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3.4 What are the location factors of the IT industry? A What is the information technology (IT) industry? Where is the IT industry in the USA? 1 Which of the following descriptions about the IT industry are correct? Tick () the correct answers. 2 It is a kind of raw material-oriented industries. It manufactures computers, related electronic products and communication equipment, etc. It develops computer software and various related services. It is a type of high-tech industry. It requires little investment. Refer to Figure 1, briefly describe the distribution pattern of the IT industries in the USA. Figure 1 Distribution of the IT industries and large cities in the USA In the USA, the IT industries form ____clusters____ in a ( concentrated / dispersed ) pattern. They are located in the suburbs of ( small / large ) cities. 33 B 3 What are the characteristics of the IT industry? Figure 2 shows the manufacturing system of the IT industry. Inputs Raw materials Power supply Manufacturing processes such as design, research and development, manufacturing, assembling and packaging Outputs such as computers, MP3, PDAs, etc. Skilled and semi-skilled labour Technology Capital Figure 2 Cash ____Global____ markets The manufacturing system of the IT industry a Complete Figure 2. b Which TWO are the most important inputs to the IT industry? Capital and technology. c Explain your answer in Question b. The IT industry has to use the latest technologies to produce ( low-value / high-value ) products. To design a product, IT firms have to invest a large amount of capital on ___________research and development (R&D)____________. Therefore, the IT industry depends heavily on the inputs of ____technology____ and ______capital______. d Which type of industry does the IT industry belong? Tick () the correct answers. Capital-intensive Research and development-intensive Technology-intensive 34 4 Figure 3 shows the product life-cycle model for IT products. Figure 3 Describe the life-cycle of IT products. The life-cycle of IT products is ( long / short ). It may take only a few years from the development stage to the decline stage. 5 Figure 4 shows the distribution of the headquarters, regional headquarters and manufacturing plants of a famous US IT firm. Figure 4 35 a i Where did headquarters, regional headquarters and manufacturing plants of the IT firm locate respectively? • Headquarters and regional headquarters: Mostly located in ( less / more ) developed countries. • ii Manufacturing plants: Mostly located in ( less / more ) developed countries. Which mode of production does the IT firm adopt? Multinational and multi-point production. b The mode of production of the IT industry is closely related to its production requirements at different stage. Complete Table 1 to show the production requirements at different stage. Table 1 Stage of production Production requirements • Stage 1: Development • Stage 2: Growth Stage 3: Maturity Location of production The IT industry in development stage is ____research In headquarters and development_____________________-intensive. located in A ( small / large ) number of scientists and engineers to high-wage, more carry out research and development and ( unskilled / developed semi-skilled / skilled ) workers to produce the products. countries. • Efficient management and shared basic infrastructure • The IT industry in these stages is __labour__-intensive. In manufacturing • Abundant ____cheap____ and ( skilled / semi-skilled ) plants located in workers to carry out standardized production processes. low-wage, less developed Stage 4: Decline 6 countries. Complete Figure 5 (p. 37) to show the distribution pattern of the IT industry in the R&D stage and standardized production stage and the benefits brought by such distribution pattern. In the R&D stage In the standardized production stage 36 Distribution pattern Concentration in _____clusters______ Enjoy _____agglomeration____ economies • Induces _____innovation_____ • Facilitates exchange of __market__ and ___technical____ information • Benefits brought by cluster pattern • • _____infrastructure_____ • Helps cut costs and increases _____competitiveness_____ Provides technical, financial and ____networking____ services • Attracts ____labour____ Establishes ____business contacts • Enjoys ____low____ rents provided ___________ • Shares basic social facilities and by the local government Creates a distinct ___innovative__ culture and business climate • Attracts further __agglomeration__ of IT firms Figure 5 7 Explain why global markets are important to the IT industry. The IT industry invests a ____large____ amount of capital on _____research_____ and development to produce a product. The products are sold in global markets so as to bring ( less / more ) profit to cover the huge amounts of money spent on research and development. 8 Figure 6 (p. 38) shows an IT industrial landscape. 37 Figure 6 a What do we call such industrial landscape? Green field site. b Briefly describe the industrial landscape in the following aspects. • Buildings (types, height, density, etc): Low, modern, dispersed office-plant-laboratory buildings. • Location characteristics: - Availability of _____venture_____ capital - Near major ______universities______ and research institutes - ____Abundant____ supply of scientists and researchers - In the _____suburbs_____ of large cities - ( Small / Large ) green areas - Nice living environment with ( serious / less serious ) pollution 38 9 Complete the chart below to summarize the characteristics of the IT industry. Green field sites Short product life-cycle Cluster pattern Characteristics of the IT industry Research and development-intensive Global markets Multinational and multi-point production C What are the location factors affecting the location of the IT industry? 10 Complete Table 2 to show the location factors of the IT industry at different stages. Table 2 Location factor Development stage Green field site in more developed countries. Maturity stage Manufacturing area in less developed countries. 39 Table 2 (continued) Labour Site Good access to researchers, technicians Abundant supply of cheap and and scientists semi-skilled labour • • ____Headquarters____, R&D and pilot production activities are _______less developed________ located in ___more developed_____ countries • countries • • Production plants are located in ____Cheap____ land site in an In the ___suburan areas/suburbs___ industrial cluster with good of large cities with good amenities infrastructure Near __________universities or research institutes____________ Access to high levels of technology Technology Ready to receive transferred technology from high-technology regions Availability of venture capital Availability of capital in the form of Capital foreign direct investment (FDI) Favourable government policies to Favourable government policies to provide ____financial____ support for provide infrastructure and communal Government R&D, maintain a favourable business policy climate and an __innovative__ culture services within the community Market D 11 Large global markets Does the same group of factors that affect the location of the iron and steel industry apply to the location of the IT industry in the USA? Complete Table 3 (p. 41) to show the difference of the iron and steel industry in China and the IT industry in the USA. 40 Table 3 Iron and steel industry in China Type of industry IT industry in the USA • ____Heavy____ industry • _____High-tech_____ industry • _______Raw material______ and • ____Research____ and Characteristics ____power_____-oriented ____development___-intensive Mode of production Mostly single-point production Mostly multinational and multi-point production Industrial landscape Traditional industrial landscape/Brown field site Green field site Local Global From the 1950s to 1970s: Inland shift Development stage: R&D in local industrial clusters Government policies • Technology: ( high / low ) • Labour: ( unskilled / skilled ) • Availability of ____venture____ Market capital Important location factors • Site: suburbs of ____large____ cities and near universities 1980s onwards: Coastal shift Maturity stage: production overseas Government policies and technology • Labour: abundant, ___cheap___ and ______semi-skilled_____ • E 12 Site: ____cheap____ land site What impact has globalization had on the location of the IT industry? In order to maximize profits, the IT industry adopted the following strategies: I Globalization in marketing II Globalization in production III Globalization in sourcing inputs a How does the IT industry carry out globalization in marketing? With reference to the 41 figures, describe each of the method. I Manufacture a product in Production plant of Firm A the home country and sell it Manufacture Headquarters of Firm A II Products sold overseas Home country Headquarters of Firm A Grant a license to foreign Products sold in foreign country Grant a license Manufacture Production plant of foreign producer Headquarters of Firm A producer to manufacture the product and sell it in the Home country III in the foreign market/export. foreign country/market. Foreign country Set up a production plant in Products sold in foreign country Set up foreign country as ‘foreign direct investment’ and sell Manufacture Home country products there. Production plant of Firm A b Foreign country How does the IT industry carry out globalization in production? Which of the following descriptions about global production strategy are correct? Tick () the correct answers. Headquarters is kept in home country. Standardized production processes are outsourced. R&D departments are moved to areas with low level of technology. c Production plants are moved to areas with low production costs. What are the advantages of having globalization in sourcing inputs? If an IT firm have global sourcing inputs, the firm can obtain ____cheaper____ and _____better_____ quality components elsewhere. This can help ____cut___ costs and therefore ____increase____ profits. 42 3.5 What is the impact of changes in industrial location and modes of production? A What are the benefits of having manufacturing industries in an area? 1 Figure 1 shows the benefits brought by industrial development to an area. Figure 1 a Refer to Figure 1, write down how industrial development brought benefits to an area in paragraph form. When new industries are set up, jobs are created and people’s income will increase. With higher income, more money can be spent in local shops and services. The local economy starts to grow and this increases tax revenue for the local government. The local government then have more money to improve the infrastructure. This attracts more people to come and more new industries to set up in the area. b What do we call the effect brought by industrial development in an area? Multiplier effect. B Why do industries move away from an area? 43 2 Figure 2 shows the changes in location factors of Place A. In the 1950s In the 2000s Low labour costs High labour costs Low taxes High taxes Figure 2 a A manufacturer has set up an electronics factory in Place A in the 1950s. What were the favourable location factors for setting up the factory there? The labour costs and taxes were low, therefore the production costs were greatly reduced. b In the 2000s, the manufacturer has moved the factory away from Place A. Why? The manufacturer has moved the factory away from Place A because the location factors are no longer ( unfavourable / favourable ). ______Labour costs_______ and _____taxes_____ were high which greatly _____increased_____ the production costs. 3 Figure 3 shows the locations of the headquarters and production plant of an IT firm in the 1970s and 2000s respectively. In the 1970s: Poor telecommunication network Headquarters Production plant Country A In the 2000s: Well-developed telecommunication network Satellite Headquarters Production plant Note: Country A is a more developed country and Country B is a less developed country Flow of information Country A Country B Figure 3 a Describe the locations of the headquarters and production plant of Firm A in the 1970s and 2000s. 44 Headquarters and production plant were located in the same country In the 1970s /Country A. Headquarters and production plants are located in different In the 2000s countries/Headquarters is located in Country A while production plant is located in Country B. b Complete the flow chart below to show the reasons for the changes in the location of production plant of Firm A. ____Advancements____ in telecommunication technologies Flow of information between the headquarters and production plant in different countries is ( efficient / inefficient ) and the cost of communications is ___low___. Production plant can be located away from headquarters to the less developed country to tap the advantages of _____low wage_____ and ___rents___. Appearance of new production mode: _____Multi-point_____ production 45 4 Figure 4 shows a simplified manufacturing system of a semiconductor chips production plant. Table 1 shows some information about Places A and B. Semiconductor chips Inputs Outputs Toxic materials such as mercury Figure 4 Table 1 Place A Place B Environmental awareness of the people High Low Pollution control Strict Less strict a If you were a manufacturer of semiconductor chips, where will you set up your production plant in terms of economic consideration only? Place B. b Explain your answer in a. The production plant not only produces useful outputs, but also harmful outputs such as toxic materials. These harmful outputs will pollute the surrounding environment. People in Place A may protest against the set up of the plant as their environmental awareness is high. In addition, the pollution control is strict and this increases production costs. In contrast, it is easier to set up the plant in Place B as environmental awareness of the people there is low and pollution control is less strict which can lower production costs. C What is the impact of industrial relocation and the appearance of new modes of production? 5 Complete the flow chart on p. 47 to show how the relocation of industry affects the flow of labour. 46 Relocation of industry affects ______Job opportunities______ in both old and new industrial areas Examples The IT industry in the USA The iron and steel industry in China in the 1960s Production plants are Factory workers were Research and development relocated to less developed_ centres are relocated to the encouraged to move to the countries so as to enjoy ____suburbs____ of large ____inland____ as the ___lower production costs__ cities attracts scientists central government has _______ some managerial and engineers to move from relocated the iron and steel personnel and __specialists_ ____urban____ areas to industry there. in the USA are sent to less ____suburban____ areas This creates an developed countries This creates an intra-urban flow of labour international flow of labour inter-region flow of labour international flow of labour 6 inter-region flow of labour international flow of labour This creates an Figure 5 shows how the relocation of industries causes the decline of local economies. Relocation New investment ____shrinks____ Factories are forced to close Job losses ___Less___ money to spend in local shops and services Failure in subsidiary industry ____Decline____ in the quality of infrastructure for the local community and industrial development People move away Local economy declines ___Less___ tax income for local government Figure 5 a Complete Figure 5 on p. 47. 47 b Briefly describe how the relocation of industries give rise to unemployment in China and the USA. Iron and steel works have to adopt new modes of production in order to be competitive. This has forced many outdated iron and steel works to close or merge into larger ones. Restructuring of the iron and steel In China works has caused many workers to lose their jobs. As more and more IT firms relocate their production bases and software services to the less developed regions, a large number of IT-related jobs have moved overseas. Many unskilled and semi-skilled In the USA c workers have become unemployed. What adverse effects will unemployment cause? Unemployment will cause social problems such as drug addiction, drunkenness and family abuse. 7 What is the impact of the relocation of factories to the Zhujiang Delta Region on the economy and employment structure of Hong Kong? Economy _________Scale of production_________ has enlarged as firms moved their factories to the Region. While headquarters remain in Hong Kong, businesses between the Region and Hong Kong ( decreased / increased ). This has lead to an ( decreasing / increasing ) demand for producer services such as finance, banking, logistics, etc. and this caused a ______restructuring_____ of our economy. The land in ________old industrial areas_______ can be used for commercial, high-tech industries, etc. and this may lead to further change of the economy. Employment structure As the demand for producer services increased, more and more people work in the 48 tertiary sector in Hong Kong. 8 What is the impact of relocation of computer manufacturing from more developed countries to less developed countries have on the environment? _________Toxic chemicals_________ such as mercury are used in computer manufacturing. When these materials are not treated or disposed of properly, it may cause serious _________water pollution________ and ________health hazards________. As more and more IT firms set up computer manufacturing factories in ( more / less ) developed countries, pollution will become more serious as environmental protection laws are ( strict / not strict ) there. The life-cycle of IT products is ___short___, many IT products become outdated within a few years and this generates a large amount of _____e-waste_____ every year. As most of the e-waste is shipped to ( more / less ) developed countries for ____disassembly____ and disposal, the ____improper____ dismantling methods has caused serious environmental problems there. 9 Complete the flow chart below to summarize the impact of industrial relocation and the appearance of new modes of production. Flow of labour Socio-economic impact _____Intra-urban____, inter-region and Relocation of industries and appearance of new production modes Environmental impact _____international_____ flow of labour Unemployment Restructuring the economy D What measures can be taken to ease problems caused by changing industrial locations and modes of production? 49 10 a What are the advantages of adopting the principle of eco-efficiency in production? More goods and services can be created by using less materials and energy. This can increase profits on one hand and reduce waste and pollution on the other hand. b Which of the following are measures of eco-efficiency in production? Tick () the correct answers. 11 Reduce material use Reduce energy use Recycle material Extend the life-cycle of the products Use non-renewable resources Increase energy-efficiency of the products Make products more durable Create more demand for products Table 2 shows some suggested measures to ease problems caused by industrial relocation and the changing modes of production in Hong Kong. Figure 6 shows the advantages and disadvantages of these measures. Table 2 Advantages Disadvantages Setting minimum wage D G, H Improve social security system F B Lower tax E, I A Retraining programme for laid-off workers C, J B A Reduce government revenue B F Provide a safety net for the unemployed and the poor Increase government expenses G Factories may move out C Increase the competitiveness of workers H Discourage new investment I D Protect worker’s income E Help to keep existing firm J Attract new investment Reduce unemployment rate Figure 6 a What are the advantages and disadvantages of the measures shown in Table 2? Write down the letters in the appropriate column. b Why is it not easy to build a sustainable economy? 50 It is because there are ______diversified______ interests among different social groups in a community. _____Conflict_____ may arise as policies or programmes cannot satisfy all social groups. 51