CBDs to distant economic nuclei, attracting buyers and producers along with them.
This evolution from central zone to multi nuclei of suburban centers can be depicted as below;
Part II: Application (50 Points)
Read the article “Compan(ies) Town” (located above or below). Then return here and answer the following questions (each is worth 10 points):
1. Provide a half-page, summary of the article.
Answer 1. The article describes the economic and environmental history of the town Sauget as well as illustrates its current unconventional situation. Known by the name of Monsanto, the town was basically incorporated to act as a sewer and dumping ground and had a notorious reputation for mal-odorous wind and land, ground water, river and food chain contamination with PCB (Poly Chlorinated Biphenyl). However, due to increasing pollution, the plant was shut down and the town later adopted the name of Sauget, after one of its founding families. Present day Sauget hosts a variety of unusual businesses like night clubs, strip clubs, lottery counters, trash transfer facilities and deodorizing cake manufacturers. The Sauget family is highly involved in the town life, with Mr. Sauget as the village president, and the family owning a number of houses and night clubs in the area. Sauget is increasingly becoming a community, beckoning all kind of businesses with open arms, providing them with economic opportunity without any judgement. There may not be a school or a Church or a supermarket, but with clean roads, lush parks, a police offices/fireman for every 15 people and a per capita income of $19,000; Sauget is a an unusual town with a thriving population and economy.
2. What are the benefits to Sauget, IL of taking in companies that are turned away from other towns (Not In My Back Yards (NIMBYs))? What are the costs?
Answer 2. While neighboring towns around Sauget, such as St. Louis, are passing up on NIMBY businesses given environmental and community concerns, Sauget has been and continues to be a safe haven for such industries which are not readily accepted elsewhere. The biggest benefit is the economic advantage which this openmindedness has afforded Sauget. The per capita income of Sauget is $19,000 and with other property and tax revenues surmounting up to $7 million every year. The town itself doesn’t look like its dilapidated neighbors with rundown buildings and boarded up factories; but possess beautiful residences, clean roads and numerous parks. Due to its unconventional industry mix (Lottery booth, Night clubs and Strip bars), Sauget also attracts a lot of business from neighboring towns. There is a policeman & a fireman for every 15 citizens and the town-folks also enjoy free sewer and free trash pickup services.
However, the same NIMBYs cost Sauget on many other fronts. No new residential projects are ever taken up in the locale and anybody is hardly ever interested in moving to Sauget. There are no schools, Churches or supermarkets in the area and citizens have to visit neighboring areas for these services. The most excruciating cost, without doubt, is the environmental contamination caused over the years by many waste treatment companies in the area. Land, ground water, air and river pollution has spread rampantly in Sauget since its incorporation. Even though with stricter environmental laws and millions of dollars funneled into the town for rejuvenation, the town remains to be one of the most polluted sites in the country. Sauget citizens even bear the stigma of being an environment-polluter for personal wealth.
3. Is the type of economic development seen in Sauget, IL desirable? Why or why not?
Answer 3. The type of economic development seen in Sauget is a futuristic example of how towns, aiming to flourish despite failing economies, will plan a rise. The uptight behavior of some communities in not allowing certain ‘Not In My Back Yard’ industries to enter their neighborhood may be seen as a cautionary measure by some but it is in essence narrow mindedness that inhibits economic and cultural growth on many levels. Where Sauget has managed to build a wealthy society, courtesy welcoming all the unconventional businesses, the town has also gained a spirit of entrepreneurship and tolerance along the way. Although such incessant inclusion of waste treatment and chemical producing industries to the community has negatively affected the town’s ecology, it has also given the towns people awareness of their environment and the spirit to joke about it (the environmentalists take the so called ‘toxic tours’). The town is replete with beautiful parks, neat houses and clean roads. It attracts a lot of business from neighboring cities and it considers its industries a constituent of the town. Thus, it is prudent to say that the route of economic development that Sauget has taken is a desirable one. With time, if the positive attitude of the town people continues, then its environmental problems can be sorted out too and what will remain will be a prosperous community, tolerant of every occupation and lifestyle.
4. Would the type of development pursued by Sauget, IL be possible in a town without the influence of such a prominent family? Who else could force such development?
Answer 4. The influence of the Sauget family has been nothing short of phenomenal in the development of the town. With blatant pro-business leanings and an innate leadership quality, the Saugets have led the town in a determinedly upward way. Though coming from varied backgrounds such as farming, police force service and professional sports; the Saugets have represented the town as village presidents three times and have consciously nourished a town culture that views entrepreneurship in high esteem. The town offers infrastructure to support all kind of manufacturing and other NIMBYs and the community is very non-judgmental about honest businesses, whatever the type. Controlling several nightclubs, a minor league baseball team and around 20 homes in the town, the Sauget family plays a vital role in the town’s economic and social life. It is hard to imagine any organized government or non-government body giving such an unidirectional and dedicated push to the town’s economy like the Saugets have been giving for generations.
5. What factors would attract a manufacturing plant to locate in Sauget, IL? Explain.
Answer 5. Sauget, IL hosts complete infrastructure to support extensive manufacturing industrial development. Incorporated initially to be a sewer, the town has been developed with the sole intention of supporting manufacturing of waste treatment products and other chemicals vital to multiple industries. Although with environmental concerns running high, many older companies affecting the environment have been shut down, new businesses are welcome to boost future potential of manufacturing. The community is non-judgmental of unconventional businesses and the connectivity to neighboring markets, given a new trucking company building terminal in Sauget; the town is all but waving a green flag at manufacturers. Not only are there waste treatment plants in abundance around the area, an ethanol plant has also just broken ground in Sauget. The town treats their companies as their constituents and has repeatedly supported them in legal battles against activists and NGOs. With an open work environment, an infrastructure to support and secondary industries to facilitate manufacturing, manufacturers can be easily attracted to open a manufacturing plant in Sauget, IL.
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