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IGCSE and GCSE Industry

Specification:

3.2 Industrial systems

Candidates should be able to:

Classify industries into primary, secondary and tertiary and be able to give illustrations of each.

Describe and explain how the proportions employed in each sector changes with respect to the level of

development, including Newly Industrialised Countries (NICs).

Demonstrate an understanding of an industrial system: inputs, processes and outputs (products and

waste). Specific illustrations of high technology industries should be studied along with one other

processing/manufacturing industry.

Describe how a variety of factors must be considered when seeking the location for high technology

industries and the selected industry.

Industry: Industry is any business activity or commercial enterprise. This can include anything from

teaching to fishing and accounting to house building.

Because the definition of industry is so broad, industry is often divided into four smaller categories. The

four main types of industry are:

Primary Sector: The exploitation of raw materials from the land, sea or air e.g. farming and mining.

Secondary Sector: The manufacturing of primary materials into finished products e.g. car building, food

processing or construction.

Tertiary Sector: The providing of services to individuals and other businesses e.g. teaching and nursing.

Quaternary Sector: The generation and sharing of hi-tech knowledge e.g. medical research or computer

design.

Two other words associated with secondary industry are:

Construction: The occupation or industry of building e.g. house building.

Manufacturing: The making of goods e.g. car building.

Industry as a System

Because industry nearly always involves the making or creation of something, it is often looked at as a

system. The three main parts of the system are:

Inputs: The things that are needed to make or create a product. These maybe physical or human e.g.

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labour (workers), money or raw materials.

Processes: The events or activities that take place to make a product e.g. watering crops or assembling a

car.

Outputs: The finished product that is sold to a consumer e.g. milk, a television or a car.

Three words often associated with inputs are:

labour: This basically another name for workers. Labour can sometimes be divided into manual and

non-manual, skilled and unskilled and professional.

Capital: In business it is anything connected with wealth or money. This might be money in terms of

cash, property, goods or even people.

Raw materials: Unprocessed goods or products that are used in industry.

Location of Industry

Weight Gain Industry: An industry that makes products which get heavier in the manufacturing process.

A good example are cars. All the individual parts that go to make a car (tyres, windscreens, mirrors, etc.)

don't weigh very much, but the finished product does way a lot. Because of this weight gain industries

tend to locate near the market place (their customers).

Weight Loss Industry: An industry that loses weight in the manufacturing process. A good example is

steel which uses huge amounts of iron ore and coke to make it. In the process of making the steel there is

a lot of waste products making the finished product lighter. Because of this weight loss industries tend to

locate near to the raw material they need because transporting the finished product is cheaper.

Just-in-time Manufacturing (JIT): Industries that order the supply of parts (components) as and when

they need them. By doing this you can save on storage costs, but it does mean that you have to have

excellent communication and relations with your suppliers.

Just-in-case Manufacturing (JIC): Industries that stockpile a supply of parts (components) just in case

they are needed in the production process. This increases storage costs, but ensures that they never run out

of parts to manufacture.

Footloose Industries: Normally tertiary or quaternary industries that are not tied to raw materials and

therefore don't have such strict location requirements. Because of this they might look for more human

factors like skilled labour, good housing and recreational facilities or access to capital.

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Perishable Goods: Products that go rotten very quickly e.g. bread, milk, cakes, fruit and vegetables.

Although quicker transportation and improved refrigeration allow perishable products to be transported

all over the world for customers to receive truly fresh products, these industries have to locate near their

market (customers).

HUMAN FACTORS PHYSICAL FACTORS

Skilled Labour: In some industries especially

quaternary it is important that there is an availability

of skilled labour.

Cheap Labour: In other industries like clothes

production an availability of cheap labour is very

important. This why many clothes factories locate in

LEDCs.

Available Capital: For industries to build factories

or offices, research and develop new products or

enter new markets, they need access to money.

Market: For any industry to survive, they need

customers. Therefore it is very important to locate

near their potential market.

Supply Network: Most industries have a large

supply network. To ensure the smooth production of

products it helps being close to suppliers.

Good Housing: To attract any workers it is

important to have suitable housing nearby. For

quaternary industries this might be good quality

housing for secondary industries this might be high

density cheaper housing.

Good Schools and Hospitals: Again to attract

workers and especially their families, it is important

to have good nearby schools and hospitals.

Nearby Universities: For quaternary industries that

carry out a lot research and development they need

to be located near universities that have skilled

workers and available laboratories.

Transport Links: It is important to be close to good

roads and rail links so that industries can receive

Flat Land: It is a lot easier to build on flat land than

hilly land so most industries look for flat sites.

Available Land: If industries are successful they

will want to expand, so most industries will look for

sites that have the potential to expand

factories/offices.

Unpolluted Land (Greenfield Site): Most

industries would prefer to build on greenfield sites.

This is because there are no clean up costs before

building.

Natural Transport Links: In an increasingly

globalised world, products are now sold worldwide.

Therefore it is important to be close to natural

transport routes e.g. rivers and the coast.

Available Raw Materials: For any industries that

use raw materials (especially weight loss industries),

it is very important to be close to them.

Renewable Energy Sources: It is becoming

increasingly important for companies to demonstrate

their sustainability. Therefore it will become

increasingly important to have access to renewable

energy sources (wind and sun).

Nice Environment: For tertiary and quaternary

industries who are trying to attract skilled workers it

is useful to be near a nice environment to make

working their more attractive.

Water Supply: For many industries, especially

manufacturing, it is very important to be near a

reliable water supply (river or reservoir).

Climate: For some industries a good climate can be

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supplies and distribute products.

Good Communications: It is now very important

for industries to have good communications so that

they can contact suppliers and customers.

Reliable Electricity and Water Supply: For all

industries a constant electricity supply is essential

because industries can't afford breaks in production.

very important. For example you would not locate a

solar panel research and development company in a

place where the sun never shines.

Toyota - Burnaston Manufacturing

Plant (Near Derby, UK)

The Toyota factory is located in Burnaston, near

Derby (Central England). Toyota is the world's

largest producer of cars and opened the Burnaston

factory in 1992. It employs over 2,500 people and

has over 200 suppliers, the majority of which are

from the UK. There are a number of human and

physical factors why Toyota chose Derby. The

reasons included:

Human Factors

Transport: It is located on the junction of the A50

and A38 roads. Both these main roads have

connections with rest of the country (M1, M6, M42).

The plant is also near to East Midlands International

Airport and has rail links to all parts of the UK.

Transport links are important to receive supplies and

transport finished products (cars).

Labour: Derby is a traditional manufacturing

location (it already has Rolls Royce and Bombardier

factories) so has a large supply of skilled workers.

Universities: Burnaston is near Derby, Leicester and

Nottingham universities all of whom can provide

skilled graduates and research facilities.

Market: The UK has a population of 65 million and

the EU has a population of over 500 million which is

a huge potential market for Toyota to sell cars to.

European Union: The UK is in the EU. By Toyota

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being located in the UK it can more easily export

cars to the rest of the EU.

Reliable Electricity: The UK has a national

electricity grid which means everywhere in the

country is connected to electricity. Therefore

Burnaston has a reliable electricity supply, although

the Toyota factory has recently installed some solar

panels.

Good Communications: The UK now has very

good broadband internet coverage and a

comprehensive mobile and landline network. Post is

also fast and reliable making local and international

communications quick and efficient.

School and Hospitals: Derby is home to a new

modern hospital (Royal Derby) and there are number

of good state schools and independent schools that

workers can send there children to e.g. Derby

Grammar and Denstone College.

Political Incentives: The local government was

very keen for Toyota to invest in the area and helped

with recruitment of all the workers - they had a

dedicated job centre. They also promised to

complete the A50 road that runs past the Toyota

factory.

Recreation: Derby has a major football club (Derby

County) and numerous recreation centres (e.g. David

Lloyd Sports Centres), golf courses, cinemas and

shopping centres (Westfield) so there is plenty for

potential workers to enjoy.

Physical Factors

Flat Land: The site near Burnaston was very flat

and easy to build on (see photograph right).

Room for Expansion: The site also has a lot of

room for expansion. In fact if you look at the

photograph to the right you might notice the slightly

different colour roofs, this is because it has already

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been expanded once.

Greenfield Site: Large parts of the site at Burnaston

had not been built on (farmland) so there were no

clean up costs.

Pleasant Environment: Burnaston is right on the

edge of the Peak District National Park which means

workers can live and relax in pleasant environments.

Why Toyota Located in Burnaston.pdf

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Burnaston Facts and Figures 2011.pdf

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Toyota (Burnaston) Industrial

System

Just like all industries, Toyota operates as a system

with inputs, processes and outputs. Below are some

of the inputs, processes and outputs that take place at

Toyota.

Inputs: The things that are needed to create a

product and therefore have to be added to the

industry e.g. workers or raw materials.

2.35million m of land

TPSstands for Toyota Production system and is

unique to the Toyota Manufacturing Company.

Standardisation has been introduced across all

production processes and factories so people can

follow simple instructions. Kaizen stands for

continual improvement.

Jidoka means automation with a human touch.

JIT (just-in-time) means that supplies are ordered

as and when they are needed.

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1.15 billion investment to build the

Burnaston factory

2,590 workers

233 suppliers (tyres, paint, steel rolls, etc.)

50% of suppliers are in UK

50% of suppliers are in Europe

Limited number of supplies from Japan

Processes: The activities or events that take place

for a product to be made e.g. designing, painting and

assembling.

Pressing (shaping) of metal panels

Welding of metal panels and components

Painting of car panels

Plastic moulding

Assembly the putting together of all the

pieces

Outputs: The things that happen or are made as a

result of the production process e.g. products, waste

and hopefully profit.

Totota Avensis (68,367 cars) and Toyota

Auris (68,687 cars)

15% sold in UK

70% sold in Europe

15% sold worldwide

Also profit for Toyota and waste (scrap

metal, etc.).

Production Line:When cars are produced they

normally travel along a conveyer belt. They will

start of as a shell (the body) of car and have things

added to it, until it is ready to drive off the end. The

conveyer belt that cars travel along is known as the

production line.

Members: All the people that work for Toyota.

Toyota encourages its members to make suggestions

about improvements.

Assembly Plant or Manufacturing Plant: A factory where individual parts are put together to make a

finished product.

Break of baulk location: A location where raw materials arrive and are unloaded. This will normally be

a location near a port or a rail terminal.

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Production Line:An arrangement of machines or sequence of operationsinvolved with a single

manufacturing operation orproduction process.

Research and Development (R&D): Scientific facilities that investigate, design and produce new or

updated products. For example Google and Microsoft are constantly researching and developing new

pieces of software.

Economies-of-Scale: When producing products in large numbers or offering services on a large scale

actually reduces the price of the products or services on offer. This is because you can baulk buy

products, making the average price cheaper and also sharing rental, electricity, labour costs, etc. over a

wider range of products. In effect the average cost per item begins to fall.

Employment Structure

MEDC: More economically developed country. Basically a richer country where the tertiary/quaternary

sectors are probably the most important.

LEDC: Less economically developed country. Basically a poorer country where the primary sector is

probably the most important sector of the economy.

NIC: Newly industrialising country. A country that is developing quickly and the secondary sector is

probably the most important.

BRICS: Brazil, Russia, India, China and South Africa. These a five countries that are developing quickly

and are often referred to as the emerging markets. They have formed their own group to discuss economic

policy and development.

As countries develop the importance of different sectors of the economy tend to change. There are a

number of models that attempt to show and explain these changes. Below are two of the most well-known

examples; the Rostow Model and the Clark Model.

The Rostow Model

The Rostow Model was developed by the Historian

HW Rostow in 1960. He attempted to demonstrate

all the stages that he believed each country went

through.

Stage 1: Very traditional tribal societywhere most people are subsistencefarmers and therefore employed in theprimary sector.Stage 2: Where more people are now

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commercial farmers, so still mainlyemployed in the primary sector butearning money to invest and develop.Stage 3: Money is invested into industryand infrastructure so the secondarysector starts to growStage 4: The economy diversifies andthere is now a greater variety ofindustries. The tertiary sector starts togrow as people become richer.Stage 5: Tertiary sector become themost important sector as people havegreater leisure time and greater wealth.The quaternary sector also growsbecause the workforce is very skilled andpeople demand hi-tech goods.

The Model has been criticised by some people

because:

It is argued that developed countries (stage 5)

only achieved this through exploitation of

their colonies and LEDCs.

It is impossible for all countries to reach

stage 5 because it will always be necessary to

have countries specialising in the primary

and secondary sectors.

Many countries now have large debt burdens

making development hard.

The Clark Model

The Clark Model was developed by the economist

CG Clark. It is probably even more simple than the

Rostow Model and just shows how the importance

of each sector of the economy will change as a

country develops. Again it has been criticised

because:

It doesn't attempt to explain any changes and

It is not possible for all countries to reach the

end of the model because we always need

countries specialising in the primary and

secondary sectors.

Subsistence Farming: When people only own small

areas of land and grow food for themselves and their

family. There is normally no surplus to make any

money.

Industrialisation: The process of the factories

opening and secondary sector becoming more

important. In Europe this happened in the late 19th

early 20th century and was called the industrial

revolution.

Deindustrialisation: The process of factories

closing and industry declining in a country. This

normally happens because the cost of labour

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However, it is possible to tray and explain the

changes in the model yourself.

To begin with the primary sector is the most

important because most societies start of as

being subsistence based. There maybe some

basic secondary to construct homes and

farming equipment. There is no tertiary

because people are relatively uneducated and

have no free time or disposable income.

Overtime countries begin to specialise in

certain agricultural products and use more

machines. Therefore less people are needed

to work on the land, but people are needed to

build equipment. People and countries start

to generate income which can be invested in

factories and infrastructure therefore

expanding the importance of the secondary

sector. The wealthy begin to have more

leisure time and greater disposable income so

may demand a greater number of services.

As a country becomes wealthy the cost of

labour become too much to make the

secondary sector profitable so factories close

and the importance declines

(deindustrialisation). However, people are

now more educated with greater income and

free time to enjoy shopping, sport, etc. which

expands the tertiary sector. The high levels

of education and the demand for new

innovative products also allows the

quaternary sector to grow in importance.

increases and it becomes cheaper to manufacturer

overseas in LEDCs and NICs.

Mechanisation: The process of manpower being

replaced with machine power. As countries develop

machines tend to become more important.

Triangular Graphs

Triangular graphs are excellent for showing three

connected pieces of data that add up to 100%. In

Geography we can use them to present any number

of things including:

Population structure: old dependents,

young dependents and economically active

Employment structure: primary sector,

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secondary sector and tertiary sector.

When presenting a country's employment structure,

you should include the quaternary sector in the

tertiary sector. You will learn how to read and plot

triangular graphs in class, but when reading or

plotting there are a few things you should remember:

When reading check the axis labels carefully

Always check which way the scale is going 0

to 100 or 100 to 0.

Remember that each axis of the graph is read

in a different direction

When you have read the graph, check that

you have done it correctly by seeing if your

three figures add up to 100%

The graph to the right has had three lines drawn on it

(moving away from the point) to help read it, but

normally the graph will not have these three lines to

help you. However, you may draw the three lines

yourself to help you read the graph.

South Korea - Rapid Economic

Development

South Korea is located in East Asia. It has a

population of 48.7 million and its capital city is

Seoul. Korea is a divided country. Between 1950

and 1953 a war split the country into North Korea

and South Korea. During the war (part of the Cold

War), the south was backed by the US who was

pushing its political ideology of Capitalism, the

north was backed by China pushing its political

ideology of Communism. After years of fighting and

thousands of lives lost, a boundary was drawn pretty

much where the conflict started, the 38th parallel.

This boundary still exists today. The two countries

created by the war have seen very different

economic development.

Post war South Korea was supported by US money

and military power. South Korea used the money to

South Korea economy grows at fastest pace in three

quarters - BBC article

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invest in infrastructure and services (roads, schools,

etc.). It also aimed to keep the money with South

Korea by developing its own industries rather than

relying on foreign imports. South Korea's economic

policies and the country's strong work ethic

produced impressive growth throughout the 1960's

and 1970's and into the 1980's. Between 1960 and

1980 the GDP grew at about 10% per annum. In the

1960's exports grew 34% and the in the 1970's they

grew 23%.

Today South Korea is the world's 13th biggest

economy and a member of the G20. It has GDP of

just over $1 trillion and is still growing despite the

global recession (in 2010 growth was 3.9%). The

GDP per capita is about $30,000 and an

unemployment level of only 3.7%. The majority of

people are now employed in the tertiary sector

(68.4%) so you could argue that South Korea is now

moving from the 'drive to maturity' to the 'high mass

consumption' level on the Rostow Model.

As well as having a good work ethic and investing

US loans in education and infrastructure, South

Korea has been successful because of:

Import substitution - Initially the South

Korean government focused on being

self-sufficient, so it produced all its own

goods rather than relying on imports.

Tariffs and Quotas - The south Korean

government used tariffs (taxes) and quotas (a

limit) on foreign products to protect

companies operating domestically.

Devaluation of the currency - The South

Korean government devalued its currency,

the won, to make its exports cheaper and

more attractive.

Growth of TNCs - Many of South Korean

companies are now TNCs are renowned

globally e.g. Samsung, LG, Hyundai and

Kia.

Initial focus on labour intensive industries

- initially South Korea's biggest competitive

What would you do with Gigabit internet speeds -

BBC article

South Koreans told to go home and make babies -

BBC article

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advantage was its cheap labour, so it focused

on labour intensive industries like

shipbuilding and textiles.

The success of the South Korean economy has

brought significant benefits to its people including:

Improved education (98% of South Koreans

are literate)

Improved healthcare (the life expectancy in

South Korea is now 79)

Better paid jobs

More leisure time (South Koreans are now

keen golfers, walkers, etc.)

International recognition (South Korea

hosted the Olympics in 1988 and jointly

hosted the World Cup in 2002)

Improved communications (South Korea

now has the fastest broadband in the world)

Improved transport links (Korean Air and the

high speed rail link KTX)

Improved technology (much from home

grown companies e.g. Samsung and LG)

In the future South Korea is probably going to focus

on more hi-tech industries (quaternary sector) like

electronics and pharmaceuticals. To do this the

government is investing heavily in education,

technology and supporting R&D. South Korea is

also in an excellent position to exploit the nearby

growth markets of China, India, Indonesia and

Vietnam. However, South Korea is also likely to

experience some problems including:

Competition from Japan (Toyota, Sony), but

also the growing giant that is China

Increasing production costs as South Koreans

expect higher wages

Transportation costs (exporting to US and

Europe)

The cost of either defending itself from

North Korea or paying for reunification with

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North Korea.

A growing dependency ratio and shortage of

workers as the total fertility rate declines and

life expectancy increases.

Hi-tech industry: Industries that are focused on research and development and the production of

products that often contain microchips.

Conglomeration: The process of clustering together in one area.

The M4 Corridor (Hi-tech

industries)

The M4 corridor is the area either side of the M4

motorway (main road) running from London in the

east of the UK across to Bristol and Cardiff in Wales

(the west of the UK). The area has become famous

because of its concentration of hi-tech industries.

Many hi-tech industries are footloose so not tied to a

particular raw material. Therefore they are able to

look at other locational factors. The M4 corridor has

become a popular location because:

Transport - The M4 road runs through the

region and connects to the M25 and M5.

London has five airports (including the

world's busiest international airport

(Heathrow). There are also further airports in

Bristol and Cardiff. A railway line also runs

through the region.

Labour - there is a large pool of workers, not

only in London, but also Swindon, Reading

and Bristol.

Universities - Cardiff, Bristol, Bath, Reading

and of course London have multiple

universities that can not only supply skilled

labour but also research and development

facilities.

There are attractive areas to live nearby and

enjoy recreation time e.g. Cotswolds and

Mendip Hills.

Market - Much of the South of England is

wealthy so there is a large potential market

for new products.

Existing Industries - There is already existing

Windmill Hill Business and Science Park in the M4

Corridor

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government research facilities and other

research based companies like British

Aerospace and Rolls Royce in the area.

Conglomeration - If hi-tech firms group

together they can share associated services.

Associated companies may range from

cleaning and security firms, to IT repair and

research labs. By sharing services it should

reduce costs and increase the amount offered.

TNCs: Transnational corporations are companies that operate in more than one country. TNCs will

normally locate their headquarters in their home country, for example Toyota has its headquarters in

Japan. Headquarters are normally located in the TNCs country of origin because this is where the

company was first established, where most of the profits will return to and where most of top

management team is from. Most TNCs will also have R&D (see definition below) facilities which they

will locate in developed country where there is a skilled workforce and a high level technology. However,

TNCs will often chose to offshore there manufacturing plants to LEDCs where productions costs are

lower (cheaper labour, cheaper land, etc.)

Research and Development (R&D): Scientific facilities that investigate, design and produce new or

updated products. For example Google and Microsoft are constantly researching and developing new

pieces of software. TNCs are constantly carrying out R&D because they want to make their products

better and attract new customers.

FDI: Foreign direct investment is money spent by a foreign company in a country. FDI might be the

building of a new factory, new road or educating a workforce.

Offshoring: When TNCs move sections of their business overseas. Call centres and manufacturing plants

are often moved overseas because labour and production costs are cheaper.

Outsourcing: When certain parts of a companies operation are given to another company to provide. For

example most companies outsource catering and cleaning, maintenance and IT support are also often

outsourced. Companies outsourcing in the hope the services are provided more cheaply and the company

is exposed to less risk. Outsourcing can be cheap because the company they have outsourced specialises

in one business e.g. IT support and therefore can do it on a bigger scale and have cheaper average costs.

Deindustrialisation: When factories and industry starts to close down in a country. The UK has gone

through deindustrialisation because production costs became too much and many companies chose to

move overseas.

Advantages of TNCs locating in a country Disadvantages of TNCs locating in a

country

Creates jobs for local people

Locals with jobs then spend money in their

local economy at local businesses and

therefore there is a positive multiplier effect

as extra money gets added to the local

Many of the best paid managerial jobs go to

foreigners

Local workers often do manual jobs which

are poorly paid and often workers suffer

exploitation (long shifts, no breaks, etc.)

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economy.

TNCs will pay local and government taxes

and therefore increase the government

budget.

Jobs at a TNC will be in the formal

economy, so hopefully better regulated in

terms of safety, pay, etc.

Improves workers skill and education levels

They introduce new technology into the

country

Infrastructure like roads and ports are often

upgraded and benefit the whole economy

Diversifies the economy, might move away

from the reliance on one industry like

farming or tourism

The country receives prestige for attracting

TNCs and investment into the country.

There will be some economic leakage as

profits from TNCs go back to their home

country

Increasingly manufacturing processes are

becoming more mechanised so less workers

are needed in factories.

One of the attractions of LEDCs is cheap

labour, but as a country develops labour

costs increase and TNCs may move to

cheaper locations.

Products produced by TNCs maybe too

expensive for locals to buy. TNCs may also

use local raw materials.

The increased demand created by TNCs may

cause local inflation.

If the government is building new roads or a

port for a TNC it probably means that they

can't spend as much money on education or

healthcare.

TNC decision makers are often foreign so

policies of TNCs may not always benefit

local people.

TNCs are often criticised for having too much power. Below is a list of 25 of the world's biggest TNCs,

based on their market value (share price). Nearly half of the companies are headquarted in the US, but

China already has four and this figure will only increase in the future as the Chinese economy continues

its rapid growth. The TNCs are have a turnover more than many LEDCs. For example ExxonMobil

employs about 84,000 people, has a turnover of about $383 billion and a profit of about $30 billion (this

is nearly twice El Salvador's total GDP). They are criticised because they employ so many people and

earn so much money that they hold power over countries who fear losing the investment of TNCs.

Because they can afford the best technology, the most skilled workers and the best lawyers they can also

draw up very favourable contracts which may exploit poorer countries.

Formal Economy: The economy that is formally registered with authorities and regulated by the

government. The formal sector will be liable to pay taxes.

Informal Economy: The section of the economy that is not registered with the government, is not

regulated and does not pay taxes. The informal economy is sometimes called the black market.

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Informal Economy Formal Economy

Advantages

Many independent poor

people work in the informal

sector e.g. car washers or

shoe shiners. This often

means the money goes

where it is most needed.

It often employs people

with low skill and

education levels who might

normally find it hard to get

a job.

Workers may learn skills

which means that they can

get jobs in the formal

economy.

Many businesses are labour

intensive and don't rely on

technology, so they are

cheaper to set up and

employ more people.

Many businesses actually

work in local communities

and recycle waste material

(a form of recycling).

Can give economic

opportunities to illegal

immigrants or refugees (of

course this could also be a

negative because it attracts

more refugees and illegal

immigrants)

They pay taxes to the

government so are

contributing to government

revenue.

Workers are protected so

that they get a proper and

regular wage and have

safety regulations, etc.

It provides products for the

export market which then

gain foreign income for the

country.

Because they are regulated,

businesses should follow

environmental regulations

so that they are less

polluting.

Disadvantages

Parts of the informal

economy is involved in

illegal activities like the

drugs and sex industry.

The government does not

receive taxes from these

businesses.

Because they are not

regulated they don't follow

any environmental

guidelines and can often

cause pollution.

Workers can be exploited

by not being paid fully, not

Production costs tend to be

higher which makes the

products less affordable to

many people.

They will often avoid

hiring unskilled and

uneducated workers

because of the training

costs.

Many businesses in the

formal economy tend to

mechanise to try and

reduce costs and therefore

don't employ as many

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receiving sick pay or being

forced to work in

dangerous conditions.

people.

The formal sector is often

dominated by TNCs and

there is often economic

leakage out of local

communities.

Sometimes children have to work in the informal sector to support themselves or their family. This might

because they have been orphaned, run away from an abusive family or belong to a single parent family.

Working in the informal sector from a young age is likely to deprive them of an education, which means

that they probably won't be able to go to university or get a job in the formal economy. However, they

learn other skills like language skills if they are dealing with tourists, money management, confidence

and independence. If they are lucky they might be able to use these skills to find a more secure job.

Even if children are learning some skills, they should never be in the position where they have to give up

school to go to work. Unfortunately it is estimated that some 200 million children are being forced to

work, many in dangerous and illegal activities like the sex industry, armed conflict, mining and domestic

slavery. The ILO (International Labour Organisation) and UNICEF (United Nations Children's Fund),

both part of the UN are trying to raise awareness and end child labour. They are trying to introduce child

labour laws and enforce laws that already exist. They are trying to prosecute people who exploit children

and provide children with an education who have been rescued from child labour. However, it is also

necessary to look at the causes of child labour, which is normally poverty and try and end this.

Protectionism, Free trade and

Fairtrade

Protectionism is measure that a government uses to

try and protect domestic industry. The three main

ways that a government aims to protect its domestic

industry are through; tariffs, quotas and subsidies:

Tariffs: A tax placed on foreign imports to make

them more expensive and less competitive than

locally produced products.

Quotas: A limit placed on the amount of foreign

imports. By limited the amount of imports this again

should increase the price of them and make them

less competitive.

Subsidies: Financial support given to domestic

producers to make their products cheaper compared

to foreign imports. This might take the form of a

grant or loan (money), or it might be reduced taxes

or a plot of land that is given to them to build on.

The WTO (World Trade Organisation) is trying to

end protectionism and promote free trade throughout

the world because it believes it will increase global

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Greenfieldgeography

trade and improve everyones standard of living.

Free trade is basically trade with no protectionist

measures. The WTO currently has 153 member

countries representing about 97% of the world's

population. There are currently trading blocs that

promote free trade within their borders, but may

have protectionist policies against countries outside.

A trading bloc is a group of countries that have

joined together to promote trade by removing

protectionist policies. Probably the best known

example is the EU (European Union) that has 27

member countries.

One problem of global trade is that poor primary

producers can often be exploited by large TNCs.

One organisation that is trying to fight against

exploitation of poor primary producers is the

Fairtrade Foundation. The Fairtrade Foundation

does not produce any products but instead certifies

products that have been produced by companies that

have paid a fair price for primary products e.g. tea

leaves, coffee and cocoa beans. You can recognise

Fairtrade products because they will have the

Fairtrade logo on them.

Craft Industry: Where production is small-scale, either at home or in small workshops. Products are

usually unique and traditional because they are not mass-produced. Materials used in the production

process are usually local and the techniques traditional and usually labour intensive.

Reaching Out (Craft Industry, Hoi

An, Vietnam)

Reaching Out is located in the town of Hoi An in

Central Vietnam, it was founded in 2000. Reaching

Out is a craft industry that not only produces

traditional local products, using local materials and

traditional techniques but it also provides work for

people with physical and learning disabilities.

Reaching Out has a shop in the historic centre of Hoi

An (a UNESCO World Heritage Site). Attached to

the shop is workshop where people work. The shop

is open to locals and tourists who can buy traditional

Vietnamese goods like:

Reaching Out Website

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Textiles

Wood Carvings

Lacquer ware

Metal work

Leather work

Ceramics

Reaching Out employs about 45 people who all

receive a fair wage for their work (about 35% above

the average wage in Vietnam for similar jobs),

receive training and have an equal democratic voice

in the business. Reaching Out buys products from

local suppliers who it builds up long-term working

relationships with.

Small craft industries can find it hard to compete

with larger TNCs because they produce on a smaller

scale so often can't make the products as cheaply.

They also can't spend as much on advertising and

struggle to break into new markets because a

shortage of finance.

However, craft industries like Reaching Out offer

things that TNCs can't. Each product is unique

because it is hand made, products are made

traditionally and are traditional. With Reaching Out,

customers also have the knowledge that money is

going directly into the local economy, you can see

the products being made and you have the

knowledge that workers and suppliers are being

treated fairly.

Externalities

Externalities: An impact or affect that is caused by an unconnected event or process. Externalities can be

both positive or negative. For example a new factory being built may create extra business for a local

shop when staff buy there lunch (positive externality), but it may also create congestion and pollution in

the local area (negative externality).

Negative externalities usually affect poor people the most. Poor people tend to be people who are forced

to live near polluting factories because they can't afford to live anywhere else. It is also poor countries

that polluting TNCs tend to locate in, because either environmental regulations do not exist or they are

not enforced. The old/young and sick are also vulnerable to pollution caused by industry.

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Depending on the type of externality, some can just have local impacts on the surrounding houses and

communities or others can have much bigger impacts covering whole countries or even the globe. The

Chernobyl Nuclear accident in the Ukraine has created long-tern negative externalities, but it also greater

much wider temporary negative externalities across much of Europe.

Local Externality - TS2 Postcode,

UK

One postcode with 17 major polluting

factories (chemicals, oil, iron and steel)

Average income about $10,000 (64% below

national average)

One residential area (Grangetown) has 70

tonnes of pollutants fall on it annually.

Death rates from asthma and bronchitis three

times national average

Life expectancy 10 years below national

average

Local Externality - Bhopal, India

Bhopal is a city is central India.

On December 3rd 1984 a huge chemical

explosion at the Union Carbide (US TNC)

factory killed an estimated 3,800 and left

thousands more permanently disabled.

Regional Externality - BP Gulf of

Mexico Oil Spill

Largest accidental oil spill in history

20th April 2010 Deepwater Horizon oil rig

exploded killing 11 and starting leak

Leak stopped on 15th July by capping oil

well

About 4.9 million barrels escaped in the 3

months

19th September a relief well permanently

stopped leak

Tourism and fishing industries severely

effected in southern states of US.

Wildlife badly effected (birdlife and marine

life)

BP are paying all clean up costs.

$20 billion fund set up to compensate

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industries effected.

Global Externality - Greenhouse

Effect

The greenhouse effect is caused by greenhouse gases

being released into the atmosphere (many of them

come from industry). The greenhouse effect causes

global warming which is a global negative

externality. Although the greenhouse effect is a

natural process, it is being enhanced by human

activity i.e. the release of greenhouse gases from

factories, cars, houses, power stations, etc.

Global Externality - Acid Rain

Acid Rain is caused by pollutants (carbon monoxide,

sulphur dioxide, nitrous oxide, etc.) being released

into the atmosphere and then falling to ground either

as dry or wet deposition. The pollution can blow

anywhere so is known as tarns-frontier pollutant.

Dry deposition: Pollution falling directly to the

surface.

Wet deposition: Pollution mixing with rain and

falling to the earth.

Causes of Acid Rain

Industrial pollution

Transport fumes (cars and airplanes)

Power stations

Problems Caused by Acid Rain

Damage to buildings

Changing pH of lakes and rivers and killing

plant and animal life

Changing pH of soil and damaging

Acid Rain Damage

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agriculture

Damage to vegetation

The closure of an industry can cause many externalities to the local area and the country. These problems

may include:

Unemployment amongst workers at the factory

The government receiving less income and corporation tax and having to pay benefits instead

Suppliers going bankrupt because they have lost their main customer. This causes unemployment

amongst suppliers.

Local shops and businesses may also see a decline in business and may suffer bankruptcy or

redundancies (negative multiplier effect)

Old factories may become derelict leaving polluted brownfield sites

Locals may migrate out of the area to try and find work.

There maybe inflation for the product produced because demand exceeds supply

There maybe a reduction in the choice for customers if a certain product was only made in the one

factory.

Possible Solutions to Negative Externalities

Renewable Energy: If industries use renewable energy they will reduce the amount of

greenhouse gases released into the atmosphere.

International Agreements: International agreements like the Kyoto Protocol limit the amount of

pollution that countries (and therefore companies) can make.

Government Regulations: Governments creating laws to limit noise, air and water pollution and

just as importantly enforcing the regulations and punish non-compliance.

Corporate Responsibility: Companies can make their own steps to reduce pollution e.g.

recycling, using energy saving light bulbs, using materials from sustainable sources and using low

emission vehicles.

Appropriate Technology and Industries: Industries only locating in areas where the technology

and regulations are in place to minimse externalities e.g. it is no point a chemical factory locating

in a country where there is not the technology to clean waste water. Also companies should use

technology appropriate to the local area, if people is the abundant local resource, use people rather

than polluting equipment.

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IGCSE and GCSE Industry