Why Do Industries Face Problems? Ch. 11 Industry Why Do Industries Face Problems?

Emerging Industrial Regions Mexico and NAFTA The North American Free Trade Agreement (NAFTA) eliminated most barriers to moving goods among Mexico, the U.S., and Canada since 1994. Mexico attracts labour-intensive industries because of its relatively low-cost labour and its proximity to the U.S. Plants in Mexico near the U.S. border are known as maquiladoras.

NAFTA Canada, US, Mexico- NO TARIFFS Maquidoras : an area set up along Mexico / US border where factories and industry are set up. It has the benefits of lower wages, lower transportation costs because of closeness to US, lower environmental restrictions, and due to NAFTA no tariffs on goods

What is a Maquiladora? Maquiladoras originated as part of the Mexican government’s 1965 Border Industrialization Program. Most maquiladoras are foreign-owned, controlled or subcontracted manufacturing plants that process or assemble imported components for export. Maquiladora inputs are generally imported duty-free, and countries, like the U.S. only tax the value-added portion of maquiladora exports. Maquiladoras account for 49% of Mexico’s exports Maquiladora that employs mostly women for its labour force. The conditions under which they work are very depressing.

The typical maquiladora worker is a woman between the age of 18 and 25 and is usually employed in heavy maquiladora centers in the border states of Mexico and the United States. The low cost of labour is what fuels the heavy investment of U.S. based factories into Mexico. For example the full cost per hour per employee is approximately US $1.64. The area of Tijuana, Mexico employs roughly 120,000 workers with over 3,000 maquiladoras. Approximately 58% of the jobs in Tijuana are from the maquiladora industry. Tijuana is also geographically desirable to foreign investors as it is conveniently located directly on the U.S. Mexico Border allowing for cheap shipment of assembled products directly into the U.S.

The maquiladoras are divided into various sections of manufacturing The maquiladoras are divided into various sections of manufacturing. This table gives a current understanding of the percentage of Mexico’s labour force by branch of industry.

Examples of Maquiladoras Boeing Canon Business Machines Casio Manufacturing Chrysler Daewoo Eastman Kodak/Verbatim Ericsson Fisher Price Ford JVC GM Hasbro Hitachi Home Electronics Honeywell, Inc. Hughes Aircraft Hyundai Precision America Matsushita Mattel Maxell Corporation Mitsubishi Electronics Corp. Motorola Philips Pioneer Speakers Samsonite Corporation Samsung Sanyo North America Sony Electronics Toshiba Zenith

Maquila Industry in Transition Maquiladora employment has declined due to a number of key factors Rising labour rates Post 9/11 tightening of border. US recession and decreasing consumer demand. Strong Mexican peso Growing foreign competition (e.g. China-.$0.43/hour, El Salvador-$1.59/hr; Dominican Republic-$1.53 ; Vietnam-$.05)

Industrial Problems From a Global Perspective Stagnant Demand: Global capacity to produce manufactured goods has ↑ faster than demand I.R. → 1970s; more ppl w/ more wealth = more demand for industrial goods Temporary exceptions to long-term growth World conflict, depression etc.

Cont’d… Demand for many goods has slowed in MDCs in past 30 yrs Slow pop. Growth Market saturation (ppl already have everything!) Increasing quality (replace less often) Japanese cars Changing technology (steel vs. plastic)

Increased Capacity Worldwide Global diffusion of the I.R. Increase via sales to new markets Desire by countries to maintain production despite global overcapacity

Industrial Problems in MDCs Impact of Trading Blocs Western Hemisphere, W Europe & East Asia Cooperation w/in blocs NAFTA since 1994 Canada & USA – vehicle production EU eliminated barriers to trade Competition among blocs EU members place tax on goods from other countries Japan has lengthy permit procedure Regional disparities (W. Europe, USA – manufacturing belt vs rust belt) Deindustrialization

Industrial Problems in LDCs Old Distance from markets Inadequate infrastructure Transportation, communication, Universities New Small market Access to raw materials & site factors (labour) New Int’l Division of Labour (transnationals)

Example: Televisions Commercial production of tv’s began after WWII w/ a variety of sm/med. size firms in Europe, Asia & NA Dominant producer until 1970s was Zenith in USA when dramatic shift occurred Japanese producers started to seize a much larger % of market By 1990, 10 large firms were responsible for 80% of tv production (8 Japanese, 2 European)

Cont’d… During 1970s, major firms began to move manufacturing & assembly “offshore” US → Maquiladora of Mexico & economic zones of China Japan → Taiwan, Singapore, Malaysia, South Korea India & Brazil also important Site factor: Labour costs most important

Changes within Developed Regions Changing? Shifts within the U.S. Industrialization during the late 19th and early 20th centuries largely bypassed the South, because they lacked the needed infrastructure. e.g. transportation network and electricity. More recently, manufacturers have been lured by right-to-work laws- legislation that requires a factory to prohibit workers from being forced to join a union. Essentially, industry in the U.S. over time has shifted from the Northeast toward the South and West. In a “closed shop” a company and the union agree that everyone must join the union to work in the factory. In an “open shop” a union and a company may not negotiate a contract that requires workers to join a union as a condition of employment. Right-to-work laws send a powerful signal that antiunion attitudes will be tolerated and perhaps even actively supported

FIGURE 11-39 CHANGING U.S. MANUFACTURI NG Manufacturing has decreased in the Northeast.

Insert fig. 11-50 FIGURE 11-41 MANUFACTURI NG VALUE AS A PERCENTAGE OF GNI Manufacturing has accounted for a much higher share of GNI in developing countries than in developed countries since the 1990s.

FIGURE 11-42 U.S. CLOTHING The percentage of clothing made in the United States declined from around 50 percent in the 1990s to around 2 percent today.