Industry is on the move around the world. Site factors, especially labor costs, have stimulated industrial growth in new regions, both internationally and in developed regions. Situation factors, especially proximity to growing markets, have also played a role in the emergence of new industrial regions.
Key Issue 4: Why Are Industries Changing Locations?
Emerging Industrial Regions In 1970, nearly one-half of world industry was in Europe and nearly one-third was in North America. Currently, these two regions constitute only one-quarter each of world industry. Industry’s share of total economic output has steadily declined in developed countries since the 1970s. The share of world industry in other regions has increased – from one-sixth in 1970 to one- half in 2010.
Outsourcing Transnational corporations have been particularly aggressive in using low-cost labor in developing countries. To remain competitive in the global economy, they identify steps in their production processes that can be performed by low-paid, low-skilled workers in developing countries. The new international division of labor is the selective transfer of some jobs to developing countries. Transnational corporations allocate production to low-wage countries through outsourcing, which is turning over much of the responsibility for production to independent suppliers. Outsourcing has led to intense scrutiny in the determination of optimal locations in the production process. Outsourcing contrasts with the approach typical of traditional mass production, called vertical integration, in which a company controls all phases of a highly complex production process.
Mexico & Trade with Neighbors and NAFTA Because it is the nearest low- wage country to the United States, Mexico attracts labor-intensive industries that also need proximity to the U.S. market. Plants in Mexico near the U.S. border are known as maquiladoras, from the Spanish verb maqullar, which means “to receive payment for grinding or processing corn.” Under U.S. and Mexican laws, companies receive tax breaks if they ship materials from the United States, assemble the components at a maquiladora plant in Mexico, and export the finished product back to the United States.
BRICS Countries Much of the world’s future growth in manufacturing is expected to locate outside the principal industrial regions described earlier. The financial analysis firm Goldman Sachs coined the acronym BRICS to indicate the countries it expects to dominate global manufacturing during the twenty- first century: Brazil, Russia, India, China, and South Africa. The five BRICS countries together currently control 26 percent of the world’s land area and contains 24 percent of the world’s inhabitants. Their economies rank second (China), seventh (India), ninth (Brazil), eleventh (Russia), and thirty-fourth (South Africa).
Changing Site Factors: Clothing Production of textiles (woven fabrics) and apparel (clothing) is a prominent example of an industry that generally requires less-skilled, low-cost workers. Textile and apparel production involve three principal steps: spinning of fibers to make yarn; weaving or knitting of yarn into fabric; and assembly of fabric into products. Spinning, weaving, and sewing are all labor intensive compared to other industries, but the importance of labor varies somewhat among them.
Spinning Fibers can be spun from natural or synthetic elements. The primary natural fiber is cotton, and synthetics now account for three-quarters of world thread production. Because it is a labor-intensive industry, spinning is done primarily in low-wage countries. China produces one-quarter and India one- fifth of the world’s cotton thread.
Weaving For thousands of years, fabric has been woven or laced together by hand on a loom, which is a frame on which two sets of threads are place at right angles to each other. One set of threads, called the warp, is strung lengthwise. A second set of threads, called the weft, is carried in a shuttle that is inserted over and under the warp. For mechanized weaving, labor makes up a high percentage of the total production cost. As a result, weaving is primarily found on low-wage countries.
Assembly Sewing by hand is a human activity with a past that dates back tens of thousands of years. Textiles are cut and sewn to be assembled into four main types of products: garments, carpets, home products such as bed linens and curtains, and industrial items such as headliners for motor vehicles. Developed countries play a larger role in assembly than in spinning and weaving because most of the consumers of assembled products are located in developed countries.
Distribution of Coal Changing Situation Factors: Steel The two principal inputs in steel production are iron ore and coal. Most steel was produced at large integrated mill complexes. They processed iron ore, converted coal into coke, converted the iron into steel, and formed the steel into sheets, beams, rods, or other shapes.
Changing Distribution of World Steel Production As manufacturing has shifted to new industrial regions so has steel production. In 1980, 81 percent of world steel was produced in developed countries. A shift occurred between 1980 and 2016 with developed countries producing only 35 percent of the world’s steel. Developing countries produce 65 percent of the world’s steel. The amount of steel produced has also increased. In 2017, China produced over 50 per cent of the world’s steel.
Changing Distribution of U.S. Steel Production Because of the need for large quantities of bulky, heavy iron ore and coal, steelmaking traditionally clustered near sources of the two key raw materials. Within the United States, the distribution of steel production has changed several times because of changing inputs. As sources and importance of these inputs changed, so did the optimal location for steel production within the United States. The increasing importance of proximity to markets is demonstrated by the recent growth of steel minimills. Rather than iron ore and coal, the main input into minimill production is scrap metal. Minimills are less expensive to operate than traditional steel mills and they can locate near their markets because their main input—scrap metal—is widely available.
Industrial Change in Developed Regions In developed countries, industry is shifting away from the traditional industrial areas of northwestern Europe and the northeastern United States.
Intraregional Shifts in North America In the United States, industry has shifted from the Northeast toward the South and West. The principal lure for many manufacturers to locate in the South has been right-to-work laws. A right-to-work law requires a factory to maintain a so-called “open shop” and prohibits a “closed shop”. In a “closed shop” a company and union agree that everyone must join a union to work in the factory. In states with right-to-work laws it is much more difficult for unions to organize factory workers, collect dues, and bargain with employers from a position of strength.
Intraregional Shifts in Europe Manufacturing has diffused from traditional industrial centers in northwestern Europe towards Southern and Eastern Europe. Government policies have encouraged relocation of industries to economically distressed peripheral areas. Since the fall of communism in the early 1990s, investment in Central Europe has increased, especially in Czechia, Hungary, Poland, and Slovakia. Central Europe offers manufacturers two important site and situation factors: labor and market proximity.
11.4
International division of labor A shift in manufacturing away from the advanced economies where most multi-national corporations are owned to developing countries as different parts of items are made all over the world
Least cost theory Alfred Weber's theory that tries to explain and predict the locational pattern of industry
Maquiladora A factory in Mexico owned by a foreign company that only creates products to export to other countries
outsourcing (not exactly how it is used in real life) transferring part of a company's operations to an outside company or in another place
Vertical integration Different companies involved in different steps of a manufacturing process combining into two