Ch. 12 ServicesKey Issue3-4

Warm Up

• The transfer of an automobile from a train to a truck at a distribution point is a good example of a(n)

• A. Gross national product• B. Growth pole• C. Outsourcing• D. Break-of-bulk point• E. Carrier efficiency

Market-Area AnalysisProfitability of a location is determined by

1) Compute the range2) Compute the threshold3) Draw the market area

The gravity model predicts that the optimal location of a service is directly related to the number of people in the area and inversely related to the distance people must travel to access it. The 2 rules to the gravity model are

4) The greater the number of people living in a particular place, the greater is the number of potential customers for a service.

5) The farther people are from a particular service, the less likely they are to use it.

Market-Area Analysis

• Linear Settlement– Gravity Model

• Nonlinear Settlement– Comparison of all possible locations

Optimal Location (for Pizza-Delivery Service)

Fig. 12-6: The optimal location for a pizza delivery shop with seven potential customers in a linear settlement (top) and with 99 families in apartment buildings (bottom).

In a linear settlement, the best location for a service is the median

Why is this the best location?

Rank-Size Distribution

• Rank-size rule—second largest city is ½ the size of the largest, fourth largest city is ¼ the size of the largest, etc.

• Forms a straight line when graphed• Very common in US, and several MDCs in Europe

Rank-Size Distribution of Cities

Fig. 12-9: Cities in the U.S. closely follow the rank-size distribution, as indicated by the almost straight line on this log scale. In Romania, there are few settlements in two size ranges.

Primate City Rule

• The largest city has more than twice as many people as the second-ranking city

• Several MDCs in Europe (Denmark, United Kingdom)• Common in LDCs• What are the effects of Rank Size or Primate City patterns?

Periodic Markets

• Collection of individual vendors who come together to offer goods and services on a specific day

• Farmer’s Markets• Flea Markets• Food vendors/tail gating

Why do Business Services Locate in Large Settlements?

• World Cities• Hierarchy of Business Services• Economic base of settlements

Modern World Cities

• World cities have emerged where a high percentage of the world’s business is transacted and political power is concentrated.

• With inventions in transportation and communications, world cities have had even more impact on the global economy.

Business Services in World Cities What caused the clustering of

business services in the modern world city?

The Industrial Revolution

Corporate headquarters, financial services, banks, insurance, law firms, advertising and transportation are some of the types of business services found in world cities.

These services are large in scale and serve both national and global markets.

Consumer Services in World Cities

What drives the market for consumer services in world cities?

Large size and high incomes What type of consumer services

are found in a world city versus a rural community?

Public Services in World Cities What public service is found

in most world cities? National capitals

What type of international public service is found in the world city of New York and Brussels?

The United Nations and the European Union

Hierarchy of Business Services/Cities

World Cities

Command & Control Centers

Specialized Producer-Service Centers

Dependent Centers

World Cities

• Part of the global economic system because they are centers for the flow of information and capital.

• Most important are London, New York and Tokyo.

• Each is the largest city in its respective regions and operates the world’s most important stock exchanges.

• There are lesser world cities and examples include Los Angeles, Paris, Singapore, Mexico City and Houston.

Command and Control Centers

• Contain the headquarters of many large corporations, well-developed banking facilities, other business services.

• Can be categorized as regional and subregional.

Specialized Producer-Service Centers

• Specialize in offering a more narrow and highly specialized variety of services.

• Examples include research and development for motor vehicles in Detroit or major university cities.

Dependent Centers

• Provide relatively unskilled jobs and depend for their economic health on decision made in the other types of cities.

• Examples include resort centers such as Las Vegas, Manufacturing centers, Military centers such as San Diego, and Mining centers.

Business Service Cities in the U.S.

Fig. 12-15: Below the world cities in the hierarchy of U.S. cities are command & control centers, specialized producer-service centers, and dependent centers.

Economic Base of Settlements

• Basic Industries – export primarily to consumers outside the settlement.• Nonbasic Industries – enterprises whose customers live in the same

community.• Economic Base – a community’s unique collection of basic industries.• To determine a community’s basic industry, the percentage of workers

employed in a particular industry is compared to the percentage of all workers in the country employed in that industry.

New basic industries lead to stimulating new non basic

industries

Economic Base of U.S. Cities

Fig. 12-16: Cities that have a high proportion of their labor force engaged in the specified economic activity shown.

CBD Clustering of Services

• Retail/Business services– High threshold—department stores– High range—luxury stores– Serving CBD workers—lunch, office supplies– Business services—advertising, banking, law

• High land costs due to competition for limited space

• Activities excluded from the CBD– Manufacturing– Fewer residential areas

Central Business District: area of the city where retail and office activities historically cluster

Results in lots of commuting!

Suburbanization of Businesses

• Suburbanization of retailing– Planned shopping centers or malls– Serve as community facilities

• Suburbanization of factories and offices– Cheap land– Better truck access

Business Services in LDCs

• Off-Shore Financial Services• Usually islands and microstates• Taxes-low income taxes. US loses

$70 billion a year because companies hide their assets in offshore tax havens

• Privacy-People can hide their money in case of bankruptcy, divorce, or malpractice law suit from creditors

• Back-office Functions• Business Process Outsourcing• Insurance, Payroll, Transcription

and other clerical work• LDCs provide low wages, so

payroll and paperwork can be done in another country for cheap

• LDCs that have a large number of English speakers attract back office jobs

China, India and the US

• China—manufacturing—why?• India—growing service sector—why?• US—service jobs tied to an urban settlement—why?