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If you were to own an agro allied factory, where will you locate your factory. Close to the market, close to the raw materials or close to labour? Thank you sir as you help enlighten a budding entrepreneur.
This is my response but I have never built such a factory to have looked at many of the variables:
- Market vs. Raw Material
- I will locate close to market because the market is where the final customers are located. No matter where I locate the factory, I will always come to the market to make sales
- I do not know the nature of the product but no matter what it is, the pull mechanism will make the producers of the raw materials to tend towards going to the market. That means, even if I am not close to the original source of the raw materials, I can always get raw materials from other suppliers
- The transportation cost of the raw materials may be high depending on the nature. However, the flexibility of having many distributors coming to the factory being closer to the market opens more doors to improve sales. If the factory is located near the source of the raw materials, I may not have many distributors coming to lift the products.
- Market Vs. Labour
- I am not worried on labour because labour is always pulled to the markets. So, people will always go to where the money is. In this case, the labour issue will be dealt with provided we are closer to the market. If we locate just for the labour, it is not likely it will be a stronger pull compared to either the raw material or the market. Besides, agro-allied labour is not that extremely specialized to have that level of pull-effect. Again, we are not talking of labour for the raw materials. Here we are talking of labour for the factory. I do think being closer to the market, usually a big city, will help me on that
- Raw Materials Vs. Labour
- Between locating close to raw materials and labour, I will bias towards raw materials. At least that will save me cost of transportation to the factory. The labour for agro-allied factory is not ultra-specialized that I have to move my factory to it. Raw material wins between these two variables.
Labour has mobility and can move better than raw materials. But since this is a factory, it is better I stay closer to the market to have more access to distribution and dynamics of the customer taste.That will always win over being sequestered from the market because of the need of proximity to raw materials. So, locate close to the market for non-perishable raw material. If perishable raw material, owing to poor road networks and logistics in Nigeria, put closer to source of raw materials if alternative sourcing will not be readily possible.But generally, if there are multiple raw material suppliers, I do think the raw material suppliers will deal with their products and associated logistical challenges. Personally, as the agro-allied entrepreneur, I will focus on the market. So at the end, close to market wins irrespective of the nature of the raw material.
[This construct can be examined from the elementary concept of location and localizaion of industries which they taught us in 4th year in secondary school, in most Nigerian schools. There land, labour, and capital, being factors of production were always part of the considerations. Agro-allied is not the farm from where we will get the raw materials, so land is not a huge issue. Capital is not a factor even though buying land near the source of the raw materials may be lower (assuming the farm to be in rural area). Nevertheless, the cost is not going to be so huge to overcome the benefits, over time, of having the factory closer to the market. In the Economics book (by O. A. Lawal) which I read decades ago in 4th year in secondary school, he noted markets as being a factor. This setting mirrors his explanation; I think close to market wins for this Nigerian entrepreneur. But where the raw material is perishable, we can consider closer to the raw material]. What do you think?]---