Geography Reference
In-Depth Information
The reason is that these convex wage gradients are required to offset the
concave distance costs increases described above. However, the slopes of
the requisite interregional wage gradients sufficient to engender relocation
behaviour are themselves related to the square root of the product price,
the value-added by the firm, and the value-bulk features of the products
produced. In general plants producing more valuable products or prod-
ucts higher up the value chain are less responsive to wage and land price
variations across space. Where establishment relocation is a possibility,
lower price production or plants lower down the value chain are more
responsive.
If we combine these logistics-costs insights with the basic Weber
model insights we can conclude that for firms which are producing goods
whose value and bulk are both increasing as inputs are transformed into
outputs during the production process, the optimum location of the firm
always moves towards the market. This would be represented by the
case of furniture manufacturers who produce fully constructed furniture
outputs, rather than flat-packed furniture. Meanwhile, for firms produc-
ing goods whose value increases while density decreases as inputs are
transformed into outputs during the production process, whether the
optimum location of the firm moves towards the market or towards the
inputs depends on the relative change of the value-added and the transport
rates, as these changes tend to 'pull' in opposite directions. This would
be represented by the case of firms producing microprocessors. Here,
the increasing density of the product during the production process of
microprocessors (Arita and McCann 2002) will tend to pull the optimum
location of the firm towards the inputs sources, whereas the high value
added of the firm will tend to pull the optimum location towards the
market (McCann 2008). Optimal location behaviour is therefore seen
to be a result of a rich mixture of different 'pull' factors, including the
transport rates, the quantities demanded, the values of the goods, and the
bulkiness of the goods. In each case, the optimum location will need to be
calculated.
In general, these logistics-costs conclusions both overlay and encompass
the existing Weber solutions, but in addition provide a much richer and
nuanced set of insights. In particular, the idea that the location of an estab-
lishment is related to the position of the establishment in the value-chain
is a powerful insight for the behaviour of multinational firms. According
to the logistics costs model MPDEs and MNEs will construct value-chains
in space whereby higher order activities systematically operate closer to
the market. This is as true for production activities as it is for knowledge-
related service activities (McCann 2007).
Three final points are worth mentioning here as they pertain to the
