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Note on Location Factors

The location of economic activities is a priori dependent on the nature of the activity
itself and on certain location factors such as the attributes of the site, the level of
accessibility and the socioeconomic environment. Although each type of economic
activity has its own set of location factors, some general factors can be identified by
major economic sector:

• Primary economic activities. Their dominant location factor is related to

environmental endowments, such as natural resources. For instance, mining
takes place where economically recoverable mineral deposits are found and
agriculture is subject to environmental constraints such as soil fertility,
precipitation and temperature. Primary activities are thus characterized by the
most basic location factors but have a strong reliance on transportation since their
locations rarely are close to centers of demand. Substantial investments in
extraction and distribution infrastructures must thus be made before resources can
be brought to markets. The capacity to transport raw materials plays a significant
role in the possible development of extractive activities at a location.
• Secondary economic activities. Imply a complex web of location factors which,
depending upon the industrial sector, relate to labor (cost and/or skill level),
energy costs, capital, land, markets and/or proximity of suppliers. Location is thus
an important cost factor (cost minimization). Considering the wide variety of
industrial and manufacturing activities, understanding the rationale of each sector
is a difficult task that has been subject to many investigations in economic
geography. Globalization and recent developments in supply chain management
and global production networks have made the situation even more complex with
the presence of many intermediaries and significant locational changes.
• Tertiary economic activities. Involve activities that are most bound to market
proximity, since the capacity to sell a product or service is their most important
location requirement. As many of these activities are retail-oriented, consumer
proximity (as well as their level of income) is essential and is directly related to
sale levels. The main focus is to maximize sales revenues. Location is thus an
important revenue factor (revenue maximization). The retail industry has
significantly changed with the emergence of large retail stores that maximize
sales through economies of scale and local accessibility. E-commerce also
provides a new dynamic where information can easily be traded and where niche
retailing markets can be developed in a situation of high product diversity.
• Quaternary economic activities. Imply activities not linked to environmental
endowments or access to a market, but to high level services (banking, insurance),
education, research and development; dominantly the high technology sector.
With improvements in telecommunications, many of these activities can be
located almost anywhere as demonstrated by the recent trend to locate call centers
offshore. There are still some strong locational requirements for high technology
activities that include proximity to large universities and research centers and to a
 pool of highly qualified workers (as well as cheap labor for supporting services),
availability of venture capital, a high quality of life and access to excellent
transportation and telecommunication facilities. However, as telecommunication
infrastructures are becoming globally ubiquitous and accessible, such proximity is
of lesser importance.

Each of these sectors thus has its own criteria, which vary in time and space. However,
basic location strategies appear to be dominantly a cost minimization or a revenue
maximization endeavor. Understanding location factors enables a better overview of the
dynamics of the global economy and the associated territorial changes at the global,
regional and local levels.