Localisation and delocalisation

Business studies study module

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

  1. As many people move to such areas in search of jobs, slums may be created.
  2. Land becomes very expensive in such areas.
  3. Congestion and traffic jams are a common problem in such areas.
  4. In case of war such areas can become a target of attacks.
  5. Leads to rural-urban migration leaving the old and the young in the rural areas.
  6. A lot of environmental degradation through pollution many cars, deforestation, discharges of waste and mining in the area.
  7. Social problems such as crime, prostitution and illegal drugs are a common problem in such areas.

Advantages of delocalization

  1. It ensures that all areas are developed.
  2. To ensure that employment opportunities are evenly distributed all over the country.
  3. It reduces rural-urban migration since people can get jobs in the rural areas once industries are delocalized.
  4. It promotes the development of infrastructure all over the country.
  5. It leads to the establishment of auxiliary services e.g. banks and insurance firms, in rural areas for the benefit of the residents.
  6. It enhances the development of social amenities such as schools and hospitals in all areas of the country.
  7. It lessens losses in case of attack enemies during war.
  8. People in rural areas are provided with goods and services closer to where they are.

Disadvantages of delocalization 

  1. Pollution is spread to the rural areas.
  2. The security in such areas may not be guaranteed.
  3. It might be expensive to hire and attract appropriate labour.
  4. Auxiliary services such as banks and postal services may be lacking in such areas.
  5. Incentives offered the government to industries in order to delocalize add to public expenditure, which is an added burden to tax payers.
  6. 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

  1. By giving entrepreneurs free of cheap land to construct their factories.
  2. By giving tax incentives to those who locate their industries in the delocalized area.
  3. By giving cheap loans to entrepreneurs wishing to establish industries in areas with few industries.
  4. By providing security in the new industrial areas.
  5. By providing subsidies to those industrialists who are willing to delocalize.
  6. By providing the appropriate infrastructure in the area.
  7. By providing social amenities e.g. schools and hospitals in areas where the delocalized industries are to be established.
  8. By offering financial assistance to the delocalized industries.



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