Economics » Industry and Industrialization » Location of Firms and Localisation of Industries

Localisation of Industries

Localisation of industries involves the concentration or centralisation of firms in a particular industry within a limited area. It is the tendency for all firms in an industry to crowd or locate in a particular area, meaning the firms choose sites very close to one another. When firms in an industry do this, there are certain benefits the firm as well as the community gain and there may be some problems too.

Advantages of Localisation of Industries

  • When firms locate in one area, very often, there is a tendency for the development of pool of labour around the area. People around the area learn skills needed by the industry. Institutions may spring up to train people around in the skills needed by the industry.
  • Specialist-service industries such as banks, telecommunication organizations, postal organizations, security services organizations may extend their services to the area.
  • Subsidiary industries such as suppliers of raw materials, texturing industries, marketing industries, etc. may develop around the area.
  • Firms, when concentrated in an area, may create keen competition among themselves. Competition leads to efficiency which can pass on to the consumers in the form of lower prices and increased quality.

Disadvantages of Localisation of Industries

  • Localisation of industry may lead to population congestion in and around the area where the industry has been located. This will, in turn, lead to the creation of slumps around the industry and the consequent vices such as prostitution, crimes, etc.
  • The firms will compete with each other for factors of production and if the demand for such factors exceeds the supply, shortages will be created which will, in turn, lead to rising prices of these factors. This may be passed on to consumers in the form of higher prices.
  • If there is depression, mass unemployment may occur in the area. This can create serious economic problems unless there are alternative industries to absorb those who have lost jobs.
  • Industrial concentration can be the target of enemies during war and this disrupts production and lower outputs as well as results heavy casualty.

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