C3: Industrial Landscapes Industrial agglomeration

Discussion questions Give a definition of agglomeration of industries. Explain the possible processes leading to the agglomeration of industries. Suggest reasons why industries tend to agglomerate.

What is industrial agglomeration? It refers to high concentration of industrial activities in an area because industries may enjoy both internal and external economies when they cluster together (agglomerate).

Is it a phenomenon or process? Agglomeration is a phenomenon: it refers to the spatial clustering or concentration of industrial activities in a relatively small area. Agglomeration is a process: it refers to the snowballing process whereby more and more manufacturing firms cluster or areally concentrate in a relatively small area.

2 forms of agglomeration Concentration of related or well-linked factories together and form a specialized industrial region. Concentration of various kinds of factories in the industrial zones in urban area.

Spatial effects of Ind. Aggl. Over time, industrial agglomeration results in the growth of large industrial concentrations, producing different areal patterns of industrial land use. They have large numbers of associated and inter-dependent factories, surrounded and served by residential and commercial areas.

Industrial districts Hong Kong - Kwun Tong, Tai Kok Tsui, Tai Po Industrial Estate Sydney - Paramatta, Alexandria, etc

Minor industrial centres/towns PRD - Foshan, Dongguang, Shunda

Industrial cities Shanghai (textile) Nagoya/Toyota (car-making) Detroit (car-making)

Industrial regions Silicon Valley in California (electronics) around Inland Sea of Japan (shipbuilding) PRD in South China (toy)

Characteristics of an ind. aggl. Clustering of industrial activities Functional linkages  production linkages + service linkages When materials move from one firm to another (production linkages) As the firms share the specialized services and facilities (service linkages) Economies of scale

Myrdal’s Model of Cumulative Causation Process A new industrial plant set up  extra employment/more jobs  income and the purchasing power ↑as the size of the population grows  increases the demand for consumer goods, houses, schools and services  more employment opportunities in other industries, e.g. in commerce, construction, service, etc.

Myrdal’s Model of Cumulative Causation Process The new industry itself demands local goods and services. It may attract linked industries which supply it with raw materials (called supplier-industries) or use its products (called user-industries).

Myrdal’s Model of Cumulative Causation Process  further increases employment and expanding services, public utilities and construction.  attract even more economic activities which become more profitable (enjoying the benefits from agglomeration economies) the expanding city (increase in city scale) reaches the threshold level for various services. Thus, the whole process is cumulative and growth becomes self-sustaining.

Measurement of industrial cluster Location quotient It is a statistical technique to identify the degree of concentration of a particular industry in a given place.

Location quotient ei = No. of workers in industry i in area X e = total no. of local employment in area X  Ei = no. of workers in industry I in the whole country E = no. of workers in the whole country If LQ < 1, Area X has a smaller share of industry I than national average If LQ = 1, Area X has the same share of industry I as the national average If LQ > 1, a concentration of industry A in Area X, compared to the nation as a whole.

Location Quotient The location quotient is 5. Employment in computer manufacturing Total employment Area X 2,000 40,000 Country P 200,000 20,000,000 The location quotient is 5. This means that the concentration of computer manufacturing in Area X is five times more than the national average. Computer manufacturing is highly concentrated in Area X.

Reasons for industrial agglomeration What benefits can be obtained from industrial agglomeration?

Initial factors and attraction They refer to the original factors that attract the location of early industries at a certain site. These factors can be natural or man-made. They start the cumulative process of industrial agglomeration and create the snowballing effects on industrial development and agglomeration. The area with initial growing factors is known as the growth pole.

Linkages Production unit Subcontract Information Service links links Marketing links

Vertical linkages Garment Factory Cloth Textile Factory Synthesis fiber Chemical factory

Horizontal Linkages Glass-making Factory Iron & Steel Factory Engine Tyre-making Factory Motor car assembly factory

Diagonal Linkages Jam- Fruit bottling Ice cream making canning Sugar refinery Glass bottle factory Sugar mill

3 types of Industrial linkages vertical (one-to-one) linkage - forward and backward linkage horizontal (many-to-one) linkage diagonal (one-to-many) linkage Industries with simple vertical linkages have a very strong production relationship. They can obtain the greatest economic advantages, once they are grouped or agglomerated together in a small area.

Benefits from vertical linkages lower cost of transporting goods from factory to factory, e.g. integrated plants of I&S ind. (transfer economies)

Localization economies energy savings, e.g. I&S ind. waste products or final products from one industry can be the raw materials of another ∴  specialization in production.  economies of division of labour + mechanization discounts can be obtained when several firms buying similar inputs in bulk. Advertising cost ↓∵ good reputation. presence of ancillary services saving of storage close relationships among factories makes it easy to solve the problems of similar nature and to maintain higher level of production skills.

Urbanization economies a pool of skilled labour and managerial expertise infrastructure savings snowballing effect research & development attracting investment

Diseconomies of scale Physical Economic shortage of land for expansion shortage of labour traffic congestion urban decay Economic rising rent rising labour cost high tax

Social pollution / environmental problems high crime rate pressure from labour union pressure from green groups government policy

Solution to industrial agglomeration Industrial degglomeration/decentralization (to be discussed in the next lesson)