Geography Reference
In-Depth Information
functions and also different spatial layouts of input suppliers and output
markets, means that the Weber optimum location is uniquely defined for
each individual firm. Therefore, different equilibrium interregional factor
price gradients will exist for different types of firms. However, in order to
find the ideal production location, this implies that firms must carefully
consider where they purchase inputs from, where they sell outputs to, the
costs that they face regarding input and output shipments, and how each
of these features relates to their own particular production functions. Firm
location decisions are major strategic investment decisions and a careful
evaluation of the costs and benefits of each alternative location is required
in order to ensure that a firm makes the locational decision which is the
optimum for itself. Yet, allowing for the fact that the optimum location
outcome is unique for every individual firm, it is still also true that similar
optimum locational outcomes are to be expected for firms which are
broadly similar in terms of the products they produce, their production
functions, the input sources used and the markets they target (McCann
1995).
3.2.3
The Weber Location-Production Model: New Input Sources and
Markets
One of the frequently observed aspects of MNE locational behaviour is
that MNEs tend to search for an initial foreign investment location, and
then over time they search for either new locations or additional invest-
ment locations. Yet, the Weber type of analysis which incorporates iso-
dapanes and varying local factor prices is also very useful for analysing
the conditions under which over time a firm will search for alternative
locations. Until now, our Weber analysis has assumed initially that the
firm's location decision is a 'one-shot' investment decision relating to a
single location, which can then be extended to consider the conditions
under which a firm will move to another location. However, this process
of movement itself may engender changes in the input sources employed
and the output markets served by a firm, the result of which is a dynamic
process of firm spatial behaviour. Once again we can employ the isodap-
ane type of analytical framework in order to examine these issues.
In Figure 3.9 we can consider the situation where the automobile manu-
facturing firm relocates from
K
* to
L
in response to the lower factor prices
at
L
. Following the previous arguments, the reason why the firm moves
from
K
* to
L
is not only that the lower local factor prices at
L
are more
than sufficient to compensate for the additional input and output trans-
port costs involved in consuming steel and plastic inputs from
S
1
and
S
2
,
and serving a market at
M
3
, but that the gain in profitability at
L
is greater
