Industrial Restructuring… Why has industry moved?

Sectors of the Economy Secondary Primary Tertiary Quaternary Figure 6.11 (p. 150) Figure 6.1 (p. 138) Secondary Primary DISCUSSION: * How do the photos in this slide represent the four sectors of the economy? * What are some other examples of these four economic sectors? Tertiary Quaternary

Background on Economic Restructuring of the U.S. and Canadian Economies Job Competition Figure 6.8 (p. 147)

U.S. Change Industry has shifted from N.E. to S and W N.E. -6 million jobs from 1950-2009 Steel, textiles, furniture moved South Unions, labor costs

European Change Industry has moved West to south and East Cheap labor! Central Europe = materials and markets

Structural change of the economy Figure 6.10 (p. 149)

Sources: PBS & Ingolf Vogeler Minimizing Labor Cost Maquiladoras – foreign-owned assembly plants in Mexico (mostly textiles,autos and consumer electronics) Over 11,500 maquiladoras along border with U.S.; employ 2 million+ Mexicans Revenues from maquiladoras, make up 85% of trade between Mexico and U.S. Sources: PBS & Ingolf Vogeler Average work week is 60-70 hours; wages about $5.75 per day. Women are 70% of maquiladora workforce. Since 2000, some maquiladoras have closed as corporations move assembly-line jobs to even lower-wage countries, mainly China.

Alfred Weber – Least Cost Theory

Weber Triangle Three factors: Transport costs: Transport costs Labor costs Raw Materials Transport costs: One market and two sources: Equal distance and shipping costs dictates a market location Two weight-losing materials results in an intermediate location

Weber’s Theory Weber’s theory results in 3 generalizations: Using pure materials in the production process will always dictate a market location Weight-loss materials usage will pull the plant closer to the sources Intermediate location chosen most often

Weber’s Theory Labor Costs: Location chosen always has least combined costs A location my have higher transport costs, but more inexpensive labor

Transportation Cost Minimization Raw Material Oriented Tendency for industry to locate near its source of raw materials in order to save on transport costs Usually occurs when raw materials lose weight in the production process (e.g., paper, steel) DISCUSSION: * What raw materials need to be processed close to where they are extracted due to high transportation costs?

Transportation Cost Minimization Market Oriented Tendency for industry to locate near population centers in order to save on transport costs Occurs when product is more costly to transport than raw materials (e.g., beverages, glass) DISCUSSION: * What raw materials need to be processed close to markets due to high transportation costs?

Break-of-Bulk Oriented Transportation Cost Minimization Break-of-Bulk Oriented Location between sources of raw materials and markets – for products that must be divided and shipped from a central point of entry Intermodal transportation – e.g., moving from rails to trucks or ships to trucks, or ports to pipelines DISCUSSION: * What raw materials would be processed at a break-of-bulk point?

Where is the best location for a steel manufacturing plant? Recipe for steel (traditional) Coal = 2 to 3 tons (+ energy*) Iron ore = 1½ to 2 tons Limestone = ¼ to ½ ton Mix all solid ingredients. Heat at about 600º F until thoroughly melted.* Pour molten blend into molds. Cool and serve. Makes one ton of finished steel.

Shipbreaking industry, Bangladesh Shipbreaking yards in Bangladesh alone dismantle about 90 giant ships a year, mostly oil tankers, generating millions in revenue, employing tens of thousands, and providing a significant proportion of the iron and steel used by local industry. However, there is a dark side to the industry in which the workers must toil in extremely hazardous conditions that frequently lead to death or serious injury and which is tremendously harmful to the environment. ... A majority of ships are built in South Korea and China, filling orders placed by Japan, the UK, the US, Norway, Singapore and Denmark. Until the 1970s, shipbreaking was done in the countries of origin, using heavy machinery on salvage decks. But increasing environmental regulations and labour costs resulted in the transfer of this work -- first to Korea and Taiwan, and then to South Asia after the Asian Tigers upgraded away from this work. Source: www.sos-arsenic.net

Consider transport costs of a car’s components Consider transport costs of a car’s components. Where’s a good place to locate your assembly plant?