The impact of these factors of industial location on the existing locations become somewhat clear when we look at the industrial regions. It is on the basis of observed facts about an industrial region, 'the Industrial Location Theory' was explained by Weber. Four significant factors have been elaborated in the explanation of his theory. They are:
1. Resources Locations (R1, R2)
2. Market Location (M)
3. Nature of Finished Products (bulky, weight losing, weight gaining)
4. Transport Costs
Several people have developed industrial location theories. They have been suggested with a view to indicating how economic profits may be maximised if industries were located in a specific place. High profits from industrial production are obtained in two ways. They are:
1. Locations with low production costs (Least Cost Locations)
2. High return locations (Maximum-Revenue Location)
Weber has developed an industrial location emphasising the least cost principle. This is based on assumptions relating to transport costs and other conditions. From his theory, industrial locations for three different situations are made clear.
1. Some resources are available only in certain regions. Yet, resources such as water are ubiquitous (present everywhere).
Markets are found only in specific places.
3. Transport costs are determined based on the weight of the raw materials and distance of transfer.
4. There is competition in the markets for the commodities produced at the industry.
5. Humans use their discretion in their consumer behaviour in relation to the industrial commodities.
Based on these assumptions, together with the notion of high profits with least costs and imagination, Weber describes his theory of industrial location.
Weber uses a triangular structure to elaborate on his theory of industrial location using least transport cost principle. The two corners of the triangle defined by the base line represent the places where raw materials are found (R1 and R2). The market (M) is at the apex of the triangle. In the figure below, R1 and R2 are resources locations, consisting of two types of resources. M is the market and P is the industrial location.
If the industry is located at the raw material source R1, then raw material R2 must be transported to industrial location R1 and the finished products must be transported to the market M. This results in transport costs. Likewise, the industry could be located at R2, too. But if it is located at M, then R1 and R2 resources must be transported to market M. This would also involve transport costs. If on the other hand, the industry is located half way between R1 and R2, then the transport cost to bring the raw materials from R1 and R2is equal. Transport cost involved in transporting the finished products to the market decreases because of the small distance to market M (if transport cost is assumed to increase with distance). In the final analysis, the transport cost for raw materials to the industrial location P and the finished products to Market M from P together is the least when industry is located at P. There is thus a chance for increased profit for the industry.
The triangle at top left represents a location where distance to be covered by transport is at minimum, the triangle at the top right illustrates the location of a 'weight-losing industry' and the triangle at the bottom left represents the location of a 'weight-gaining industry'. Hence, the location of industry at P is an 'optimal industrial location'.
As the logic behind Weber's location indicates, some industries produce finished products which lose weight (weight-losing raw materials). In this case, the transport cost for raw materials transfer to the industrial location is larger than the transport cost of moving finished products from industrial location to market. It is because the waste from raw materials at the industrial site will be high. Hence, it is profitable to have industry at the raw materials locations.
As the industry is located at a point between the raw materials locations, transport cost to transfer bulky raw materials is reduced considerably. The transport cost for transfering the finished products from the industry to the market is also small. In such a context, Weber believes that it is profitable to set up the industry at a location in between the industry.
There are some industries which manufacture finished products gaining weight in the process. The transport cost between raw materials location and industry is lower than the transport cost of finished products from industrial location to the market. It is logical therefore to locate the industry at the market. According to Weber, this location is more profitable to the industry than any other.
The lacuna in Weber's location theory is that it is based on the transport cost. Nevertheless, this theory of industrial location is considered superior to other industrial location theories., for its logical conclusions.