Locational Changes
Locational change is a process according to which the number, capacity, nature and the location of production is modified with the purpose of making it more efficient (cost effective) and to better service the needs of the market. The above figure represents a simplification of the process with four locations and four products with their respective markets.
- Intensification. Based on a more intensive use of labor to increase production, or a reduction of labor to produce the same quantity. It is often the results of changes in labor practices, technological innovation and more capital intensive production (e.g. mechanization). Locations and markets do not change.
- Specialization. With growing competitive pressures, a locational process of specialization may take place where each location is producing in the sector it has the most comparative advantages. The resulting productivity gains are often accompanied by labor reductions. Specialization also forces market expansion and flows between regional markets as the geography of distribution is modified. This is the type of locational change that relies the most on transportation.
- Concentration. Implies the closing of the least productive units. If the same level of output is required, then other units will have to increase their production accordingly. Additional production often takes place at the most productive location.
- Rationalization and relocation. The most important locational change, as several production units are closed and production move to a new lower cost location. The market often becomes global.
These four processes are not exclusive as firms can apply more than one strategy at once. For instance, concentration and specialization are often concomitant.