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The Nature of Manufacturing • Four phases – SELECTION: Deciding what is to be produced – ASSEMBLY: Gathering raw materials at a plant (where it will be manufactured) – PRODUCTION: Reworking and recombining the raw materials to produce a finished product (how) – DISTRIBUTION: Marketing the finished product (for or to whom)

• Value added by manufacturing occurs at each phase 11

Concentrations of World Manufacturing

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Concentrations of World Manufacturing

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Concentrations of World Manufacturing

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Concentrations of World Manufacturing

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Concentrations of World Manufacturing

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Concentrations of World Manufacturing

Skilled workers, large market Industrial minerals

Coal, ports Abundant resources, on Trans Siberian RR

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Concentrations of World Manufacturing

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Globalization of Manufacturing

• International division of labor began in 1970s and 1980s – Precipitated by oil shock of 1970s – Industrialized countries lost manufacturing jobs • Releases workers for more sophisticated employment

– Manufacturing increasing in lower-wage periphery countries • Spread from Japan to S. Korea, Hong Kong, Singapore

– Nomadic capital for profit can be socially inefficient 25

Globalization of Major Manufacturing Sectors

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Globalization of Major Manufacturing Sectors Steel

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Globalization of Major Manufacturing Sectors (Steel)

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Globalization of Major Manufacturing Sectors (Steel)

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Globalization of Major Manufacturing Sectors (Automobiles)

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Globalization of Major Manufacturing Sectors Electronics – Radio (1941); transistor (1948) – Integrated circuit (1960); microprocessor (1970) • New applications • Consumer electronics • Increased productivity

– U.S. dominated in 1960s and ’70s; Japan began dominance in 1990s 32

Globalization of Major Manufacturing Sectors (Electronics)

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Globalization of Major Manufacturing Sectors (Electronics)

In 2004, Japan produced 40%; U.S. – 21%; Europe – 11%. Growth is greatest in South Korea, Malaysia, Taiwan, Thailand, Hong Kong.

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Globalization of Major Manufacturing Sectors (Electronics)

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Globalization of Major Manufacturing Sectors – Biotechnology: application of molecular and cellular processes to solve problems, develop products and services, or modify living organisms to carry specific desired traits • Applications in health care, energy, environmental sciences; pharmaceuticals • Venture capital makes basic research commercially viable – High R&D costs; state involvement helps

• Biotech firms tend to cluster in distinct areas, usually places with excellent universities and medical schools – Specialized expertise and knowledge

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Globalization of Major Manufacturing Sector (Biotechnology)

There is a tendency to cluster in major metro areas, for access to universities and agglomeration economies. 37

The Changing Geography of U.S. Manufacturing •Manufacture in NE and Great Lakes (1870-1970) –Water sources for textiles; later coal important –Factories near cities •Labor pools; rail and water transport; near suppliers; near markets •Move to suburban locations in early 1900s

–Shift to Sunbelt began in 1980s •Lower labor costs –But California is an exception: amenities and state defense spending are important 38

Changing Geography of U.S. Manufacturing

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International Movement of American Manufacturing •U.S. has extensive foreign direct investment (FDI) –Began in late 19th century •1940s - investment in Canada, Latin America; 1950s Western Europe; 1960s, 70s - Europe, Japan, Middle East; 1980s, 90s – South and East Asia

–Western Europe and Japan became competitors by 1960 –Domestic restructuring and internationalization closely related •Firms benefit, workers lose •European workers are the world’s highest paid

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International Movement of US Manufacturing •Downsizing

–From 1989 – 2003, more than 4.7 million U.S. jobs were cut •Wages stagnant; employer-employee loyalty reduced; inflation in check

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International Movement of US Manufacturing 1. Development of overseas markets requires global presence of leading manufacturers 2. Increasing nontariff barriers force firms to localize production resources 3. Trade blocs encourage firms to have presence in each region 4. Regionalization of trade benefits decentralized manufacturing 5. Exchange rates encourage flexibility among firms 6. New manufacturing methods require local infrastructure (education, transport, etc.) 7. Large, centralized manufacturing plants in low-cost countries with poorly skilled workers are generally not sustainable 50

International Movement of US Manufacturing

U.S.-based manufacturing MNCs in 2000. Most MNCs invest in other developed countries. 51

Flexible Manufacturing •Fordism –Named after Henry Ford, pioneer of mass production of automobiles •Hired Frederick W. Taylor (“Scientific Management,” Time and Motion studies) •Complex tasks broken into simple components, suitable for unskilled workers

–Social contract between capital and labor •Labor unions tolerated

–Backbone of economic boom after WWII, based on consumerism, middle class 52

Flexible Manufacturing •Post-Fordism/Flexible Production –Flexible manufacturing: goods manufactured cheaply, in small or large quantities •“Just-in-time” manufacturing •Shift to more machinery, which can be stopped more easily than (unionized) labor can be eliminated •Subcontracting, outsourcing increase

–Customization and flexibility are important

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Flexible Manufacturing •Post-Fordism/Flexible Production

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Flexible Manufacturing • Information Tech and Strategic/Competitive Advantage

1. IT creates applications that provide direct strategic advantage to organizations. 2. IT supports strategic changes such as reengineering. For example, IT allows efficient decentralization. 3. IT provides business intelligence by collecting and analyzing information about innovations, markets, competitors, and environmental changes. 59

The Product Cycle in Manufacturing

•Product life cycle –Stage 1: Innovation (monopoly) –Stage 2: Standardization, mass production, maturity (competitors) –Stage 3: New products take the stage

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The Product Cycle in Manufacturing

Location often changes, usually moving from developed regions for R&D to LDCs for mass production and beyond. 61

The Product Cycle in Manufacturing, •Locational adjustment –Capital is more mobile than labor –Firms shift to low-wage regions

–Many LDCs offer tax relief and capital subsidies for new industries

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