Dynamics of Industrial Location

In Situ Change

In practice, considerable investment focuses on existing factories. Such investment may replace worn out equipment, expand operations, modernize operations, diversify operations in linked activities or even constitute a radical change. In the latter context, for example, the Uddevalla auto factory in Sweden, discussed in chapters 7 and 12, occupies an old ship building plant. Factory operations can exist on particular sites for literally hundreds of years. In other words, there seems to be very strong attractions influencing firms to continue operations at existing sites, thus reinforcing past location decisions.

The reason for such stability relates to the forces of inertia (or 'sunk costs'). Even though cost and revenue factors frequently change rapidly firms stay put because of capital and human inertias. Thus, new capital is extremely expensive, especially if infrastructure has to be provided. Machines can be re-located but this typically an expensive, difficult task. 'Old' capital, however, has already been paid for and as long as operating revenues cover costs firms can justify staying at existing locations. It may be that old factories can remain profitable for very long periods of time, even in dynamic urban environments, with just a minimum of investment to replace worn out parts. In addition to such capital inertia, there are human inertias. Factories represent accumulation of skills, expertise and know-how that are developed by workers and managers, often in very close relationship to the machines and equipment in the factory. Such skills and innovativeness may not be readily found elsewhere. Indeed, for individual firms, the development of expertise elsewhere is likely to be highly uncertain.

For large MNCs, often considered to be the most locationally flexible, individual factories, may also be tied into close relations with other parts of the firm. Closing down may be disruptive to these links and is likely to represent a 'permanent' loss of a functions at that location.

For an extensive discussion of the factors underlying the maintenance of existing sites, see Clark and Wrigley (1995) and their elaboration of the idea of 'sunk costs'.

In this context, it is also useful to refer again to the idea of 'focal factories' (see FFPS comment on this site). Focal factories are multi-function manufacturing sites, in particular factories 'with appended planning, design, development and process-engineering capabilities, plus an ambition to accumulate, combine and concentrate experience for the propagation and improvement of products and processes' (Fruin 1992: 24). In this view, focal factories contain considerable concentrated, focused and closely related expertise which enhances the firm's innovativeness and permits product and process design and market opportunities to be fully developed. Focal factories, in other words, allow for the full exploitation of intra-firm economies of scope (see text, p. 32 and pp. 193-4 for a definition of this term). In short, focal factories embody not only the inertias represented by 'immobile' capital but highly firm-specific skills of a workforce that is collectively immobile.