WEBER’S LEAST COST THEORY ACTIVITY DAY ACTIVITY INSTRUCTIONS 1. First, Review the powerpoint. 2. Read the following article: http://flowingdata.com/2010/04/07/watching-thegrowth-of-walmart-now-with-100-more-sams-club/ 3. Watch Video: http://projects.flowingdata.com/walmart/ 4. Application Activity (at end of pwr pt) • Least Cost Theory (1909) – Alfred Weber’s model – owners of manufacturing plants seek to minimize three costs: – 1) Transportation, and – 2) labor – • Least Cost Theory (1909) – Weight-losing case: final product weighs less than raw materials; location = source – Copper industry: only 0.7% of mined is copper, rest is waste (gangue) • • Then concentration process (crush, grind, mix, filter, dry) results are about 25% copper Then smelting to reduce impurities – Bulk-reducing industry (steel is too) – Where should the concentration plant be in relation to the mine and the customer? THE LOCATION DECISION Weber's model: the “least cost theory” • Minimization of three critical expenses 1. 2. 3. Transportation costs Labor costs Agglomeration (clustering of like services) OTHER LOCATION MODELS Weber’s Model Manufacturing plants will locate where costs are Hotelling’s Model the least (least cost Location of an industry theory) cannot be understood Theory: without reference to other industries of the Least Cost Theory same kind. Costs: Transportation, Theory: Labor, Agglomeration Locational interdependence Losch’s Model Manufacturing plants choose locations where they can maximize profit. Theory: Zone of Profitability HOTELLING’S MODEL EXPLAINED • Harold Hotelling (1895-1973) • Locational Interdepedence • Originally locate near customers – but will gravitate to each other to maximize profits • The costs for some customers will be greater if the 2 sellers cluster – further to walk. Also fewer customers aware of service. But can’t move for fear of losing customers. FACTORS OF INDUSTRIAL LOCATION Maquiladoras: factory across the border in Mexico SEZ: Special economic zone (like SE China) -NAFTA Highway, favorable trade conditions, no import tariffs -cheap labor -Clustering • Political stability • Taxation policies • Environmental conditions FOOTLOOSE INDUSTRIES • Can locate anywhere, owners can choose an inferior place to maximize profits -pick a place to ensure survival of the firm -small firm, may pick for personal reasons LOCAL AND CITY GOV’T PROVIDE INCENTIVES TO LOCATE INDUSTRIES THERE • 1. grants • 2. low-cost loans • 3. tax breaks http://projects.flowingdata.com/walmart/ EXPLANATION OF ACTIVITY “Today we are going to see how geography is used in the real world. More specifically, the world of business. The Wal-mart Stores Incorporation has contacted me. They need our help in determining where to put the next Walmart or Sam’s Club. What that means is you are now a part of the team. You will be working in teams of 3–4 people to determine where to put the next store. It is your job to present and sell me on your location. I will then read over the proposals to see which location is the best. Only one or two teams will win and receive ‘bonuses’ (extra credit points) should their location be selected. APPLICATION OBJECTIVES 1. 2. 3. 4. Students will be able to demonstrate their ability to read and interpret highway road maps, city-zoning maps and aerial maps such as those found on Google Earth. Students will be able to identify small and large-scale maps correctly. Students will use the concept of Least Cost Theory to ensure that the location of the proposed Sam’s/Walmart will be profitable. Students will demonstrate their ability to use the information acquired from these maps to determine a logical place for a new Wally’s World (aka Walmart) within the greater Orlando area. ACTIVITY 1. 2. 3. STUDENTS will be divided into groups of 3-4 students. Students will use Google Earth to determine where current Walmart and Sam’s stores are located. Students will narrow them narrow down their potential locations to two or three places. Students have the opportunity to choose betweensuggestions include Lake Nona, Winter Springs, Oviedo, Winter Park, St. Cloud, Kissimmee, Lake Mary, Windermere, Meadowood, and Southport Upon completion of research, students will write a hypothetical proposal to Walmart CEO/Board; proposing why they chose the specific location.