IGCSE 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.
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).
 HUMAN FACTORS PHYSICAL FACTORS
Skilled Labour: In some industries especially Flat Land: It is a lot easier to build on flat land than
quaternary it is important that there is an availability of hilly land so most industries look for flat sites.
skilled labour. Available Land: If industries are successful they will
Cheap Labour: In other industries like clothes want to expand, so most industries will look for sites
production an availability of cheap labour is very that have the potential to expand factories/offices.
important. This why many clothes factories locate in Unpolluted Land (Greenfield Site): Most industries
LEDCs. would prefer to build on greenfield sites. This is
Available Capital: For industries to build factories or because there are no clean up costs before building.
offices, research and develop new products or enter new Natural Transport Links: In an increasingly
markets, they need access to money. globalised world, products are now sold worldwide.
Market: For any industry to survive, they need Therefore it is important to be close to natural transport
customers. Therefore it is very important to locate near routes e.g. rivers and the coast.
their potential market. Available Raw Materials: For any industries that use
Supply Network: Most industries have a large supply raw materials (especially weight loss industries), it is
network. To ensure the smooth production of products very important to be close to them.
it helps being close to suppliers. Renewable Energy Sources: It is becoming
Good Housing: To attract any workers it is important increasingly important for companies to demonstrate
to have suitable housing nearby. For quaternary their sustainability. Therefore it will become
industries this might be good quality housing for increasingly important to have access to renewable
secondary industries this might be high density cheaper energy sources (wind and sun).
housing. Nice Environment: For tertiary and quaternary
Good Schools and Hospitals: Again to attract workers industries who are trying to attract skilled workers it is
and especially their families, it is important to have useful to be near a nice environment to make working
good nearby schools and hospitals. their more attractive.
Nearby Universities: For quaternary industries that Water Supply: For many industries, especially
carry out a lot research and development they need to manufacturing, it is very important to be near a reliable
be located near universities that have skilled workers water supply (river or reservoir).
and available laboratories. Climate: For some industries a good climate can be
Transport Links: It is important to be close to good very important. For example you would not locate a
roads and rail links so that industries can receive solar panel research and development company in a
supplies and distribute products. place where the sun never shines.
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.
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.
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 TPS stands for Toyota Production system and is unique to the Toyota
Japan Manufacturing Company.

Standardisation has been introduced across all production processes and

Processes: The activities or events factories so people can follow simple instructions. Kaizen stands for
that take place for a product to be continual improvement.
made e.g. designing, painting and
assembling. Jidoka means automation with a human touch.

JIT (just-in-time) means that supplies are ordered as and when they are
needed.
Pressing (shaping) of metal panels
Welding of metal panels and Members: All the people that work for Toyota. Toyota encourages its
components members to make suggestions about improvements.
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.

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.
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 Subsistence Farming: When people only own small areas of land and grow
yourself. 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

To begin with the primary sector is becoming more important. In Europe this happened in the late 19th early
the most important because most 20th century and was called the industrial revolution.
societies start of as being
subsistence based. There maybe Deindustrialisation: The process of factories closing and industry declining
some basic secondary to construct in a country. This normally happens because the cost of labour increases and
homes and farming equipment. it becomes cheaper to manufacturer overseas in LEDCs and NICs.
There is no tertiary because people
are relatively uneducated and have Mechanisation: The process of manpower being replaced with machine
no free time or disposable income. power. As countries develop machines tend to become more important.
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.

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.
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.
 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

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.

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 Many of the best paid managerial jobs go to
Locals with jobs then spend money in their local economy at foreigners
local businesses and therefore there is a positive multiplier Local workers often do manual jobs which are
effect as extra money gets added to the local economy. poorly paid and often workers suffer exploitation
TNCs will pay local and government taxes and therefore (long shifts, no breaks, etc.)
increase the government budget. There will be some economic leakage as profits
Jobs at a TNC will be in the formal economy, so hopefully from TNCs go back to their home country
better regulated in terms of safety, pay, etc. Increasingly manufacturing processes are
Improves workers skill and education levels becoming more mechanised so less workers are
They introduce new technology into the country needed in factories.
Infrastructure like roads and ports are often upgraded and One of the attractions of LEDCs is cheap labour,
benefit the whole economy but as a country develops labour costs increase and
Diversifies the economy, might move away from the TNCs may move to cheaper locations.
reliance on one industry like farming or tourism Products produced by TNCs maybe too expensive
The country receives prestige for attracting TNCs and for locals to buy. TNCs may also use local raw
investment into the country. 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.

Informal Economy Formal Economy

Advantages Many independent poor people work in the They pay taxes to the government so are
informal sector e.g. car washers or shoe shiners. contributing to government revenue.
This often means the money goes where it is most Workers are protected so that they get a
needed. proper and regular wage and have safety
 It often employs people with low skill and regulations, etc.
education levels who might normally find it hard It provides products for the export market
to get a job. which then gain foreign income for the
Workers may learn skills which means that they country.
can get jobs in the formal economy. Because they are regulated, businesses
Many businesses are labour intensive and don't should follow environmental regulations so
rely on technology, so they are cheaper to set up that they are less polluting.
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)

Disadvantages Parts of the informal economy is involved in Production costs tend to be higher which
illegal activities like the drugs and sex industry. makes the products less affordable to many
The government does not receive taxes from these people.
businesses. They will often avoid hiring unskilled and
Because they are not regulated they don't follow uneducated workers because of the training
any environmental guidelines and can often cause costs.
pollution. Many businesses in the formal economy
Workers can be exploited by not being paid fully, tend to mechanise to try and reduce costs
not receiving sick pay or being forced to work in and therefore don't employ as many people.
dangerous conditions. 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.

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.

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.
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.

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

Acid Rain Damage

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.