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11 The Nature of Manufacturing Four phases –SELECTION: Deciding what is to be produced –ASSEMBLY: Gathering raw materials at a plant (where it will be manufactured) –PRODUCTION: Reworking and recombining the raw materials to produce a finished product (how) –DISTRIBUTION: Marketing the finished product (for or to whom) Value added by manufacturing occurs at each phase

12 Concentrations of World Manufacturing

13 Concentrations of World Manufacturing

14 Concentrations of World Manufacturing

15 Concentrations of World Manufacturing

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22 Concentrations of World Manufacturing

23 Concentrations of World Manufacturing Skilled workers, large market Coal, ports Abundant resources, on Trans Siberian RR Industrial minerals

24 Concentrations of World Manufacturing

25 Globalization of Manufacturing International division of labor began in 1970s and 1980s –Precipitated by oil shock of 1970s –Industrialized countries lost manufacturing jobs Releases workers for more sophisticated employment –Manufacturing increasing in lower-wage periphery countries Spread from Japan to S. Korea, Hong Kong, Singapore –Nomadic capital for profit can be socially inefficient

26 Globalization of Major Manufacturing Sectors

27 Globalization of Major Manufacturing Sectors Steel

28 Globalization of Major Manufacturing Sectors (Steel)

29 Globalization of Major Manufacturing Sectors (Steel)

30 Globalization of Major Manufacturing Sectors (Automobiles)

32 Globalization of Major Manufacturing Sectors Electronics –Radio (1941); transistor (1948) –Integrated circuit (1960); microprocessor (1970) New applications Consumer electronics Increased productivity –U.S. dominated in 1960s and ’70s; Japan began dominance in 1990s

33 Globalization of Major Manufacturing Sectors (Electronics)

34 Globalization of Major Manufacturing Sectors (Electronics) In 2004, Japan produced 40%; U.S. – 21%; Europe – 11%. Growth is greatest in South Korea, Malaysia, Taiwan, Thailand, Hong Kong.

35 Globalization of Major Manufacturing Sectors (Electronics)

36 Globalization of Major Manufacturing Sectors –Biotechnology: application of molecular and cellular processes to solve problems, develop products and services, or modify living organisms to carry specific desired traits Applications in health care, energy, environmental sciences; pharmaceuticals Venture capital makes basic research commercially viable –High R&D costs; state involvement helps Biotech firms tend to cluster in distinct areas, usually places with excellent universities and medical schools –Specialized expertise and knowledge

37 Globalization of Major Manufacturing Sector (Biotechnology) There is a tendency to cluster in major metro areas, for access to universities and agglomeration economies.

38 The Changing Geography of U.S. Manufacturing Manufacture in NE and Great Lakes ( ) –Water sources for textiles; later coal important –Factories near cities Labor pools; rail and water transport; near suppliers; near markets Move to suburban locations in early 1900s –Shift to Sunbelt began in 1980s Lower labor costs –But California is an exception: amenities and state defense spending are important

39 Changing Geography of U.S. Manufacturing

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48 International Movement of American Manufacturing U.S. has extensive foreign direct investment (FDI) –Began in late 19 th century 1940s - investment in Canada, Latin America; 1950s - Western Europe; 1960s, 70s - Europe, Japan, Middle East; 1980s, 90s – South and East Asia –Western Europe and Japan became competitors by 1960 –Domestic restructuring and internationalization closely related Firms benefit, workers lose European workers are the world’s highest paid

49 International Movement of US Manufacturing Downsizing –From 1989 – 2003, more than 4.7 million U.S. jobs were cut Wages stagnant; employer-employee loyalty reduced; inflation in check

50 International Movement of US Manufacturing 1. Development of overseas markets requires global presence of leading manufacturers 2. Increasing nontariff barriers force firms to localize production resources 3. Trade blocs encourage firms to have presence in each region 4. Regionalization of trade benefits decentralized manufacturing 5. Exchange rates encourage flexibility among firms 6. New manufacturing methods require local infrastructure (education, transport, etc.) 7. Large, centralized manufacturing plants in low-cost countries with poorly skilled workers are generally not sustainable

51 International Movement of US Manufacturing U.S.-based manufacturing MNCs in Most MNCs invest in other developed countries.

52 Flexible Manufacturing Fordism –Named after Henry Ford, pioneer of mass production of automobiles Hired Frederick W. Taylor (“Scientific Management,” Time and Motion studies) Complex tasks broken into simple components, suitable for unskilled workers –Social contract between capital and labor Labor unions tolerated –Backbone of economic boom after WWII, based on consumerism, middle class

53 Flexible Manufacturing Post-Fordism/Flexible Production –Flexible manufacturing: goods manufactured cheaply, in small or large quantities “Just-in-time” manufacturing Shift to more machinery, which can be stopped more easily than (unionized) labor can be eliminated Subcontracting, outsourcing increase –Customization and flexibility are important

58 Flexible Manufacturing Post-Fordism/Flexible Production

59 Flexible Manufacturing Information Tech and Strategic/Competitive Advantage 1.IT creates applications that provide direct strategic advantage to organizations. 2. IT supports strategic changes such as reengineering. For example, IT allows efficient decentralization. 3.IT provides business intelligence by collecting and analyzing information about innovations, markets, competitors, and environmental changes.

60 The Product Cycle in Manufacturing Product life cycle –Stage 1: Innovation (monopoly) –Stage 2: Standardization, mass production, maturity (competitors) –Stage 3: New products take the stage

61 The Product Cycle in Manufacturing Location often changes, usually moving from developed regions for R&D to LDCs for mass production and beyond.

62 The Product Cycle in Manufacturing, Locational adjustment –Capital is more mobile than labor –Firms shift to low-wage regions –Many LDCs offer tax relief and capital subsidies for new industries