Localization of firms is a situation where many firm are concentrated in a particular area.
Delocalization of firms describes a situation where location of firms is spread in different regions to minimize the problems of localization.
Advantages of localization
- Firms will benefit from already from established skilled labour pool from which they can recruit their employees.
- Firms will benefit from already established infrastructure such as transportation and communication.
- Firms will benefit from auxiliary services firms that may already have been established.
- Such areas have social amenities such as hospitals and schools.
- Employment is created in such areas.
- Joint management of wastes can be carried out all firms.
- Firms may benefit from already established markets.
- Firms may be able to get raw materials easily, as they may use the by-products produced other industries as their raw materials.
Disadvantages of localization
- As many people move to such areas in search of jobs, slums may be created.
- Land becomes very expensive in such areas.
- Congestion and traffic jams are a common problem in such areas.
- In case of war such areas can become a target of attacks.
- Leads to rural-urban migration leaving the old and the young in the rural areas.
- A lot of environmental degradation through pollution many cars, deforestation, discharges of waste and mining in the area.
- Social problems such as crime, prostitution and illegal drugs are a common problem in such areas.
Advantages of delocalization
- It ensures that all areas are developed.
- To ensure that employment opportunities are evenly distributed all over the country.
- It reduces rural-urban migration since people can get jobs in the rural areas once industries are delocalized.
- It promotes the development of infrastructure all over the country.
- It leads to the establishment of auxiliary services e.g. banks and insurance firms, in rural areas for the benefit of the residents.
- It enhances the development of social amenities such as schools and hospitals in all areas of the country.
- It lessens losses in case of attack enemies during war.
- People in rural areas are provided with goods and services closer to where they are.
Disadvantages of delocalization
- Pollution is spread to the rural areas.
- The security in such areas may not be guaranteed.
- It might be expensive to hire and attract appropriate labour.
- Auxiliary services such as banks and postal services may be lacking in such areas.
- Incentives offered the government to industries in order to delocalize add to public expenditure, which is an added burden to tax payers.
- Industries may not enjoy the benefits that accrue from concentration of industries e.g. developed infrastructure.
Ways in which the government may motivate industries to delocalize
- By giving entrepreneurs free of cheap land to construct their factories.
- By giving tax incentives to those who locate their industries in the delocalized area.
- By giving cheap loans to entrepreneurs wishing to establish industries in areas with few industries.
- By providing security in the new industrial areas.
- By providing subsidies to those industrialists who are willing to delocalize.
- By providing the appropriate infrastructure in the area.
- By providing social amenities e.g. schools and hospitals in areas where the delocalized industries are to be established.
- By offering financial assistance to the delocalized industries.