Industrial agglomeration

Outline
What

is industrial agglomeration?
What are the characteristics of industrial
agglomeration?
How does industrial agglomeration occur?
Why does industrial agglomeration occur?
Is industrial agglomeration good?

What is industrial agglomeration?

It

refers to high concentration of industrial

activities in an area because industries
may enjoy both internal and external
economies when they cluster together
(agglomerate).

Is it a phenomenon or process?
Agglomeration

as a phenomenon: it
refers to the spatial clustering or
concentration of industrial activities in a
relatively small area.
Agglomeration as a process: it refers to
the snowballing process whereby more
and more manufacturing firms cluster or
areally concentrate in a relatively small
area.

2 forms of agglomeration
Concentration

of related or well-linked
factories together and form a specialized
industrial region.
Concentration of various kinds of
factories in the industrial zones in urban
area.

Spatial effects of Ind. Aggl.

Over

time, industrial agglomeration results

in the growth of large industrial
concentrations, producing different areal
patterns of industrial land use. They have
large numbers of associated and interdependent factories, surrounded and
served by residential and commercial
areas.

Industrial districts
Hong

Kong - Kwun Tong, Tai Kok Tsui, Tai

Po Industrial Estate
Sydney - Paramatta, Alexandria, etc

Minor industrial centres/towns

PRD

- Foshan, Dongguang, Shunda

Industrial cities
Shanghai

(textile)
Nagoya/Toyota (car-making)
Detroit (car-making)

Industrial regions
Silicon

Valley in
California
(electronics)
around Inland Sea of
Japan (shipbuilding)
PRD in South China
(toy)

Characteristics of an ind. aggl.

Clustering

of industrial activities
Functional linkages production linkages
+ service linkages
When materials move from one firm to
another (production linkages)
As the firms share the specialized services
and facilities (service linkages)
Economies of scale

How is industrial
agglomeration developed?
A case of Quarry Bay

Tai Koo Properties

Tai

Koo Sugar Refinery (1883 1972)

Tai Koo Dockyard (1900 1972)
Tai Koo Coco-cola Bottling Factory (19521980s)

Quarry Bay

Tai Koo Sugar Refinery

was established in 1883
With growing trade in raw
cane sugar from Java,
the Philippines and North
Queensland, and ready
markets in China and
Japan, Taikoo Sugar ran
the world's largest sugar
plant in its day, and
owned small fleet of
sugar carrying ships.

What were the original factors and

attraction for the sugar factory?
Available

of land
Coastal location
Sheltered location
Availability of labour

The problem
More

than 3,000 workers were needed but

the population of Shaukeiwan was only
3,274
Hostels were provided and so workers
from other places were attracted
More jobs mean more income. It in turns
increased the purchasing power of people
Other related facilities were provided, e.g.
clinic, school

Tai Koo Dockyard

in

1900, on land
adjacent to the
sugar refinery,
construction work
began on Taikoo
Dockyard.

Industrial agglomeration
Taikoo

Dockyard launched its first

riverboat in 1910, soon began to produce
coasters for the company.
The dockyard was to become one of Hong
Kong's biggest, and also one of its most
progressive employers, providing its own
housing, hospital and school.

Snowballing effects
More

jobs more income higher

purchasing power development of
entertainment ( )
More jobs more settlements growth
of urban population in Quarry Bay
More population more services = more
public utilities

Snowballing effects
Quarry

Bay was still an important industrial

district in 1970s and 1980s
Factories included soft-drinks factory (7-up),
Printing (Kodak), car repair centre ( ),
various electronics ind.
The growing population supported the industries
which become more profitable and enjoyed the
benefits from agglomeration
The whole process is cumulative and growth
becomes self-sustaining.

Myrdals Model of Cumulative

Causation Process
A new

industrial plant set up

extra employment/more jobs
income and the purchasing power as the
size of the population grows
increases the demand for consumer
goods, houses, schools and services
more employment opportunities in other
industries, e.g. in commerce, construction,
service, etc.

Myrdals Model of Cumulative

Causation Process
The

new industry itself demands local

goods and services.
It may attract linked industries which
supply it with raw materials (called
supplier-industries) or use its products
(called user-industries).

Myrdals Model of Cumulative

Causation Process
further increases employment and expanding
services, public utilities and construction.
attract even more economic activities which
become more profitable (enjoying the benefits
from agglomeration economies)
the expanding city (increase in city scale)
reaches the threshold level for various services.
Thus, the whole process is cumulative and
growth becomes self-sustaining.

Reasons for industrial

agglomeration
What benefits can be obtained
from industrial agglomeration?

Initial factors and attraction

They

refer to the original factors that attract the

location of early industries at a certain site.
These factors can be natural or man-made.
They start the cumulative process of industrial
agglomeration and create the snowballing
effects on industrial development and
agglomeration.
The area with initial growing factors is known as
the growth pole.

Linkages
Subcontract
links

Information
links

Service
links

Production unit

Marketing
links

Subcontract
links

Vertical linkages
Garment Factory
Cloth
Textile Factory
Synthesis fiber
Chemical factory

Horizontal Linkages
Iron & Steel
Factory

Engine
Factory

Glass-making Tyre-making
Factory
Factory

Motor car
assembly factory

Diagonal Linkages
Fruit
canning

bottling

Sugar
refinery

Sugar mill

Ice cream

Jammaking

Glass bottle
factory

3 types of Industrial linkages

vertical

(one-to-one) linkage - forward and

backward linkage
horizontal (many-to-one) linkage
diagonal (one-to-many) linkage
Industries with simple vertical linkages
have a very strong production relationship.
They can obtain the greatest economic
advantages, once they are grouped or
agglomerated together in a small area.

Benefits from vertical linkages

lower

cost of transporting goods from

factory to factory, e.g. integrated plants of
I&S ind. (transfer economies)

Localization economies
energy

savings, e.g. I&S ind.

waste products or final products from one
industry can be the raw materials of another
specialization in production.
economies of division of labour +
mechanization
discounts can be obtained when several firms
buying similar inputs in bulk.
Advertising cost good reputation.
presence of ancillary services
saving of storage
close relationships among factories makes it
easy to solve the problems of similar nature and
to maintain higher level of production skills.

Urbanization economies
a

pool of skilled labour and managerial

expertise
infrastructure savings
snowballing effect
research & development
attracting investment

Diseconomies of scale
Physical
shortage

of land for expansion

shortage of labour
traffic congestion
urban decay
Economic
rising

rent
rising labour cost
high tax

 Social
pollution

/ environmental problems
high crime rate
pressure from labour union
pressure from green groups
government policy

Solution to industrial agglomeration

Industrial

degglomeration/decentralization

(to be discussed in the next lesson)