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. 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.

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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.

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).

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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 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.
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 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 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 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.
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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 m² of land
  • £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.
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TPS stands 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.

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.

Production Line: An arrangement of machines or sequence of operations involved with a single manufacturing operation or production 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 society where most people are subsistence farmers and therefore employed in the primary sector.
  • Stage 2: Where more people are now commercial farmers, so still mainly employed in the primary sector but earning money to invest and develop.
  • Stage 3: Money is invested into industry and infrastructure so the secondary sector starts to grow
  • Stage 4: The economy diversifies and there is now a greater variety of industries. The tertiary sector starts to grow as people become richer.
  • Stage 5: Tertiary sector become the most important sector as people have greater leisure time and greater wealth. The quaternary sector also grows because the workforce is very skilled and people 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.
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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.

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.
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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 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, 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.
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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 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 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 North Korea.
  • A growing dependency ratio and shortage of workers as the total fertility rate declines and life expectancy increases.
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South Korea economy grows at fastest pace in three quarters - BBC article

What would you do with Gigabit internet speeds - BBC article

South Koreans told to go home and make babies - BBC article

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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 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.
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Windmill Hill Business and Science Park in the M4 Corridor
Windmill Hill Business and Science Park in the M4 Corridor
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 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.
  • 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.)
  • 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.
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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.

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 receiving sick pay or being forced to work in dangerous conditions.
  • 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 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 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.
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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:
  • 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.
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Reaching Out Website

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.

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.
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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 industries effected.
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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 agriculture
  • Damage to vegetation
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Acid Rain Damage
Acid Rain Damage


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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.