Specific examples

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I. Purpose of using these specific examples in this module

1 These specific examples aim at helping students to understand the change in locational pattern as well as the issues created by the global shift of manufacturing industry, including solutions that can be adopted to solve the problems.

2 Students can acquire an overview of the global location of manufacturing industry and to understand the global shift in industrial functions and locational pattern.

II. Curriculum tailoring for students of different abilities

1. Every student should be provided with a brief introduction of the global manufacturing activities, in particular the location pattern of the major industrial belts and the general factors affecting industrial location and development.

2. For the more able students, teachers can make use of the specific examples to conduct a more in-depth study of the change in locational pattern as well as the issues created by the global shift. In addition to this, teachers can also probe questions to stimulate students’ discussion on the sustainable development of the manufacturing industry in the specific examples.

III. How to make use of the information provided in this folder?

1. The information given in this folder provides teachers with some key and more updated information and facts relating to the changing industrial location and functions in Guangdong, the United Kingdom and the Great Lakes Region. By providing more concrete examples, students’ understanding and motivation can be enhanced.

2. Teachers are advised to adopt the information provided in this folder to tailor-make some learning materials according to the ability and interest of the students.

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I. Some facts about Guangdong

Guangdong is a province on the South China Sea coast of China. The province covers an area of more than 212,000 square kilometres and has a population of 86.36 million in2013.

II. Industrial development in Guangdong

Since the start of the Reform and Opening Up in 1978, Guangdong has undergone rapid industrial development. The share of the manufacturing industries to the Gross Domestic Product (GDP) increased from 24% in 1979 to about 47% in 2012 in Guangdong Province. Statistical data on the development of the manufacturing industry from 1978 to 2012 showed a significant increase in the contribution made by the manufacturing industry to Guangdong’s economy in the period.

Year Share of the manufacturing industries to GDP1979 24%1989 34.4%1999 42%2009 45.7%2012 46.5%

Table 1 Share of Manufacturing Industries to Gross Domestic Product

Light industry has always been of importance in Guangdong. Apart from handicrafts, food processing and the manufacture of textiles are the two major light industries of Guangdong. Most of these industries are clustered in Guangzhou, Dongguan, Shunde and Shantou. On the other hand, major heavy industry in Guangdong includes metal processing, the manufacture of machinery, shipbuilding and ship-repairing and the production of automobile.

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III. Recent Changes

The following are a few examples of the inland migration of the manufacturing industries in Guangdong:

Foxconn move d major production line to North China’s Langfang In 2010, Foxconn planned to move its major production line from Shenzhen to Zhengzhou to reduce labour costs.

Dell might move plant to save labour costsDell planned to move its manufacturing plant from the coastal city of Xiamen to the central or western regions of China such as Chengdu after wages increased in China’s coastal cities.Pfizer look ed inland for less costly talent pool Due to the higher cost of talent in China’s coastal regions, some multinational companies relocated to untapped inland cities for equally skilled, but less expensive brainpower. As the world’s largest pharmaceutical firm, Pfizer will build a new operation at Wuhan, Hubei for its global research and development project.

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1. Move to inland provinces

Recently, more and more manufacturing industries in Guangdong have moved their plants to or setting up new plants in the inland provinces away from the south-eastern coastal areas. The improved transportation network in the inland provinces Yunan and the preferential policies offered by the central government have attracted many factory owners to relocate their plants to these inland provinces.

IV. Problems encountered by the manufacturing industry in the Guangdong Province

1. Labour shortage

Since 2004, the Guangdong province has been encountering labour shortage. There are a variety of explanations for the labour shortage problem. Ageing population, poor working conditions, low wages, improving economic conditions in other less developed inland provinces are all reasons for it. Above all, that the major reasons are the less attractive salary and deteriorating work conditions in the manufacturing sector. In addition, with the development of manufacturing industry in inland provinces, rural dwellers are no longer interested in working in the coastal regions far away from their homes. The coastal provinces are losing their power to suck workers from their hinterland.

2. Rise in production cost

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2. Develop hi-tech industriesDuring the past years, the provincial government of Guangdong has promoted industrial restructuring. It encourages the region to ‘empty the bird cage for new birds to settle down’. It is about eliminating old industries and introducing some advanced ones. The region aims to develop high-tech, capital-intensive and high-end manufacturing industries. Pharmaceutical, electronics, telecommunications, computers and other business machines will be the future core of Guangdong’s hi-tech manufacturing industry.

3. Promote sustainable development

China is focusing its efforts on sustainable development after its economy has experienced a rapid growth over the last thirty years. To further promote sustainable development in the industrial sector, the Chinese government has provided funding and other resources to assist its capacity building, technology transfer, and information publication, etc. These efforts and assistance have led to many successful projects and significant achievements. The establishment of the Eco-industrial Park at Yinnashan, in Mei County is one of the examples.

Increases in land prices and taxes, as well as stricter environmental and safety regulations all play a part in causing a rise in the production cost of manufacturing industry in China. The production cost of manufacturing industry rises sharply in the coastal provinces. The biggest contributing factor is labour cost.

In 2012, an investment bank released a survey of over 200 Hong Kong-based manufacturers operating in the Pearl River Delta. It is found that wages have already risen by 10% in 2012. For example, Foxconn, a Taiwanese contract manufacturer that makes Apple's iPads in Shenzhen, put up salaries by 16-25% in 2011.

3. Stricter pollution control

In the past decades, due to the rapid industrial and urban development, the pollution problems in Guangdong province have been serious. The provincial government of Guangdong has implemented stricter pollution control requirements and standards in order to improve the situation. If those existing production facilities fail to meet the requirements and standards, they will be forced to close or move. Factories that continue to stay in the province must invest in more environmentally friendly manufacturing systems. Such policies have increased the cost of production.

References:

1. Guangdong Statistical Yearbookshttp://www.gdstats.gov.cn/tjsj/default.htm

2. Guangdong Statistical Yearbook 2013 http://www.gdstats.gov.cn/tjnj/2013

3. Yinnashan Eco-industrial Parkhttp://www.mashpedia.com/videoplayer.php?q=hk0Bobv-5V8

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Since the mid-1970s, the UK has experienced great changes in manufacturing industry. The functions and locations of the manufacturing industry in the UK have been changing over times.

I. Locational changes of the manufacturing industries in the UK

In the 19th century, the main manufacturing industries were based on the use of coal and imported raw materials, such as iron ore and cotton. A main concern of the industries was the ability to export the finished products to other countries, particularly Britain’s former colonies. For these reasons, the major industrial areas were either on the major British coalfields or at ports on deep-water estuaries. Examples of such industries include:

Textiles-woolen cloth in West Yorkshire and cotton cloth in Lancashire Steel in Sheffield Shipbuilding in Newcastle

Figure 1 Location of traditional industries in the UK

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In recent decades, the UK manufacturing industries have shifted its emphasis from textile and steel-related industries to the high-tech industries that require a highly skilled and qualified workforce to carry out research and development (R&D). The accessibility to raw materials becomes less important in affecting industrial location. Instead the new high-tech industries concentrated in areas where skilled and well educated workforce can be attracted to work, or is available locally, under favourable government manpower resource policies. These high-tech industries are often described as ‘footloose’ because they are not tied to certain locations. At a local scale, they are commonly located at new industrial parks on the edges of towns, or alongside motorways with efficient transport. The following are the major new industrial areas in UK:

‘Silicon glen’ in central Scotland The Cambridge area Many small light industrial estates in ‘rural’ areas, e.g. East Anglia and Sussex.

Figure 2 Location of new industries in the UK

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II. Functional changes of the manufacturing industries in the UK

III. Reasons for the changes in the manufacturing industries in the UK:

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As globalization speeds up, the manufacturing has changed significantly. Much of the activity in modern day manufacturing is characterized by high levels of technological innovation and investment in skills, knowledge and intangible investment such as branding, software and marketing.

The majority of manufacturing industries in the UK in the recent decades have been high-tech industries, such as computers and computer-related equipment, telecommunications and biotechnology/ pharmaceuticals.

Many traditional industries, for example the car assembly, have advanced by adopting new technologies and working practices to develop new products and to upgrade existing models through research and development (R&D).

1. The provision of subsidies and economic infrastructure by the UK government has attracted massive investment by transnational companies from Japan, South Korea and Germany. In the case of motor vehicle industry, many Japanese car manufacturers have come to Britain and built huge new plants, the three largest being Nissan, Toyota and Honda. The factory of Nissan at Washington in northeast England is the largest single investment by a Japanese company. Provision of similar subsidies and incentives by different levels of governments has encouraged overseas and home investment in various areas of the UK.

2. The improvement of transport network has been a major factor in influencing the shifting location of manufacturing industry in UK. The latest rise of high-tech industries is closely related to the swift movement of people, raw materials and products. For example, a large Toyota plant was built next to the A38 trunk road at Burnaston in North Derbyshirem and a Honda assembly plant is located at Swindon on the M4 corridor.

References:

1. Andy Palmer, Nigel Yates (2005). Advanced Geography. Oxford: Philip Allan Updates.

2. David Redfern, Malcolm Skinner (2003). Advanced Geography. Oxford: Philip Allan Updates.

3. BIS Economics Paper No. 10AManufacturing in the UK: An economic analysis of the sector (December 2010)Department for Business Innovation & Skillshttps://www.gov.uk/government/uploads/system/uploads/attachment_data/file/31785/10-1333-manufacturing-in-the-UK-an-economic-analysis-of-the-sector.pdf

4. The future of UK manufacturing: Reports of its death are greatly exaggeratedObservations, analysis and recommendations – April 2009PriceWaterHouseCoopershttp://www.pwc.co.uk/assets/pdf/ukmanufacturing-300309.pdf

5. BIS Economics Paper No. 18Industrial Strategy: UK Sector Analysis (Septeber 2012)Department for Business Innovation Skillshttp://www.bis.gov.uk/assets/BISCore/economics-and-statistics/docs/I/12-1140-industrial-strategy-uk-sector-analysis.pdf

6. The guardian - manufacturing datahttp://www.guardian.co.uk/business/manufacturingdata

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3. Some industries tend to locate next to university campuses. This facilitates the industry to cooperate with academic organisation to conduct research and development projects. Moreover, universities also provide sufficient supply of manpower and technical support to the industry. An example of this is the Cambridge Science Park.

4. The beautiful environment of the green areas in the rural areas of UK has attracted some enterprises to develop their business there. In UK, many business organisations and science parks have been built on greenfield sites in the suburbs with relatively low cost of land and attractive environment.

I. Industrial development and changing industrial location in the Great Lakes Region

The US Great Lakes Region is located in the northeastern part of US. It is made up of the area around five lakes, namely Lake Superior, Lake Michigan, Lake Huron, Lake Erie and Lake Ontario (Figure 3). It covers the states of Ohio, Indiana, Michigan, Wisconsin and Illinois. With the region having rich natural resources such as copper, iron and gold, and the lakes providing good water transportation, industry developed rapidly in this region. In the early years, there were industries like lumber production, steel mills and shipbuilding. In the late 1890’s automobile industry started in the area. The most famous automobile city is Detroit where Ford is the famous brand. Such development further attracted more industries such as those which provided parts for automobiles. Other services such as banks and trading firms were also attracted. This produced the agglomeration economies and the area has been developed into a big manufacturing belt. More industries like publishing and printing, chemicals, furniture, garment and agricultural machinery were also attracted but auto manufacturing and steel production continued to be the most important industries in the region.

Figure 3 The location of the Great Lakes

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Figure 4 shows the number of manufacturing jobs in the Great Lakes Region. It can be seen that the number of manufacturing jobs has been decreasing since 2000. This is because more and more industries have moved out from the region. Most of them have been moved to other countries. The major reason for this phenomenon is due to the lower production cost in the less developed countries such as Malaysia, China and Thailand. In addition, these countries offer incentives for foreign enterprises to set up factories in their countries. They also do not have a strict environmental control. With the growing globalization trend in manufacturing industry, US local industries lost their competitive power as production costs will be cheaper if produced outside the USA.

19840

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Manufacturing jobs in the Great Lakes Region 1969-2009

Year

Num

ber (

mill

ions

)

Figure 4 Number of manufacturing jobs in the Great Lakes Region (1969-2009)

For the automobile industries, they moved out of the region because of some other reasons. The headquarters of the firm is still in charge of the research and design of motor vehicles, and the management of the whole production process and procedures. However, suppliers of parts have taken a more important role in the design of parts. They established their own design centers close to different markets of motor vehicles so that they can easily alter the design to fit the specific requirements of the local market. Besides, since the parts are large, heavy and fragile, their transportation costs are high. Therefore, automobile firms will set up regional assembly plants in different places to serve the respective local markets.

In view of all these changes in production, many factories in the Great Lakes Region have been moved out or ceased production. As a result, many factory workers were unemployed. It has also produced chain reaction affecting other related industries and services. The local economy is worsened with the decrease in salary on the whole.

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II. Measures taken to develop the Great Lakes Region in a more sustainable way

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1. Revitalizing industrial development in the Great Lakes Region

In order to revitalize industrial development in the region, the federal government has provided subsidies for the development of new types of industry. Industrial development in the Great Lakes Regions shifts from the traditional manufacturing sectors to new high–technology industries and services. For example, in 2009, the US Federal Government injected US $2.5 billion to assist the production of lithium-ion batteries which can be used in mobile phones, laptops and hybrid automobiles. The industry has quickly developed because there is already a pool of skilled and well educated workers available in the region. Such development created a lot of job opportunities because the manufacturing of lithium-ion batteries needs to employ a lot of people, including scientists to conduct research and development to improve industrial materials, contractors to supply machinery for production, as well as designers, engineers and machine operators for the operation of the factories. It is estimated that the manufacturing of lithium-ion batteries employed about 65% of America’s scientists and engineers.

Besides local industrial development, some transnational companies (TNC) are also attracted to re-establish their manufacturing plants in the region. For example, Toyota of Japan has set up their assembly plants in the Great Lakes Region in order to avoid the heavy tariff that they needed to be paid if produced abroad. They can also tailor-made their products to suit local demand. The arrival of TNCs decreases unemployment and injects capital to stimulate the local economy. Local people with more disposable income will create a demand for more housing, transport, and services. All these promote the growth of the local economy in different sectors.

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2. Development of other types of economic activities In order to sustain the economic development of the Great Lakes Region, the state

governments of the region search for different ways to boost the economy of the region. Since the Great Lakes have beautiful scenery, beaches and water resources, tourism begins to develop. The state governments put in a lot of effort to keep the water in the Great Lakes clean to facilitate the development of tourism and its associated services. Industries are required to invest more to lower the level of pollution. For example, the British Petroleum (BP) spent about $1.4 billion in their $3.8 billion construction cost on environmental controls.

3. New trends in industrial development Although many industries have moved out of the Great Lakes in searching for low-

cost location, such trend has been changing in recent years. More manufacturing industries are coming back as the favourable factors of some of the overseas production centres are diminishing. For example, China has been a country where most TNCs have established their factories. However, the wages in China is rising. Average wages increases by 150% from 1999 to 2006. From 2005 to 2010, average wages in China rose by 19% per year while wages in US rose by 4% only. When comparing the labour productivity between China and US, the labour productivity in China is obviously lower. So the efficiency in the productivity of labour in US may outweigh the saving from labour cost. This may affect the choice of location for those industries whose labour cost does not occupy a large proportion in their total cost. For the other low-cost locations such as Vietnam, Thailand and Indonesia, although their labour cost is lower than that of China, their infrastructure and supply network is poorer and labour productivity is even lower. So these countries may only favour the location of those labour-intensive industries that require less skilled workers.

As recent manufacturing has placed more importance on the contact with customers so that the design of products can be tailored to suit local demand, US can be an increasingly attractive option for industry as it is close to the markets in North America. Therefore, there is a trend that more industries are moving back to the Great Lakes.

References:

1. About our Great Lakes: Economyhttp://www.glerl.noaa.gov/pr/ourlakes/economy.html

2. A leaner, more skilled US manufacturing workforcehttp://www.newyorkfed.org/research/current_issues/ci/2-2.pdf

3. Bearing the Brunt: Manufacturing job loss in the Great Lakes Region, 1995-2005http://www.brookings.edu/research/reports/2006/07/useconomics-wial

4. Chicago: Economyhttp://www.city-data.com/us-cities/The-Midwest/Chicago-Economy.html

5. Chicago’s Southeast side Industrial Historyhttp://naturalsystems.uchicago.edu/urbanecosystems/calumet/cdrom/photos%20and%20maps/Rod's%20SE%20Side%20Hist%20slide%20show3.pdf

6. Encyclopedia of Chicago – Economic Geographyhttp://www.encyclopedia.chicagohistory.org/pages/409.html

7. Federal Reserve Bank of Chicago: Great Lakes’ manufacturing job loss in perspectivehttp://midwest.chicagofedblogs.org/archives/2012/02/great_lakes_man.html

8. Globalization of the automotive industry: main features and trendshttp://www.econ.kuleuven.be/public/n07057/cv/smvg09ijtlid.pdf

9. Great Lakes see a future beyond industryhttp://usatoday30.usatoday.com/news/nation/2007-12-03-GreatLakes_N.htm?loc=interstitialskip

10. History of Michigan – Industrial developmenthttp://history.howstuffworks.com/american-history/history-of-michigan3.htm

11. Made in America, Again: Why manufacturing will return to the UShttp://doingwhatmatters.cccco.edu/portals/6/docs/Made%20in%20America%20Again.pdf

12. Manufacturing isn’t dead in the Great Lakes Bay Regionhttp://www.nexteer.com/in-the-news/manufacturing-isnt-dead-in-the-great-lakes-bay-region

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13. The New York Times: Does America need manufacturing?http://www.nytimes.com/2011/08/28/magazine/does-america-need-manufacturing.html?pagewanted=all&_r=0

14. Vital to our nation’s economy: Great Lakes jobs 2011 reporthttp://www.fws.gov/glri/documents/11-203-Great-Lakes-Jobs-report[1].pdf

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