Globalization of Manufacturing

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1970 1980 1990 1995 2005

Pe

rce

nta

ge

glo

ba

l sh

are

Others

North & West Africa

South Asia

East Asia & China

Latin America

MEDCs

Changing distribution of Manufacturing

• Percentage of more economic developed countries decreases

• Decentralize to less developed countries

• especially to East Asia and China• Globalization of manufacturing

Reasons for TNCs• To reduce costs and increase efficienc

y• Avoid trade barriers• To exploit new market• Seek for cheap land and labour• Avoid strict control on pollution• Improvement in transportation and d

ecrease in transport cost• Improvement in information technolo

gy

Benefits brought by TNCs

• Provide employment and income• Bring tax and foreign exchange• Bring capital and technology• Associated development and snow-

balling effect• Improve infrastructure

Problems brought by TNCs

• Pollution and environmental problems

• Most of the revenue goes to the TNCs which means flow out of capital

• Inflation and rising cost of living• TNCs will leave and seek for other loc

ation of lower cost after a period of time

Fordist industries

• Mass production for mass consumption

• Long production runs

• Large workforce

• Standardised products

• Flexible products (customised)

• Flexible production (product types and quantities can be altered at short notice.)

Flexible industries

Fordist industries

• Assembly-line production with workers given single with workers given single task for the sake of productive efficiency

• Flexible labour (use a smaller workforce by promoting ‘multi-tasking’ , ‘Just in time learning)

• Flexible machines (intelligent computerised machines)

Flexible industries

Fordist industries

• All or most of the components needed to assemble the final product made within the factory (i.e. vertical integration)

• Flexible suppliers (rely on several different parts suppliers on whom they can draw according to circumstances (i.e. horizontal organisation)

Flexible industries

Problems of Fordist System• Low flexibility• Large amount of uniform products

cannot meet the various needs of customers

• High cost and risk in large storage in parts and finished products

• Cannot meet the rapid change of the market and taste of customers

Lean production & just-in time

• Closer cooperation between assemblers and parts suppliers

• Assemblers held very small stocks of parts

• Parts are delivered to assembly plants just-in-time (short time before assembly)

• Assemblers can cut costs significantly

Lean production & just-in time

• Reliable delivery / logistics and zero defects are important

• Close collaboration and good communications between supplier and consumer is required.

Rise of Lean production & just-in time

• Customization becomes more important

• Rapid improvement in technology• Life cycle of products become shorter

and shorter• e.g. Morse’s Law : price of CPU

decreases 50% every 18 months• Improvement in transportation• Improvement in information technology

Implication on Location• manufacturing industries may be shifting

away from sites closed to raw materials and power resources or nodal points of transportation as the influence of transport cost is diminishing

• with the ease of making foreign investment, it may become more and more popular to set up new factories in other countries, especially in the less developed countries, for the sake of lowering the production cost with cheaper land and labour

Implication on Location• the location pattern of transnational corp

oration will be broken into a triple combination of cross-border production:

• administration and R&D will stay in MDCs

Implication on Location• regional head office are typical in core r

egions, usually capital cities or ports in LDCs which give access to good infrastructure and highly qualified workforce, e.g. Hong Kong and Shanghai

• branch plants, by comparison, are more flexible. Periperal regions with plentiful semi-skilled or unskilled labour are attractive

Implication on Location• clustering of industries at regions with go

od information and communication infrastructure and logistics, such as Pearl River Delta and Changjiang Delta

• in world scale, a more disperse pattern of industrial location

Location decision at different scales• Global scale• Location of the market to be served• Decentralize to LEDCs• National scale• Government subsidies, quality and cost o

f workforce, location of component suppliers, language/culture

• Local scale• Available of extensive cheap land, access

to suitable workforce , good transport link, attitude of local authority

Clustering of Hi-tech Industry

• Electronics – strong tendency for agglomeration

• High technology in MEDCs• Concentration of headquarters and R&

D departments• Technology infrastructure• Concentration of universities and resea

rch institutes

Clustering of Hi-tech Industry

• Government support and encouragement e.g. grants

• Raw materials for hi-tech industry is knowledge

• High quality labour• Environmental quality• Suburb location • Links with suppliers and services

Clustering of Bio-tech Industry

• Tendency for agglomeration is not significant

• Weaker links to other factories• More footloose• Skilled workers are brought in form

outside at environmentally attractive locations.

• Newly established locations• Psychic income

Distribution of Hi-tech in H.K.

Re-industrialisation & Tertiarisation

• Foreign direct investment• On knowledge-based, high-

technology industries• Output per worker increases as

employment declines• Producer services – advertising,

legal services, management consultancy. Market research