Warm Up 4-14-14Warm Up 4-14-14Log on to a computer and Log on to a computer and get Warm Up completed.get Warm Up completed.

Give one example of an item that Give one example of an item that has been Globalized.has been Globalized.

How has globalization impacted How has globalization impacted local economies?local economies?– Loss of local ownership of companiesLoss of local ownership of companies– loss of control of local affairsloss of control of local affairs– change in culture change in culture

Task for TodayTask for Today Sign up and log onto a computerSign up and log onto a computer Research Immanuel Wallerstein’s Research Immanuel Wallerstein’s world world

systems theory.systems theory.– Define the theoryDefine the theory– What are the strengths?What are the strengths?– What are the weaknesses?What are the weaknesses?

Research Core-Periphery ModelResearch Core-Periphery Model– Define the Core and provide examplesDefine the Core and provide examples– Define Semi-periphery and provide examplesDefine Semi-periphery and provide examples– Define Periphery and provide examplesDefine Periphery and provide examples

What is the North/South gap (Brandt line)?What is the North/South gap (Brandt line)? Define Dependency TheoryDefine Dependency Theory

Pick Up the Hotelling’s Model handout, read and Pick Up the Hotelling’s Model handout, read and complete the questions.complete the questions.

Warm Up 3-22-11Warm Up 3-22-11 OutsourcingOutsourcing is the process of producing is the process of producing

parts or products in a foreign country parts or products in a foreign country for domestic use or sale.for domestic use or sale.

Give an example of outsourcing and 2 Give an example of outsourcing and 2 reasons why a country would outsource. reasons why a country would outsource. – take advantage of low cost over-seas labortake advantage of low cost over-seas labor– create competitive market for parts and create competitive market for parts and

supplies. supplies. – provide more flexibility for companies. provide more flexibility for companies. – some countries have less restrictive some countries have less restrictive

environmental codes and regulations. environmental codes and regulations.

Warm Up 3-21-11Warm Up 3-21-11Explain the connection Explain the connection

between industrialization between industrialization and the Demographic and the Demographic Transition Model (DTM). Transition Model (DTM). – Stage 3Stage 3– Mechanized farming replaces many labor-Mechanized farming replaces many labor-

intensive jobsintensive jobs– People to move to new industrial and urban areasPeople to move to new industrial and urban areas– Over time, the country’s birth rate decreases as Over time, the country’s birth rate decreases as

the country industrializes the country industrializes

Least-Cost TheoryLeast-Cost Theory

Alfred WeberAlfred Weber

Alfred Weber Alfred Weber (1868-(1868-1958)1958)

Alfred Weber was a German sociologist and Alfred Weber was a German sociologist and philosopher.philosopher.– Was a part of the Was a part of the Intellectual Resistance Intellectual Resistance against Nazi against Nazi

Germany.Germany. He formulated the Theory of Industrial Location He formulated the Theory of Industrial Location

(Also known as the (Also known as the Least-Cost TheoryLeast-Cost Theory).). Where will factories locate that is the lowest cost Where will factories locate that is the lowest cost

to them? to them? – Like Like von Thunen von Thunen (location of agricultural activities)(location of agricultural activities)

Least-Cost TheoryLeast-Cost Theory Developed to resolve the problem of opposing Developed to resolve the problem of opposing

locational pulls.locational pulls. Therefore, it aids in determining where a Therefore, it aids in determining where a

processing plant will be located to maximize processing plant will be located to maximize profits and minimize costs. profits and minimize costs. – The theory that an industry will be located where the The theory that an industry will be located where the

transportation costs of raw materials and the final product transportation costs of raw materials and the final product is at the least. is at the least.

– A Decision making model of the best location of a A Decision making model of the best location of a particular industry given the material, amount shipped particular industry given the material, amount shipped and transport costs.and transport costs.

Determines industrial Determines industrial location location of the of the manufacturing plantmanufacturing plant..

Least-Cost TheoryLeast-Cost Theory Weber devised a technique involving Weber devised a technique involving isotim isotim andand isodopanes. isodopanes. In order to identify the points of In order to identify the points of least costleast cost.. The isotim lines connect the points of equal transport cost.The isotim lines connect the points of equal transport cost. Where R or S stand for Where R or S stand for Raw MaterialsRaw Materials M stands for M stands for MarketMarket

http://people.hofstra.edu/geotrans/eng/ch7en/conc7en/weberlocationtriangle.html

Least-Cost TheoryLeast-Cost Theory Site chosen must Site chosen must

consider the following:consider the following:1. Moving raw materials to 1. Moving raw materials to

factoryfactory

2. Moving finish products to the 2. Moving finish products to the marketmarket

3. Creates a balancing act of the 3. Creates a balancing act of the best best location possible.location possible.

Least-Cost location is also Least-Cost location is also based on Alfred Weber’s based on Alfred Weber’s formal assumptions.formal assumptions.

These are not the case These are not the case for all situations.for all situations.

AssumptionsAssumptions Uniform/IsotropicUniform/Isotropic Plain: Plain: Operates in one country Operates in one country

with an uniformwith an uniform plane and equal transportation plane and equal transportation paths.paths.– topography topography – climate climate – TechnologyTechnology– economic system economic system

One finished product is considered at a time.One finished product is considered at a time.

The product is shipped to a single market location.The product is shipped to a single market location. Transportation cost may vary as they are a Transportation cost may vary as they are a

function of the function of the weightweight of the items shipped and the of the items shipped and the distancedistance they are shipped. they are shipped. – Example: Heavy and Far (cost lots of moolah!)Example: Heavy and Far (cost lots of moolah!)

AssumptionsAssumptions

Labor is not mobile. Labor is not mobile. Labor is available in unlimited quantities. Labor is available in unlimited quantities. There is labor at any production site There is labor at any production site

selected.selected. There is equal opportunity to purchase the There is equal opportunity to purchase the

product.product. The raw materials are:The raw materials are:

– At a fixed locationAt a fixed location Market location where consumption occurs Market location where consumption occurs

– At a fixed location At a fixed location

FactorsFactors

With these assumptions, the With these assumptions, the location is driven by four location is driven by four

factors to determine factors to determine spatially variable costsspatially variable costs. .

Transportation, Labor, Transportation, Labor, Agglomeration, Agglomeration, DeglomerationDeglomeration

TransportationTransportation The location of the industry will be located in an The location of the industry will be located in an

area where it ensures the cost will be lowest for:area where it ensures the cost will be lowest for:– Moving raw materials to the processing locationMoving raw materials to the processing location– Moving finished products to the marketMoving finished products to the market

Costs of transportation are affected by distance the Costs of transportation are affected by distance the product is shipped and the weight of the product product is shipped and the weight of the product when being shipped.when being shipped.

Considered to be the most Considered to be the most importantimportant factor! factor! There are also cases where a company has more There are also cases where a company has more

than 1 mode of transportation.than 1 mode of transportation. This is known asThis is known as break-in-bulkbreak-in-bulk locations.locations.

– ExampleExample: San Francisco, California : San Francisco, California – Methods of TransportMethods of Transport: Ports, Rail, Air, Highway: Ports, Rail, Air, Highway

LaborLabor Cheap Labor is the most important because the Cheap Labor is the most important because the

higher labor cost are the lower a companies profit.higher labor cost are the lower a companies profit. Considered the Considered the most expensive factor most expensive factor for LCT.for LCT. The profits of a company are reduced as the cost of The profits of a company are reduced as the cost of

labor increases labor increases In some cases an industry may perform better In some cases an industry may perform better

farther away from the market and raw materials, farther away from the market and raw materials, due to the availability of cheap labor.due to the availability of cheap labor.

Higher labor costs reduce profits, can Higher labor costs reduce profits, can affect location of industry, regardless affect location of industry, regardless of raw material and market locations.of raw material and market locations.– Example: Outsourcing textiles overseasExample: Outsourcing textiles overseas

LaborLabor

Employers look for:Employers look for:– Low WagesLow Wages– Little unionizationLittle unionization– Young employees (Few healthcare costs)Young employees (Few healthcare costs)– Female employees (Thought to be less Female employees (Thought to be less

demanding and more expendable)demanding and more expendable) If an industry moves to a place to access If an industry moves to a place to access

lower labor costs, even though transportation lower labor costs, even though transportation costs increase is called the costs increase is called the substitution substitution principle. principle.

AgglomerationAgglomeration AgglomerationAgglomeration: the concentration of businesses in : the concentration of businesses in

one particular area. one particular area. Also called an agglomeration economy!Also called an agglomeration economy!

It occurs when there is a demand for services that the It occurs when there is a demand for services that the population needs (school, hospitals, grocery stores).population needs (school, hospitals, grocery stores).

They provide assistance to each other through shared They provide assistance to each other through shared talents, and services. Typically results in lower prices!talents, and services. Typically results in lower prices!

When a large number of companies cluster in When a large number of companies cluster in the same area and can assist each other the same area and can assist each other through shared talents, services and/or through shared talents, services and/or facilities.facilities.– ExampleExample: Research Triangle Park: Research Triangle Park– ExampleExample: Michigan Auto Industry and PA steel industry: Michigan Auto Industry and PA steel industry

DeglomerationDeglomeration When an agglomerated region becomes too When an agglomerated region becomes too

clustered or too crowded from clustered or too crowded from cumulative cumulative causation,causation, then there are negative effects. then there are negative effects. – Pollution, Traffic, Lack of Resources or LaborPollution, Traffic, Lack of Resources or Labor

Industries might then choose to move for more Industries might then choose to move for more space in a process called space in a process called deglomerationdeglomeration or the or the “unclumping” of factories due to the negative “unclumping” of factories due to the negative effects and higher costs of industrial effects and higher costs of industrial overcrowding. Markets can also become overcrowding. Markets can also become oversaturated with a particular industry forcing oversaturated with a particular industry forcing businesses to relocate or shut down.businesses to relocate or shut down.

Weight-Gaining and Weight-Weight-Gaining and Weight-LosingLosing

Weight-GainingWeight-Gaining– The finished product(s) weight is The finished product(s) weight is more more than the raw than the raw

materialsmaterials– Cost for shipping the finished product are greater than that of Cost for shipping the finished product are greater than that of

the raw materials.the raw materials.– Industry location would be the closest to the market!Industry location would be the closest to the market!

Weight-Losing (Also known as bulk-reducing)Weight-Losing (Also known as bulk-reducing)– The finished product(s) weight is The finished product(s) weight is lessless than the raw materials than the raw materials– Therefore, it cost more to ship the raw materials than to ship Therefore, it cost more to ship the raw materials than to ship

the finished product.the finished product.– Industry location would be the closest to the source of raw Industry location would be the closest to the source of raw

materials!materials!

Weight-LosingWeight-Losing

Scenario Scenario

Location 1Location 1 In this situation the In this situation the

processing location is processing location is between the source and between the source and market.market.

This however is not the best This however is not the best place to locate the plant place to locate the plant because of the fact that the because of the fact that the product is weight-losing.product is weight-losing.

Therefore, it cost the Therefore, it cost the company a great amount of company a great amount of money to ship the raw money to ship the raw materials to the plant and materials to the plant and more then half of that to more then half of that to ship the finished product to ship the finished product to market.market.

Location 2Location 2 In this situation the In this situation the

processing location has processing location has been moved closer to the been moved closer to the source.source.

This caused the cost of This caused the cost of shipping the final product shipping the final product to be reduced, greatly.to be reduced, greatly.

However, the cost of However, the cost of shipping the raw materials shipping the raw materials to the plant is still not the to the plant is still not the least it could be.least it could be.

Location 3Location 3 In this situation the In this situation the

processing location is processing location is located at the source of located at the source of the raw materials.the raw materials.

And the cost of shipping And the cost of shipping has again been reduced has again been reduced from the previous from the previous situation.situation.

Therefore, the best Therefore, the best location for the plant would location for the plant would be at the source of the raw be at the source of the raw materials.materials.

Example: Copper Industry in North Example: Copper Industry in North AmericaAmerica

Fig. 11-8: Copper mining, concentration, smelting, and refining are examples of bulk-reducing industries. Many are located near the copper mines in Arizona.

The Lavender Pit Copper Mine in Bisbee, Arizona operated between 1951 and 1974.

Weight- GainingWeight- Gaining

Scenario Scenario

Location 1Location 1 In this situation the plant is In this situation the plant is

located between the located between the source and the market.source and the market.

Therefore, the cost of Therefore, the cost of shipping the raw materials shipping the raw materials is much cheaper than that is much cheaper than that of the finished product.of the finished product.

And this is because the And this is because the product is weight-gaining.product is weight-gaining.

Location 2Location 2 In this situation the In this situation the

processing plant has been processing plant has been moved closer to the moved closer to the market.market.

As a result, the cost of the As a result, the cost of the finished product has finished product has reduced and the cost for reduced and the cost for shipping the raw material shipping the raw material is at a gradual rate.is at a gradual rate.

Though this location has Though this location has reduced the overall cost of reduced the overall cost of transportation, cost are not transportation, cost are not at the least. at the least.

Location 3Location 3 In this situation the In this situation the

processing plant is located processing plant is located at the market.at the market.

This causes the cost of This causes the cost of shipping to increase at a shipping to increase at a gradual rate and therefore gradual rate and therefore the cost of shipping is at the cost of shipping is at the least.the least.

Therefore, this is the best Therefore, this is the best location for the plant is at location for the plant is at the market.the market.

Example: Location of Beer Example: Location of Beer BreweriesBreweries

Fig. 11-11: Beer brewing is a bulk-gaining industry that needs to be located near consumers. Breweries of the two largest brewers are located near major population centers.

How to Use Weber’s TheoryHow to Use Weber’s Theory

Calculate Transport Costs or Finished Calculate Transport Costs or Finished Product/MileProduct/Mile– For 1 mile for R1 (6*5) = 30 For 1 mile for R1 (6*5) = 30 – For 2 miles for R1 30 x 2 = 60 For 2 miles for R1 30 x 2 = 60

Transport CostsTransport Costs– 11 to M: 4 movements or miles = 28011 to M: 4 movements or miles = 280

Complete Cost: Complete Cost: – Site 1: 30 +175+ 280 = 485Site 1: 30 +175+ 280 = 485

Other considerations and Other considerations and limitations for Weber’s limitations for Weber’s

TheoryTheory Labor costs (labor unions) Labor costs (labor unions) Labor diversity (age, sex, education, gender, etc)Labor diversity (age, sex, education, gender, etc) Labor movement (indeed labor does move and change from place to Labor movement (indeed labor does move and change from place to

place)place) Reality of Transportation Costs Reality of Transportation Costs Land Rent (real estate)Land Rent (real estate) Tax subsidyTax subsidy Pollution (NIMBY factor)Pollution (NIMBY factor) Long-term Availability of ResourcesLong-term Availability of Resources Perishability considerationsPerishability considerations FragilityFragility Hazardous materialsHazardous materials Zoning (residential versus industrial)Zoning (residential versus industrial) NAFTA and other special trade agreementsNAFTA and other special trade agreements Globalization and DeindustrializationGlobalization and Deindustrialization

What if the costs are all the What if the costs are all the same?same?

Some industries maintain the same cost of Some industries maintain the same cost of transportation and production regardless of transportation and production regardless of where they choose to locate. where they choose to locate.

These industries have These industries have spatially fixed spatially fixed costscosts..

These are often called “These are often called “Footloose IndustriesFootloose Industries” ” because they can locate wherever they because they can locate wherever they want!want!

Footloose products are typically small and of Footloose products are typically small and of very high value. very high value. – ExampleExample: Computer chip industries: Computer chip industries

Hotelling’s TheoryHotelling’s Theory High-tech corridor High-tech corridor – agglomeration of technology and – agglomeration of technology and

computer industry. computer industry. A region (such as Silicon Valley) of this agglomeration is A region (such as Silicon Valley) of this agglomeration is

called a called a technopoletechnopole..– Typically Typically ancillary activities ancillary activities will be attracted to will be attracted to

these areas to act as support businesses. (computer these areas to act as support businesses. (computer repair, wiring services)repair, wiring services)

The downside of this is the brain drain of talented The downside of this is the brain drain of talented individuals from a particular area, called the individuals from a particular area, called the backwash backwash effecteffect..

Hotelling’s theory of Hotelling’s theory of locational interdependence locational interdependence asserts that industries choose locations based upon asserts that industries choose locations based upon where their competitors are located. where their competitors are located. – Industries do not make isolated decisions without considering Industries do not make isolated decisions without considering

where other, related industries already exist.where other, related industries already exist.