You can join the conversation on LinkedIn here; the community is discussing this topic.
If you can, please assist and provide some insights and perspectives. A member of the community has this question and needs help. This is the question::
If you were to own an agro allied factory, where will you locate your factory. Close to the market, close to the raw materials or close to labour? Thank you sir as you help enlighten a budding entrepreneur.
This is my response but I have never built such a factory to have looked at many of the variables:
Tekedia Mini-MBA edition 16 (Feb 10 – May 3, 2025) opens registrations; register today for early bird discounts.
Tekedia AI in Business Masterclass opens registrations here.
Join Tekedia Capital Syndicate and invest in Africa’s finest startups here.
- Market vs. Raw Material
- I will locate close to market because the market is where the final customers are located. No matter where I locate the factory, I will always come to the market to make sales
- I do not know the nature of the product but no matter what it is, the pull mechanism will make the producers of the raw materials to tend towards going to the market. That means, even if I am not close to the original source of the raw materials, I can always get raw materials from other suppliers
- The transportation cost of the raw materials may be high depending on the nature. However, the flexibility of having many distributors coming to the factory being closer to the market opens more doors to improve sales. If the factory is located near the source of the raw materials, I may not have many distributors coming to lift the products.
- Market Vs. Labour
- I am not worried on labour because labour is always pulled to the markets. So, people will always go to where the money is. In this case, the labour issue will be dealt with provided we are closer to the market. If we locate just for the labour, it is not likely it will be a stronger pull compared to either the raw material or the market. Besides, agro-allied labour is not that extremely specialized to have that level of pull-effect. Again, we are not talking of labour for the raw materials. Here we are talking of labour for the factory. I do think being closer to the market, usually a big city, will help me on that
- Raw Materials Vs. Labour
- Between locating close to raw materials and labour, I will bias towards raw materials. At least that will save me cost of transportation to the factory. The labour for agro-allied factory is not ultra-specialized that I have to move my factory to it. Raw material wins between these two variables.
All Together
Labour has mobility and can move better than raw materials. But since this is a factory, it is better I stay closer to the market to have more access to distribution and dynamics of the customer taste.That will always win over being sequestered from the market because of the need of proximity to raw materials. So, locate close to the market for non-perishable raw material. If perishable raw material, owing to poor road networks and logistics in Nigeria, put closer to source of raw materials if alternative sourcing will not be readily possible.But generally, if there are multiple raw material suppliers, I do think the raw material suppliers will deal with their products and associated logistical challenges. Personally, as the agro-allied entrepreneur, I will focus on the market. So at the end, close to market wins irrespective of the nature of the raw material.
[This construct can be examined from the elementary concept of location and localizaion of industries which they taught us in 4th year in secondary school, in most Nigerian schools. There land, labour, and capital, being factors of production were always part of the considerations. Agro-allied is not the farm from where we will get the raw materials, so land is not a huge issue. Capital is not a factor even though buying land near the source of the raw materials may be lower (assuming the farm to be in rural area). Nevertheless, the cost is not going to be so huge to overcome the benefits, over time, of having the factory closer to the market. In the Economics book (by O. A. Lawal) which I read decades ago in 4th year in secondary school, he noted markets as being a factor. This setting mirrors his explanation; I think close to market wins for this Nigerian entrepreneur. But where the raw material is perishable, we can consider closer to the raw material]. What do you think?]
---
Register for Tekedia Mini-MBA (Feb 10 - May 3, 2025), and join Prof Ndubuisi Ekekwe and our global faculty; click here.
I think it there are other factors that may affect the profitability of a particular business. All has to be analyzed to the select the best business case
Absolutely – all has to be analyzed.
The drive for Agri-business must be well thought through like the case in question.
To a larger extent, proximity to the market may override the other factors just like the Western World will take our cocoa, groundnut, palm oil & kernel etc to their factories abroad process them and sell to their market and export back to us some.
This decision is not just based on the factors you enumerated alone but factors such as Power, Psychology of Consumers(Consumer Behavior) will also be included. If labour and land are cheap at source of raw materials, that differential will be eroded by the diesel consumption of generator. But when it is located where power is relatively better not necessarily okay, break even will be achieved faster.
Industrial clusters which are always closer to the markets will have positive effects on the new company, e.g. Visibility, Power availability, road network, communication, medical facilities etc
Power must be considered for the following reasons:
1) It is a Start Up.
2) Agro processing, majority of times, requires a lot of energy (power and steam).
3) Possibility of generating power with gas which is cheaper is easier accessed in industrial clusters or having a Power Purchase Agreement (PPA) is easier in the clusters.
My little submission.
Absolutely – there are many elements to this. Thanks for adding this deeper perspective to the conversation. Very appreciated.
A very apt analysis considering the factors you have looked at.
Just as businesses consider the Monetary cost(accountancy) involved in a set up, they should also consider the true cost(economics) in the long run.
Absolutely – it must be a global synthesis of all the factors
Just read some of other posts, really loved them. Did some checking and discovered that you are a global citizen with Futo blood. From a fresh Futoite to a global Futoite, i doff my hat. People like you, reassure us, the younger generation that our dreams are valid. I would definitely love to pay a visit to Fasmicro group in Owerri.
Thanks. No problem. We will be happy to host you. Cheers