Stages/process of plant site selection or factor affecting plant location

Stages/process of plant site selection or factor affecting plant location

While selecting a location for plant, an entrepreneur will have to proceed with the following steps

1 within the country or outside the country

2 Selection of the region

3 Selection of the community

4 Selection of the exact site

1.  Within the country or outside the country

The first in plant location is to deside whather the facility should be lacated domestically or internationally. If the management decides on foreign location, the next logical step would be to decide upon a particular country for location.

The choice of a particular country depends on factory like

a)  Political stability of the countryb)  Import and export regulations,c)  Currency and exchange rates,d)  Cultural and economic peculiarities,e)  Demand and age of populationf)    Natural and physical conditions, etc

2.  Selection of the region

The Selection of a particular region out of several regions within a country will be affected by following factors

a)  Availability of raw material

A firm that heavily depends on raw materials should be located nearer to the place where raw materials easily available

The sugar industry, the paper industry, the iron & steel industry, etc. should be located near the sources of their raw materials.
Example: The heavy concentration of sugar industry in bihar and utter pradesh is due to the fact that shese two states are the leading producers of sugarcane in the country. Similary, the steel industry in concentrated in bihar, west bengal and madhya pradesh because of easy availability of raw materials in these states.

Nearness to raw materials offers following advantages

       Reduced cost of transportation

       Regular and proper supply of materials uninterrupted by transportation breakdowns

       Saving in the cost of storage of materials

b)  Nearness to the market

Since goods are produced for sale it is very essential that the factory should be located near their market.

  Nearness to market offers following advantages

1)  Reduced cost of transporting finished goods to the market
2)  The ability to adjust production according to the like and dislike of customer
3)  The ability to provide immediate service to the customers
4)  Provide after-sale services
5)  Execute replacements orders without delay

Industries producing perishable or bulky products and service providing units should be located near their market.

Example: pesticides/insecticides manufacturing units, auto servicing & repair units should be retreading units, companies manufacturing wooden accessories for electrical wiring, distilled water units etc. must be located near their market.

c)  Availability of power

Power is essential to run the wheels of industry. Coal, electricity, oil and natural gas are the sources of power.

If coal is the sources of power, the factory has to be located near coal fields. Example: iron and steel industry in jamshedpur in india.

Industries using electricity have to be located at a place where electric power is available regularly and at cheap rates. Example: the aluminium plant and a textile manufacturing units have to be located at places where electric power is cheaply available in plenty. Electricity has become very significant as a source of power in modem in modern industries today because of its ease in handling, its eleanliness and cheapness.

Huge piplines traversing long distances have kept up oil supplies located in different regions.

d)  Transport facilities

-      Transport facilities are important for bringing the raw material and men to the factory and for carring the finished products from the factory to the market. A place which is well connected to rail, road and water transport is ideal for a plant location.

-      It may be said that industry follows transportation. In extreme cases may follow industries. Example: if a public sector unit is located in a remote area, the Government will naturally provide transport facilities to cater to the requirements of the unit. But, generally a place with well developed transport facilities is perfect for locating a plant.

e)  Government policy

-      The influence of government policies and programs on plant location is apparent in every country, particularly in planned economies like India. To have a balanced regional and increase national income, many backward regions in India have been selected for the location of new industries.

-      Examole: the establishment of textile mills in Rajasthan, orissa, Assam and punjab, sugar factories in andhra pradesh, Tamil Nadu, Karnataka and Maharashtra, sttel rolling mills in Assam, Madhya Pradesh, Bihar and Kerala are all instances which show that new induustries have been located in these economically backward states.

-      The India Government has been influencing plant location in number of ways like

o   Licensing policy
o   Freight rate policy
o   Institutional finance and government subsidies
o   Establishing a unit in the public sector in a remote area and developing it to attract other industries

f)    Competition between states

-      Staates compete with each other to attract new industries. Various states offer investment subsidies and sales tax exemptionsto new units. The incentives may not be of big help to big sized plants, for medium and small sized plants incentives do matter. The owners of these plants do consider incentives in selecting a region.

3.  Selection of the community

Selecting a particular locality or community is the third step in plant site selection. The selection of a particular community is influenced by the following factors

a)  Availability of labor

-      Labor is important factor is the production of goods. An adequacy of labor supply at reasonable wages is very essential for the smooth and successful working of an organization.

-      The labor required may be skilled or unskilled.

-      It is skilled labour which influences plant location because unskilled labour is suppose to be available everywhere, especially in our county. Example: the location of glass industry at Firozabad, the woolen carpet industry at mirzapur, the manufacturing of silk sarees at Dharmavaram and kanjeevaram sarees in the south are some of the industries located near the supply centres of skilled labour.

-      Now-a-day, since the labour has become mobile, the influence of skilled labour on plant location has lost some of its significance.

-      However, labour may act as a limiting factor in the developing of industries. The attitude of workers, union activities and industries disputes drive away the existing factories and discourialists from locating new factories in particular places.

b)  Civic amenities for workers

-      Availability of civic amenities for worker also plays role in facility location. Recreation facilities, such as clubs, theatres, parks and school for children must be provided for the employees. If such facilities are not available at a particular location, and if that location is advantageous in other respects, then management should provide such facilities. Example: modern townships at Essar Steel and L&T at Hazira.

c)  Existence of complementary and competing industries

=The existence of complementary industry at a particular location may provide following advantages.

       - A business unit can collaburate with other similar units and threby can secure materials on                   better terms then it can do itself. The concentration of such similar units can help in inceasing             the variety of materials that can be offered by the suppliers.

       - The concentration of similar industries at one place improves the labour market, both for the              employees and the employee.

       - In specialized centres, banks become familiar with the requirments of industries. This makes               the granting of loan easy.

       - The reputaion build up by the existing units will be shared by the new units established in the              same locality.

= The existence of competing industry may prove disadvantageous but a closer look can prove to be beneficial. Problems relating to the procurment of raw materials, labour troules and government restrictions can be effectively tackled if the competing units work together in association. But it should be ensured by all the competing units that competition does not degenerate into unhealthy rivalry.

d)  Finance and research facilities

-      Adequate capital is essential for the successful working of an organization. A place where such facilities are available attracts new industries. This is particularly true in developing countries, where capital is not available uniformly throughout the country. This problem is not found in developed countries as, there, the capital is distributed uniformly.

-      Availability of research facilities at a particular location can also attract industries that require heavy research facilities.

e)  Availability of water and fire fighting facilities

-      Some industries require plentiful supply of water.Example: paper industry, leatter tannin, rayon manufacturing, bleaching, dyeing and printing, etc. There factories must be located at please where water is available in abundance.

-      Industrial units are exposed to fire hazards either from within the organization or from neighboring units. Adequate fir fighties should be made available otherwise factor in locating a plant but, its existence, will definitely enhance the suitability of a location.

f)    Local taxes and restrictions

-      Local authorities may collect taxes and charges foe water supply, electricity supply and other facilities. If these taxes and charges are lower at a particular location than more industries would be attracted at this location.

g)  Personal factors

-      There are enterpreneurs, especially small industrialists, who locate their plants purely on personal grounds disregarding economical aspects. Wxample: a person residing in remote area of Gujarat starts business at his home location. Resoirces and makets are not available at this location, than too he starts the business according to his own wish. This would definitely increase his cost.

4.  Selection of the exact site

The last step in selecting a location for plant is selection of exact site. It is influenced by following factoes

a)  Soil, size and topography

-      For producting engineering goods, a fertile soil is not necessary but, for an agro-based industry availability of fertile soil is very important while selecting a location for plant.

-      The area of land should be such as to accommodate not only the existing manufacturing facilities but offers scope for future exansion as well.

-      The topography of a place also plays a role in selection of location. A hilly, rocky and rough terrain is unsuitable for plant location because a great deal of expenditure has to be incurred in level it, building and installing plant and equipments.

b)  Disposal of waste

-The problem of disposal of effuents is common to many industrial units, especially chemical, sugar, steel, and leather industries and breweries. There must be enough vacant land for dumping the solid waste, for liquid waste, proper connection to sewage or river or sea should be available.