Chapter 11 Key Issues 2 4 Industry Key

Chapter 11, Key Issues 2 -4 Industry

Key Issue 2 WHY ARE SITUATION FACTORS IMPORTANT?

Industrial Location Factor # 1 • Situation factors – Proximity to inputs: • When inputs weigh more than final products • Bulk-reducing industry: an industry in which the inputs weigh more than the final products – Raw copper to refined copper – Diamond industry

Copper Industry in North America Fig. 11 -8: Copper mining, concentration, smelting, and refining are examples of bulkreducing industries. Many are located near the copper mines in Arizona.

Copper Mine in Arizona The Lavender Pit Copper Mine in Bisbee, Arizona operated between 1951 and 1974.

Industrial Locator Factor # 2 – Proximity to markets • When product gains weight during production • Bulk-gaining industry: makes something that gains volume or weight during production – Beverage production – Car production

Location of Beer Breweries Fig. 11 -11: Beer brewing is a bulk-gaining industry that needs to be located near consumers. Breweries of the two largest brewers are located near major population centers.

Integrated Steel Mills Fig. 11 -9: Integrated steel mills in the U. S. are clustered near the southern Great Lakes, which helped minimize transport costs of heavy raw materials.

U. S. Steel Mill (Gary, Indiana) The integrated steel mill of U. S. Steel in Gary, Indiana.

Chevrolet Assembly Plants, 1955 Fig. 11 -12 a: In 1955, GM assembled identical Chevrolets at ten final assembly plants located near major population centers.

Chevrolet Assembly Plants, 2007 Fig. 11 -12 b: In 2007, GM was producing a wider variety of vehicles, and production of various models was spread through the interior of the country.

Motor Vehicle Parts Plants Fig. 11 -13: U. S. -owned parts plants are clustered near the main final assembly plants. Foreignowned plants tend to be located further south, where labor unions are weaker.

How to ship? • Trucks: Short distance, easy load/unload, 1 day drives the best • Trains: Over 1 day travel, slower than trucks but no rest stops • Ships: Long distances & low cost, used for overseas • Air: Most expensive, small, high valued products

Break of bulk point • Company locations based upon location where transfer among transportation modes is possible. – Used by companies that use multiple transportation methods – Ex: sea-ports near airports

Container Ship in Seattle Harbor Most shipped goods are packed in uniformly sized containers that can quickly be transferred from ships to trucks or trains.

Key Issue 3 WHY ARE SITE FACTORS IMPORTANT?

Site Factors • 3 main factors – land, labor, capital • Most IMPORTANT site factor at a global level is labor – variation of labor costs around the world is large

Labor • Around the world, approximately 150 million people work in manufacturing – 20% in China, 10% in U. S. • A Labor-intensive industry is one in which wages and other compensation constitute a high % of expenses. (Labor costs average 11%) *US auto industry is not labor-intensive • Average wage paid to manufacturing workers in most MDCs is $20/hr + health care, retirement pensions, etc. • In most LDCs, average wage is less than $5/hr with limited benefits

Textile Industry • Labor-intensive industry • High percent of women in manufacturing jobs • 3 steps to textile/apparel production – Spinning of fibers from natural and man made materials – More likely in LDCs – Weaving or knitting of yarn into fabric (includes bleaching or dyeing) – more like in LDCs – Cutting and sewing of fabric for assembling into clothing – Most likely in MDCs

Unskilled textile production in LDCs: 1. Spinning 2. Weaving

More skilled textile production: Apparel assembly

Land • Not just a space on earth, but relates to energy sources, climate, etc • Aluminum production requires a large amount of electricity – Locate nears dams for cheap electrical power – Alcoa – largest and oldest producer in Wolrd, located in U. S.

Capital • $$$$$$$$$$ • Availability to borrow funds • Auto industry in MI – loans from Eastern banks • Silicon Valley in Cali – loans from local banks • LDCs do not have easy access to capital

Key Issue 4 WHY ARE LOCATION FACTORS CHANGING?

Industrial Expansion • Changing distribution within MDCs – Intraregional shifts in manufacturing • In contrast to the U. S. , European government policies encourage relocation – Interregional shifts in manufacturing • New industrial regions – Asia – Latin America – “Central” Europe

U. S. Production Workers 1950 & 2005 Fig. 11 -17: States in the Northeast and Southern Great Lakes traditionally associated with manufacturing accounted for two-thirds of manufacturing in 1950 but only two-fifths of manufacturing in 2005.

Steel Production, 1980 Fig. 11 -19 a: The U. S. , Soviet Union, and Japan were the largest steel producers in 1980.

World Steel Production, 2005 Fig. 11 -19 b: By 2005, steel production had increased in developing countries but declined in the more developed countries.

Distribution of Steel Production 1980 & 2005 Fig. 11 -20: Developed countries accounted for 80% of world production in 1980 but only 45% in 2005. LDCs increased from 20% to 55%. China is now the world’s largest producer.

Changing Location Factors • Attraction of new industrial regions – Proximity to low-cost labor – Outsourcing: independent suppliers produce parts

Labor Cost per Hour MDCs and LDCs Fig. 11 -22: Hourly wages can be under $1 in many LDCs compared to well over $10 in many MDCs.

U. S. Clothing Production 1994 - 2005 Fig. 11 -23: The percent of U. S. made clothing has declined sharply since the 1990 s while imports have increased.

Maquiladoras • Factories owned by American companies built in Mexico near the U. S. border because of the availability of cheap labor Why are maquiladora’s spatially distributed on U. S. –Mexico border? • Close to major U. S. cities & points of entry • Easy to transport goods into U. S. • Mexican government preferred location

4 reasons Mexico is an important global location of industrial organization 1. LABOR • • Inexpensive labor costs in Mexico New global division of labor – manual labor in LDCs 2. POLTICAL • • • Mexico’s stable gov’t & good relations with U. S. North American Free Trade Agreement passed between U. S. and Mexico No Mexican tariffs on imports/exports

4 reasons Mexico is an important global location of industrial organization 3. ECONOMIC • • • Mexico’s expanding middle class & skilled labor Rise of transnational corporations U. S. economy shifting to tertiary 4. TRANSPORTATION * proximity to U. S. markets * border/transportation system well established

Test Breakdown Section Number of test questions % of test devoted to this section Introduction Key Issue 1 Key Issue 2 Key Issue 3 Key Issue 4 1 8 7 6 8 3% 26. 67% 23. 33% 20% 26. 67%