C3: Industrial LandscapesIndustrial 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 internalinternal and external economiesexternal economies when they cluster together (agglomerate).

Is it a phenomenon or process?•Agglomeration is a phenomenonphenomenon: it

refers to the spatial clustering or concentration of industrial activities in a relatively small area.

•Agglomeration is a processprocess: 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-linkedrelated or well-linked factories together and form a specialized industrial region.

•Concentration of various kindsvarious 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 growth of large industrial concentrationsconcentrations, producing different areal patterns of industrial land use. They have large numbers of associated associated and inter-dependent factoriesand 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 linkagesproduction linkages)•As the firms share the specialized services

and facilities (service linkagesservice 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 thresholdthreshold level for various services.

•Thus, the whole process is cumulativecumulative and growth becomes self-sustainingself-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 QuotientEmployment 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 agglomerationWhat benefits can be obtained from industrial agglomeration?

Initial factors and attraction

•They refer to the original factorsoriginal factors that attract the location of early industries at a certain site.

•These factors can be naturalnatural or man-man-mademade. They start the cumulative processcumulative process of industrial agglomeration and create the snowballing effectssnowballing effects on industrial development and agglomeration.

•The area with initial growing factors is known as the growth polegrowth pole..

Linkages

Production unit

Subcontract links

Information links

Service links

Marketinglinks

Subcontractlinks

Vertical linkages

Garment Factory

Textile Factory

Chemical factory

Synthesis fiber

Cloth

Horizontal Linkages

Iron & Steel Factory

Engine Factory

Glass-making Factory

Tyre-making Factory

Motor car assembly factory

Diagonal Linkages

Fruit canning

bottling Ice creamJam-

making

Sugarrefinery

Sugar mill

Glass bottlefactory

3 types of Industrial linkages• vertical vertical (one-to-one) linkage - forward and

backward linkage• horizontalhorizontal (many-to-one) linkage • diagonaldiagonal (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

▫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)(to be discussed in the next lesson)