Ch. 11 IndustryKey Issues 3-4

Warm Up

• The most important cost in Weber’s least cost theory is• A. Transportation costs• B. Labor costs• C. Infrastructure costs• D. Energy production costs• E. Land plot costs

Site and Industry• Site factors result from the unique characteristics of a

location. Land, labor and capital are the three traditional production factors that vary among locations.

• LABOR is the most important site factor at the global scale.

• Labor-intensive industries are industries in which wages and other compensation paid to employees constitute a high percentage of expenses.

• Why is labor a greater cost in the U.S and other MDCs?

• What is the difference between labor-intensive industry and high-wage industry?

TEXTILES are labor-intensive!

• Spinning fibers and other prep-work to make yarn• Weaving or knitting yarn into fabric• Finishing the fabric• Cutting and sewing fabric• Where are spinning, weaving and assembly done? Think about

cost and market location.

Labor

• http://www.youtube.com/watch?v=5Qj1LfKc6Co

Land

• Prior to Industrial Revolution—located near rivers or forests• Industrial Revolution—Located near coal fields• Now usually near hydroelectric power sources

Land – A Critical Site Factor• Early factories were located in urban areas, why?• Modern factories are located in rural areas, why?

Capital (money, money, money)

• Why do certain industries locate in certain regions with regard to capital?– Motor City…– Silicon Valley…

Capital

• Many LDCs don’t have the funds must borrow from MDCs• MDCs may not loan money if industries are to be located in a

country with an unstable political system, high debt, or poor economic policies.

Cottage vs. Commercial

Cottage Industry• Small scale production• At home• Hand made, or simple machines• Pre Industrial Revolution, everywhere• Now mainly LDCs

Commercial industry• Large scale production• In factories• Machine made• Post Industrial Revolution• Mainly MDCs, but through outsourcing

spreading to LDCs

PRODUCTION AT HOME

PRODUCTION IN FACTORIES

Where is Industry Expanding?

• How are factory locations changing in MDCs and LDCs?• Intraregional• Interregional• International

Why are location factors changing for industry?

• In the 21st century, labor is a site factor that is changing dramatically for industry…but WHY?

Intraregional Shifts

• Historically: Factories inside cities—close to market, close to labor– Multistory buildings

• Modern: Factories moved to suburbs or rural—more available land– Single story buildings

Interregional Shift

• Manufacturing in the US has shifted from the Northeast to the South and West

• South—historically low in manufacturing due to Civil War and lack of infrastructure– Tennessee Valley Authority– Air conditioning– Right-to-work laws– 1910 opening of LA Port and 1914 Panama Canal opened up the west

Interregional Shift

• Europe—Shifting from Northwestern to Southeastern• European government policies have encouraged the relocation

to poorer locations– European Union Structural Funds

In both Europe and the US there have been interregional shifts. The difference is in Europe government policies have encouraged the relocation to poorer countries in the EU

New Industrial Regions

• China• 1980—80% of steel in MDCs and 20% in LDCs• 2005—45% of steel in MDCs and 55% in LDCs

Asia

• China: Textiles, steel, household products• World’s largest supply of low cost labor and world’s largest

market• Special Economic Zones

Asian companies tend to be more successful in the US than vice versa because Asian businesses know more about US culture than US businesses know about Asian culture.

Special Economic Zones

Latin America

• Mexico and Brazil• Clustered in large cities for access to markets• 1960s-1990s Self Sufficiency Model• 1980’s & 1990’s abandoned high tariffs and protectionist

policies• NAFTA• Maquiladoras must compete with even cheaper labor in Asia

Maquiladoras in Mexico

Central Europe

• East of Germany and West of Russia• Fall of Communism• Poland, Czech Republic, Hungary• Cheaper labor, proximity to Western Europe’s markets• European Union

Central European workers are less skilled, but cheaper than Western Europe. They are more expensive, but more skilled, than Asia and Latin America. And they are near the markets of Western Europe

Central Europe

Why are Location Factors Changing?

• Proximity to Low-Cost Labor• Textile and Apparel Industry– New York Garment District—large supply of European immigrants

• Mid-20th Century—Moved to Appalachian/Ozark mountains—99% of US hosiery and sock producers– Interstate highway, few unions

• Now Latin America, China, and other Asian countries.

Outsourcing

• New international division of labor—transfer some work to LDCs, keep highly skilled laborers in MDCs

• Identifying comparative advantage

International Shifts in Industry• East Asia – China with rapid industrial

growth and cheap labor, Japan with high-tech and automobile industry, South Korea with ship production, steel production and automobiles.

• South Asia – India with textiles, some automobile manufacturing growing and consumer industries.

• Latin America – Mexico with cheaper labor and close proximity via maquiladoras. Brazil with consumer industries.

Why are steel and clothing industries moving to LDC’s?

Return to Traditional Locations

• Why?• Proximity to Skilled Labor• Fordist—mass production• Post-Fordist—flexible production– Teams– Problem-solving– Leveling

• http://www.biography.com/people/henry-ford-9298747/videos/henry-ford-full-episode-2073247507

Example: Some industries remain in the NE US and NW Europe because of skilled labor and proximity to markets.

Post Fordists tend to have more flexible work rules

Just-in-Time Delivery

• Shipment of parts and materials to arrive at a factory moments before they are needed

• Reduces inventory costs and size of factory• Some disruptions– Labor unrest– “Acts of God”