1. Why Do Industries Face Problems?
Ch. 11 Industry
Why Do Industries Face Problems?

2. Emerging Industrial Regions
Mexico and NAFTA
The North American Free Trade Agreement (NAFTA) eliminated most barriers to moving goods among Mexico, the U.S., and Canada since 1994.
Mexico attracts labour-intensive industries because of its relatively low-cost labour and its proximity to the U.S.
Plants in Mexico near the U.S. border are known as maquiladoras.

3. NAFTA Canada, US, Mexico- NO TARIFFS
Maquidoras : an area set up along Mexico / US border where factories and industry are set up. It has the benefits of lower wages, lower transportation costs because of closeness to US, lower environmental restrictions, and due to NAFTA no tariffs on goods

4. What is a Maquiladora?
Maquiladoras originated as part of the Mexican government’s 1965 Border Industrialization Program.
Most maquiladoras are foreign-owned, controlled or subcontracted manufacturing plants that process or assemble imported components for export.
Maquiladora inputs are generally imported duty-free, and countries, like the U.S. only tax the value-added portion of maquiladora exports.
Maquiladoras account for 49% of Mexico’s exports
Maquiladora that employs mostly women for its labour force. The conditions under which they work are very depressing.

5. The typical maquiladora worker is a woman between the age of 18 and 25 and is usually employed in heavy maquiladora centers in the border states of Mexico and the United States.
The low cost of labour is what fuels the heavy investment of U.S. based factories into Mexico. For example the full cost per hour per employee is approximately US $1.64.
The area of Tijuana, Mexico employs roughly 120,000 workers with over 3,000 maquiladoras. Approximately 58% of the jobs in Tijuana are from the maquiladora industry.
Tijuana is also geographically desirable to foreign investors as it is conveniently located directly on the U.S. Mexico Border allowing for cheap shipment of assembled products directly into the U.S.

6. The maquiladoras are divided into various sections of manufacturing
The maquiladoras are divided into various sections of manufacturing. This table gives a current understanding of the percentage of Mexico’s labour force by branch of industry.

7. Examples of Maquiladoras
Boeing
Canon Business Machines
Casio Manufacturing
Chrysler
Daewoo
Eastman Kodak/Verbatim
Ericsson
Fisher Price
Ford
JVC GM
Hasbro
Hitachi Home Electronics
Honeywell, Inc.
Hughes Aircraft
Hyundai Precision America
Matsushita
Mattel
Maxell Corporation
Mitsubishi Electronics Corp.
Motorola
Philips
Pioneer Speakers
Samsonite Corporation
Samsung
Sanyo North America
Sony Electronics
Toshiba
Zenith

8. Maquila Industry in Transition
Maquiladora employment has declined due to a number of key factors
Rising labour rates
Post 9/11 tightening of border.
US recession and decreasing consumer demand.
Strong Mexican peso
Growing foreign competition (e.g. China-.$0.43/hour, El Salvador-$1.59/hr; Dominican Republic-$1.53 ; Vietnam-$.05)

9. Industrial Problems From a Global Perspective
Stagnant Demand:
Global capacity to produce manufactured goods has ↑ faster than demand
I.R. → 1970s; more ppl w/ more wealth = more demand for industrial goods
Temporary exceptions to long-term growth
World conflict, depression etc.

10. Cont’d… Demand for many goods has slowed in MDCs in past 30 yrs
Slow pop. Growth
Market saturation (ppl already have everything!)
Increasing quality (replace less often)
Japanese cars
Changing technology (steel vs. plastic)

11. Increased Capacity Worldwide Global diffusion of the I.R.
Increase via sales to new markets
Desire by countries to maintain production despite global overcapacity

12. Industrial Problems in MDCs
Impact of Trading Blocs
Western Hemisphere, W Europe & East Asia
Cooperation w/in blocs
NAFTA since 1994
Canada & USA – vehicle production
EU eliminated barriers to trade
Competition among blocs
EU members place tax on goods from other countries
Japan has lengthy permit procedure
Regional disparities (W. Europe, USA – manufacturing belt vs rust belt)
Deindustrialization

13. Industrial Problems in LDCs
Old
Distance from markets
Inadequate infrastructure
Transportation, communication, Universities
New
Small market
Access to raw materials & site factors (labour)
New Int’l Division of Labour (transnationals)

14. Example: Televisions
Commercial production of tv’s began after WWII w/ a variety of sm/med. size firms in Europe, Asia & NA
Dominant producer until 1970s was Zenith in USA when dramatic shift occurred
Japanese producers started to seize a much larger % of market
By 1990, 10 large firms were responsible for 80% of tv production (8 Japanese, 2 European)

15. Cont’d…
During 1970s, major firms began to move manufacturing & assembly “offshore”
US → Maquiladora of Mexico & economic zones of China
Japan → Taiwan, Singapore, Malaysia, South Korea
India & Brazil also important
Site factor: Labour costs most important

16. Changes within Developed Regions Changing?
Shifts within the U.S.
Industrialization during the late 19th and early 20th centuries largely bypassed the South, because they lacked the needed infrastructure. e.g. transportation network and electricity.
More recently, manufacturers have been lured by right-to-work laws- legislation that requires a factory to prohibit workers from being forced to join a union.
Essentially, industry in the U.S. over time has shifted from the Northeast toward the South and West.
In a “closed shop” a company and the union agree that everyone must join the union to work in the factory. In an “open shop” a union and a company may not negotiate a contract that requires workers to join a union as a condition of employment.
Right-to-work laws send a powerful signal that antiunion attitudes will be tolerated and perhaps even actively supported

17. FIGURE 11-39 CHANGING U.S. MANUFACTURI NG Manufacturing has decreased in the Northeast.

18. Insert fig
FIGURE MANUFACTURI NG VALUE AS A PERCENTAGE OF GNI Manufacturing has accounted for a much higher share of GNI in developing countries than in developed countries since the 1990s.

19. FIGURE U.S. CLOTHING The percentage of clothing made in the United States declined from around 50 percent in the 1990s to around 2 percent today.