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Greenfieldgeography
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
page 12 / 24
Greenfieldgeography
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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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