Locational Theories of Industry A Beginning of

Locational Theories of Industry

A. Beginning of the Industrial Revolution When & where? – Great Britain mid-1700 s Why Great Britain? – Flow of capital – 2 nd Agricultural Revolution – Resources: coal, iron, & water

Ironbridge, England: World’s first bridge made entirely of cast iron (late 1700 s)

Textiles: Liverpool and Manchester Iron Production: Birmingham Coal Mining: Newcastle

B. Types of Industrial Production Fordist Production: assembly-line industrial production for mass consumption (post-WW I) “Post-Fordist” Flexible Production: “post-Fordist” multinational producers can move production sites through outsourcing (post-WW II) -role of technology?

outsourcing: to relocate from higheroutsourcing cost locations to lower cost market locations *international markets are brought “closer together” through outsourcing check clothing labels… production sites?

C. WHO “outsources”? multinational (or transnational) corporations: businesses that conduct research, operate factories, & sell products in more than one country Types of MNC’s: 1. telecommunication 2. financial 3. manufacturing

Mc. Donald’s sales in 2003 ($41 bill. ) greater than the GDP of Afghanistan ($21 bill. )…is this good or bad?

Wal-Mart Retail stores: 7, 262 (4, 141 in U. S. ) *Wal-Mart serves more than 176 million customers weekly in 14 countries worldwide Total sales in 2007? $374. 5 billion! What are the economic benefits of Wal-Marts in Florida? - spent $5. 7 bill. in Florida in 2007 - over 200, 000 jobs - about $1 bill. in taxes Costs?

D. Location Theories– predicting where business will or should be located 1. Weber’s Model 2. Hotelling’s Model 3. Losch’s Model Considerations: - variable costs - friction of distance

Location Models Weber’s Model: Assumption: “Least Cost Theory”: Hotelling’s Model: Assumption: manufacturing plants “Locational locate where costs are interdependence”: the least location of an industry Costs: Transportation, understood in Labor, Agglomeration reference to other industries Losch’s Model: Assumption: “Zone of Profitability”: manufacturing chooses locations to maximize profits

Exercise: Spatial Competition Wal-Mart ("Big") and True Value Hardware ("Small") selling similar products are considering opening a new store in one of four towns located on a given highway somewhere in Yomama County in the state of Hawaii. The total population of the four towns is 50, 000 (as distributed on the graph below). The towns are equally distant from each other (10 miles). Distribution of Total Population (= Market): Town A Town B Town C Town D | 20%|--10 miles--| 40%|--10 miles--| 20%|

Where (in which of those 4 towns) would you expect the two to locate their respective store given the following, generally known information? If Wal-Mart's store is located closer to a town, it will capture 80% of the market. If True Value Hardware is nearer, then the Wal-Mart will capture 40%. If both companies' stores are equally distant, including being located in the same town, then Wal-Mart will capture 60%.

Law of Retail Gravitation Break Point (BP) is equal to the Distance (d) between two places, divided by the following: Unity or Total (1) plus the Square Root of, the size of Place One (p 1) divided by the size of Place Two (p 2). Outlet Malls

Locational Interdependence

Why Outsource? Weber’s Least-Cost Theory: • • • transport costs (“optimum point of production”) labor costs agglomeration costs

Agglomeration economies: clustering of firms -- Dalton, Georgia: top 20 U. S. carpet makers -- Silicon Valley in California -- Bangalore, India (Bollywood) -- maquiladoras on the Mexican border (over 3, 000 plants 20 miles from U. S. border)

Production of Televisions Three key elements in television production: – Research and design – Manufacturing components – Assembly Production of televisions has shifted across the world over time.

E. Weaknesses of Weber’s theory? ? -- “flexible” or “just-in-time” manufacturing -- “footloose” firms -- “offshoring” -- “new” international division of labor

“Just-in-time” delivery: rather than keeping a large inventory, companies engage in short-term production & ship quickly Offshoring: outsourced work or company headquarters that is located outside of the market country International division of labor: corporations draw from labor around the globe

Time-Space Compression: improvements in transportation & communications technologies leading to more places being interconnected

*How has the economic structure of the U. S. changed? “Deindustrialization” in the core (loss of manufacturing…gain? ) -- service jobs (tertiary) --family members’ jobs? “Rust Belt”

“Guest Worker” immigration flows

Some MNC’s with Maquiladoras in Mexico: 3 Day Blinds 20 th Century Plastics Acer Peripherals Bali Company, Inc. Bayer Corp. BMW Canon Business Machines Casio Manufacturing Chrysler Daewoo Eastman Kodak Eberhard-Faber Eli Lilly Corporation Ericsson Fisher Price Ford Foster Grant Corporation General Electric Company GM Hasbro Hewlett Packard Hitachi Home Electronics Honda Honeywell, Inc. Hughes Aircraft Hyundai Precision America IBM JVC Matsushita Mattel Maxell Corporation Mercedes Benz Mitsubishi Electronics Corp. Motorola Nissan Philips Pioneer Speakers Samsonite Corporation Samsung Sanyo North America Sony Electronics Tiffany Toshiba VW Xerox Zenith

F. A World of Rich & Poor? Or Inter-dependency? core-periphery model: a theory in which rich, industrialized countries (the “ 1 st world”) dominate poorer, unindustrialized countries (the “ 3 rd world”) *3 Major core regions of the world?

*Internet Access: - a “digital divide”?

The Other Side of Outsourcing