Why industries locate where they do

Industries try to locate where the costs of production are lowest, and so profits highest. Many factors decide where that is.

• Market: the most important factor. A market means not just people, but people who need the goods and have the purchasing power to buy them. Developed regions of Europe, North America and Japan are large global markets; densely populated South and South-east Asia are large markets too.
• Raw materials: industries using raw materials that lose weight in processing, or that are perishable, locate near the source. Steel, sugar and cement plants are near their raw materials, and dairy and food-processing near the farms.
• Labour: some industries need large numbers of workers, or skilled ones.
• Energy: industries that use a lot of power locate near its supply. Aluminium smelting, for example, needs huge amounts of electricity.
• Transport and communication: cheap, fast transport of raw materials and goods, and quick exchange of information.
• Government policy: governments may encourage industries in backward areas with incentives.

Agglomeration economies: industries gain by being near other industries, sharing suppliers, skilled workers, services and markets. These savings from linkages pull industries together into industrial regions.

Some industries are footloose: they can locate almost anywhere, because no single raw material or market controls them. They make light, high-value goods, cause little pollution, need only small numbers of workers, and mainly need good roads.