The material index measures the weight of local materials used in manufacturing compared to the weight of the final product. Industries with a high material index tend to locate near raw materials, while those with a low index locate closer to end markets.
The material index is a measure often considered by an industrial enterprise when deciding where to locate. This index represents the ratio of the weight of local materials used in the manufacture of a product to the weight of the product manufactured in its final form. When the material index is greater than 1, it indicates that the raw materials lose some of their weight during the manufacturing process. If the material index is less than 1, it indicates that the weight is increased during the process, so the final weight of the finished product is greater than that of the local raw materials used. This is significant in determining the cost of transporting raw materials in relation to the cost of delivering the finished product.
Economist Alfred Weber’s industrial location model assumes that a firm chooses the least expensive location to set up operations. A company would like to be located close to the source of its raw materials or markets, a decision which would be influenced by the costs of transporting the materials. A decision on where to locate would, in reality, be influenced by other business economics factors, such as labor costs which may outweigh any savings on freight transportation.
The model presented by Weber suggests that industries with a high material index will tend to locate close to the source of their local raw materials to reduce the cost of transporting those materials. In this situation, the company is said to have a material orientation. Examples of industries with a high material index can be found in the food processing industry, where substances are extracted from agricultural inputs, such as sugar refinement. Other things being equal, such industries would likely derive savings from locating close to where agricultural raw materials are grown.
Industries with a low material index would be more likely to locate closer to their end markets, thus reducing the cost of transporting manufactured products to markets. These companies would have what is known as market orientation. An industry with a low index might use materials that are widely available and not specifically local. A manufacturer of soft drinks, for example, would use significant amounts of water in the manufacturing process. Even if the company were to use local fruit in its production, the final product would outperform the local materials used in the process.
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