Industrial inertia

Case Study: Japan’s Iron and Steel Industry

Japan’s steel ind. - an overview

rapid development in the last 30 years

increased 10 times from 1960-1990

2nd largest steel producer in the world

leading steel exporter

Processes of steel production

Pre-war steel centres

Kamaishi (釜石 )Kitakyushu (北九州 )Muroran (室蘭 )located near coalfieldsraw-material orientedcoastal locations

Post-war agglomeration

Osaka-Kobe area (大阪神戶 )

Tokyo-Yokohama area (東京橫濱 )

Fukuyama (福山 )Nagoya (名古屋 )Manufacturing beltmarket-orientedcoastal location

Reasons for industrial agglomeration

change from raw-material oriented to market-oriented

past – near coalfields but now – near marketsattracted by coastal locationsAnd large conurbations due to supply of scrap

metal and labourTherefore, they cluster along Manufacturing

Belt

Reasons for indsutrial relocation

integrated steel plantsneed a lot of flat land (space-demanding)which is available near coastal areas by

reclamation

Reasons for indsutrial relocation

declining supply of local coal and iron ore

ports enable import of raw materials

Reasons for indsutrial relocation

coastal locations have deep water ports and good port facilities

bulk carriers can be usedto reduce transport cost

Iron and Steel Plant in Kyushu

Transporting RM in Kyushu

Iron and Steel Plant in Kyushu

Reasons for indsutrial relocation

large local and overseas marketsfreight rate of products > raw materialstherefore, market-orientation is

preferable

Reasons for indsutrial relocation

steel-using industries / industrial linkagesfound in Manufacturing Beltship-building/car industriesEnjoys agglomeration economies

Reasons for indsutrial relocation

large cities can provide scrap metalcan replace pig iron

Will all factories move to new locations? Why?

NoSome firms or particular groups of industries

tend to remain in an existing location (non-optimal sites) after the original factors for their location have weakened or disappeared.

Sometimes, the locations were more favourable in the past than they are now.

This is called industrial inertia.

Why do the firms stay in original locations?

They don’t move because there are still favourable factors of the present location.

Can you list some?

Favourable factors of the present location

Physical infrastructure, e.g. roads, water and electricity supplies, are present.

Ancillary services are available.A pool of skilled labour is available.The firms need to be near to existing market.The firms need to maintain existing linkages

with other firms (with long established business relations)

Why do the firms stay in original locations?

Taking risks to move to new locationsPossible problems encountered in new

locationsCan you list some?

Possible problems encountered in the new locations

At the new sites, personal ties and linkages with the original industrial network may break down.

At the new locations, the cost and time of training new labour are needed.

There are risks and uncertainties in the new production environments. Knowledge about new regions is not so perfect.

There are diseconomies of disinvestment, e.g. high cost will be involved in moving bulky capital equipment.

But what happens to other firms which do not move?

2 possible outcomes:Close down of factories urban decayIndustrial inertia re-industrialization

How can industrial regions manage to survive?

contraction of businessdownsizing the workforceclosure of inefficient plantsrestructuring by adaptation of existing

industries in situ, introducing more efficient production methods

developing new industries/new productsmovement towards specialization of products