LOCATION OF FIRMS : THEORY AND PRACTICE

Abstract

Firm location is an area which a firm chooses to carry out its economic activity. In particular, firms tends to locate towards their source of orientation. For example, a resource-oriented firm will locate near its source of input, while a market­oriented firm will choose to locate near its output. For these firms, transportation cost is a major determinant in their location decision. However, transportation cost has gradually lost its significance in most countries, especially in a small city like Singapore. As such, other factors like complementarity, agglomeration and accessibility in terms of nearness to customers and labour, play an equal, if not more important role than transportation cost in firm's location decision. Furthermore, firms usually based their location decision on one or more of these factors. For a city as land scarce as Singapore, the land use planning process is a delicate balancing act, matching the conflicting needs of people, industry and commerce. Thus, firm location is further influence by the manner in which land is being divided into its various uses. Recognising the importance of public sector decision in influencing urban land pattern, planning zones spelled out in the Master Plan and Concept Plan were used to guide the physical development of Singapore. While zoning is desirable, the natural force are the best judge in selecting the best use in each location. Thus, within the broad categories of permitted land use, the market mechanism still performs its traditional function of allocation. Therefore, the purpose of this exercise is to examine the location behaviour of firms among the 'zoned' areas, based on theories developed by Burgress, Hoyt, Alonso, Harris and Ullman among others, and their relevance to Singapore. Over the years, land use pattern in Singapore has transformed from a concentric pattern similar to the model by Burgress to one resembling a Multiple Nuclei model developed by Harris and Ullman. In addition, it is also observed that despite the government's direct influence on the distribution of land use through zoning, free play of market forces still in some ways help determine land values and firm allocation. Land in Singapore has been developed as the need arises. Initially, the central area was the only area developed, with the remaining areas taken up mainly by agricultural activities. As a result, most firms were found locating within the central area. Subsequently, with a growing population and an advancing economy, more land has to be developed to meet the increasing demand for land space. Thus, new towns, industrial estates, and Business Parks gradually form around the island. This consequently provided a wider range· of alternatives for firms to locate, despite the fact that some land would have already been zoned for economic uses contributing significantly to the growth of the economy. As the central area grows, congestion and other urban problems begin to surface that leads the government to embark on a decentralisation strategy. This comes in the form of Regional centres, built around the island and within the MRT stations. Besides providing more and perhaps better business opportunities for businesses, Regional centres will also encompass social and cultural opportunities, all within the same locality. This is an effort by the government to enhance the quality of life for Singaporeans whose expectations has risen as a result of growing affluence.