Industrial Distribution and Location Factors

NICs and EPZs

  • NICs - Newly Industrialized Countries

  • EPZs - Export Processing Zones

    - designated areas within a country that are primarily focused on manufacturing and exporting goods. They typically have unique regulatory and tax structures that differ from the rest of the country, making them attractive for foreign investment. Here are some key details about EPZs:

    • Purpose: EPZs are established to promote export-oriented industries. They aim to attract foreign direct investment (FDI) by providing incentives.

    • Regulatory Framework: EPZs often have fewer environmental regulations compared to other regions, allowing companies to reduce compliance costs. They may offer tax holidays, customs duty exemptions, and other financial incentives to foreign firms.

    • Infrastructure: EPZs are usually equipped with essential infrastructure, including transportation networks (roads, ports, railways) and utilities (electricity, water), facilitating smooth logistics and supply chain processes.

    • Labor Market: EPZs employ a large number of workers, often taking advantage of lower wage costs. This makes them attractive locations for labor-intensive industries. However, this can lead to allegations of labor exploitation and poor working conditions.

    • Global Examples: While EPZs can be found in many countries, notable examples include the Maquiladoras in Mexico, which are foreign-owned factories that benefit from close proximity to the U.S. market. Other examples are Special Economic Zones (SEZs) in China, which also function similarly by offering favorable terms for manufacturing.

    • Trade and Export: Companies operating in EPZs focus primarily on export production, where goods produced are often exempt from domestic tariffs and duties initially, encouraging a robust export culture.

    • Challenges: Despite the advantages, EPZs may face challenges such as dependence on foreign investment, vulnerability to global market fluctuations, and criticism regarding labor rights and environmental impact.

    Overall, EPZs play a crucial role in the global industrial landscape by facilitating the growth of manufacturing sectors in developing countries while also raising important questions about labor and environmental standards.

  • In the late 1980s, manufacturing in developing countries was less than manufacturing in developed countries.

International Changes in Industrial Distribution

  • Where?

    • SEZs - Special Economic Zones that offer special regulations differing from the rest of the country.

    • Maquiladoras - EPZs specific to Mexico.

  • Why?

    • Proximity to low-cost labor vs. skilled labor.

    • Importance of “Just-in-Time Delivery.”

  • What is deindustrialization?

    • Long-term decline of industrialized employment.

    • Greater productivity from manufacturing due to technology.

    • Changes in resources.

  • What is outsourcing?

    • Process of moving industrial production to facilities out of the country.

Why are Location Factors Changing?

  • Outsourcing

    • Transnational corporations transfer some work to LDCs because of the substantial difference in wages despite the increase in transportation costs (Substitution Principle).

    • Operations that require highly skilled workers remain in factories in MDCs.

    • Selective transfer of some jobs to LDCs is known as the new international division of labor.

    • Outsourcing has shifted production to low-wage countries.

    • Result: Turning over much of the responsibility for production to independent suppliers and a decrease in vertical integration (one company acquiring multiple parts of the production process).

      • Vertical Integration: One company acquiring multiple parts of the production process.

International Shifts in Industry

  • Export-processing zones (EPZs)

    • Example of how NCIs developed schemes to attract foreign investments.

    • Designated for manufacturing and have accessible distribution facilities.

    • Lack many environmental restrictions and offer tax exemptions for foreign corporations.

  • Maquiladoras

    • Example of an EPZ.

    • Foreign-owned plants located in northern Mexico (near the border).

    • Home to dozens of US firms (like GM) which are able to compete better on the global market as a result.

  • Special Economic Zones (SEZs)

    • Example of an EPZ and are specifically located in China.

Maquiladoras in Mexico

  • Why has Mexico emerged as an important location in the current global system of industrial organization?

    • Labor: Inexpensive labor costs in Mexico.

    • Political/Economic Factors

      • NAFTA = North American Free Trade Agreement (now USMCA).

      • Weak environmental regulations in Mexico.

      • Exploitation of LDCs (core-periphery model).

      • Mexico’s expanding middle class/skilled labor.

    • Location/Infrastructure

      • Transportation connections between the US and Mexico.

      • Corporations that outsource to Mexico for manufacturing of car parts may take advantage of lax environmental enforcement.

Challenges LDCs Face

  • What are the 3 most prominent challenges LDCs face?

    1. Distance from Market

    2. Inadequate Infrastructure

    3. Competition with Existing Manufacturers

Internal Changes in Industrial Distribution

  • What is deindustrialization?

    • When industrial facilities leave an area and take that region’s economic base with them.

  • Why is deindustrialization extreme in places like the American Midwest and Central Britain?

    • Economies previously relied on heavy industry.

    • Highly regionalized effects: the entire US didn’t suffer as a result of layoffs by GM in Michigan, but the Great Lakes region is now referred to as the Rust Belt.

    • Layoffs caused thousands of people to move to regions where job prospects were higher.

  • Define back-wash effect:

    • One region’s economic gain translates into another’s economic loss.

Why are Location Factors Changing Internally?

  • Changing Industrial Distribution Within MDC's

    • Where is industry shifting away from? Traditional industrial areas of northwestern Europe and northeastern US

    • Which region of the US lost 6 million manufacturing jobs between 1950-2009): Northeastern US

    • Which regions of the US added 2 million manufacturing jobs? South and West

  • A labor union is an organized association of workers, often in a trade or profession, formed to protect and further their rights and interests.

  • What are right-to-work laws? laws attract companies working hard to keep out a union altogether

  • Why would industries be attracted to states with right-to-work laws? Make it much more difficult for unions to organize factory workers.

  • Which region of the US has a large number of states with right-to-work laws? South and West