3.4 What are the location factors of the IT industry?

A What is the information technology (IT) industry? Where is the IT

industry in the USA?
1 Which of the following descriptions about the IT industry are correct? Tick () the correct
answers.

 It is a kind of raw material-oriented industries.

 It manufactures computers, related electronic products and communication equipment,

etc.

 It develops computer software and various related services.

 It is a type of high-tech industry.

 It requires little investment.

2 Refer to Figure 1, briefly describe the distribution pattern of the IT industries in the USA.

Figure 1 Distribution of the IT industries and large cities in the USA

In the USA, the IT industries form ____clusters____ in a ( concentrated / dispersed )

pattern. They are located in the suburbs of ( small / large ) cities.

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B What are the characteristics of the IT industry?
3 Figure 2 shows the manufacturing system of the IT industry.

Inputs
Manufacturing processes Outputs
Raw materials
such as design, research such as
and development, computers,
Power supply manufacturing, MP3, PDAs,
assembling and packaging etc.

Skilled and semi-

skilled labour

Technology

Capital ____Global____
Cash markets

Figure 2 The manufacturing system of the IT industry

a Complete Figure 2.
b Which TWO are the most important inputs to the IT industry?
Capital and technology.
c Explain your answer in Question b.
The IT industry has to use the latest technologies to produce ( low-value / high-value )

products. To design a product, IT firms have to invest a large amount of capital on

___________research and development (R&D)____________. Therefore, the IT industry

depends heavily on the inputs of ____technology____ and ______capital______.

d Which type of industry does the IT industry belong? Tick () the correct answers.
 Capital-intensive

 Research and development-intensive

 Technology-intensive

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4 Figure 3 shows the product life-cycle model for IT products.

Figure 3

Describe the life-cycle of IT products.

The life-cycle of IT products is ( long / short ). It may take only a few years from the

development stage to the decline stage.

5 Figure 4 shows the distribution of the headquarters, regional headquarters and manufacturing
plants of a famous US IT firm.

Figure 4

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 a i Where did headquarters, regional headquarters and manufacturing plants of the IT
firm locate respectively?
• Headquarters and regional headquarters: Mostly located in ( less / more )

developed countries.

• Manufacturing plants: Mostly located in ( less / more ) developed countries.

ii Which mode of production does the IT firm adopt?

Multinational and multi-point production.
b The mode of production of the IT industry is closely related to its production
requirements at different stage. Complete Table 1 to show the production requirements at
different stage.
Table 1
Stage of Location of
Production requirements
production production

• The IT industry in development stage is ____research In headquarters

Stage 1:
Development and development_____________________-intensive. located in high-

• A ( small / large ) number of scientists and engineers to wage, more

carry out research and development and ( unskilled / developed

Stage 2:
Growth semi-skilled / skilled ) workers to produce the products. countries.

• Efficient management and shared basic infrastructure

Stage 3: • The IT industry in these stages is __labour__-intensive. In manufacturing

Maturity • Abundant ____cheap____ and ( skilled / semi-skilled ) plants located in

workers to carry out standardized production processes. low-wage, less

Stage 4:
Decline developed

countries.

6 Complete Figure 5 (p. 37) to show the distribution pattern of the IT industry in the R&D stage
and standardized production stage and the benefits brought by such distribution pattern.

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 In the R&D stage In the standardized production stage

Distribution
Concentration in _____clusters______
pattern

Enjoy _____agglomeration____

economies

• Induces _____innovation_____ • Shares basic social facilities and

• Facilitates exchange of __market__ _____infrastructure_____

and ___technical____ information • Helps cut costs and increases

• Provides technical, financial and _____competitiveness_____

Benefits ____networking____ services • Attracts ____labour____

brought by
• Establishes ____business contacts • Enjoys ____low____ rents provided
cluster
pattern ___________ by the local government

• Creates a distinct ___innovative__

culture and business climate

• Attracts further __agglomeration__

of IT firms
Figure 5

7 Explain why global markets are important to the IT industry.

The IT industry invests a ____large____ amount of capital on _____research_____ and

development to produce a product. The products are sold in global markets so as to bring ( less

/ more ) profit to cover the huge amounts of money spent on research and development.

8 Figure 6 (p. 38) shows an IT industrial landscape.

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Figure 6

a What do we call such industrial landscape?

Green field site.

b Briefly describe the industrial landscape in the following aspects.

• Buildings (types, height, density, etc):
Low, modern, dispersed office-plant-laboratory buildings.
• Location characteristics:
- Availability of _____venture_____ capital
- Near major ______universities______ and research institutes
- ____Abundant____ supply of scientists and researchers
- In the _____suburbs_____ of large cities
- ( Small / Large ) green areas

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 - Nice living environment with ( serious / less serious ) pollution

9 Complete the chart below to summarize the characteristics of the IT industry.

Short product life- Green field sites Cluster pattern

cycle

Characteristics of the
IT industry

Research and Global markets Multinational and

development-intensive multi-point production

C What are the location factors affecting the location of the IT

industry?
10 Complete Table 2 to show the location factors of the IT industry at different stages.
Table 2
Location
Development stage Maturity stage
factor

Green field site in more developed Manufacturing area in less developed

countries. countries.

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 Table 2 (continued)

Good access to researchers, technicians Abundant supply of cheap and semi-

Labour
and scientists skilled labour

• ____Headquarters____, R&D and • Production plants are located in

pilot production activities are _______less developed________

located in ___more developed_____ countries

countries • ____Cheap____ land site in an

Site
• In the ___suburan areas/suburbs___ industrial cluster with good

of large cities with good amenities infrastructure

• Near __________universities or

research institutes____________

Access to high levels of technology Ready to receive transferred technology

Technology
from high-technology regions

Availability of venture capital Availability of capital in the form of

Capital
foreign direct investment (FDI)

Favourable government policies to Favourable government policies to

provide ____financial____ support for provide infrastructure and communal

Government
policy R&D, maintain a favourable business services

climate and an __innovative__ culture

within the community

Market Large global markets

D Does the same group of factors that affect the location of the iron
and steel industry apply to the location of the IT industry in the
USA?
11 Complete Table 3 (p. 41) to show the difference of the iron and steel industry in China and the
IT industry in the USA.

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41
Table 3
Iron and steel industry in China IT industry in the USA
Characteristics

• ____Heavy____ industry • _____High-tech_____ industry

Type of
industry • _______Raw material______ and • ____Research____ and

____power_____-oriented ____development___-intensive

Mode of Mostly single-point production Mostly multinational and multi-point

production production

Industrial Traditional industrial landscape/Brown Green field site

landscape field site

Local Global
Market

Development stage: R&D in local

From the 1950s to 1970s: Inland shift
industrial clusters

Government policies • Technology: ( high / low )

• Labour: ( unskilled / skilled )

• Availability of ____venture____

Important capital
location factors • Site: suburbs of ____large____

cities and near universities

1980s onwards: Coastal shift Maturity stage: production overseas

Government policies and technology • Labour: abundant, ___cheap___

and ______semi-skilled_____

• Site: ____cheap____ land site

E What impact has globalization had on the location of the IT

industry?
12 In order to maximize profits, the IT industry adopted the following strategies:
I Globalization in marketing

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II Globalization in production
III Globalization in sourcing inputs
a How does the IT industry carry out globalization in marketing? With reference to the
figures, describe each of the method.

I
Manufacture a product in
Production plant the home country and sell it
of Firm A
Manufacture in the foreign market/export.
Products
sold
Headquarters
of Firm A Home country overseas

II Headquarters Grant a license to foreign

of Firm A
Products sold in
foreign country producer to manufacture the
Grant a license
Manufacture product and sell it in the
Home country
foreign country/market.
Production plant of Foreign country
foreign producer

III
Headquarters Set up a production plant in
of Firm A
Products sold in
foreign country foreign country as ‘foreign
Set up direct investment’ and sell
Manufacture
Home country
products there.
Production plant of Foreign country
Firm A

b How does the IT industry carry out globalization in production? Which of the following
descriptions about global production strategy are correct? Tick () the correct answers.
 Headquarters is kept in home country.  Standardized production processes are
outsourced.
 R&D departments are moved to areas  Production plants are moved to areas
with low level of technology. with low production costs.

c What are the advantages of having globalization in sourcing inputs?

If an IT firm have global sourcing inputs, the firm can obtain ____cheaper____ and

_____better_____ quality components elsewhere. This can help ____cut___ costs and

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 therefore ____increase____ profits.

3.5 What is the impact of changes in industrial

location and modes of production?
A What are the benefits of having manufacturing industries in an
area?
1 Figure 1 shows the benefits brought by industrial development to an area.

Figure 1
a Refer to Figure 1, write down how industrial development brought benefits to an area in
paragraph form.
When new industries are set up, jobs are created and people’s income will increase.
With higher income, more money can be spent in local shops and services. The local
economy starts to grow and this increases tax revenue for the local government. The
local government then have more money to improve the infrastructure. This attracts
more people to come and more new industries to set up in the area.

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 b What do we call the effect brought by industrial development in an area?
Multiplier effect.
B Why do industries move away from an area?
2 Figure 2 shows the changes in location factors of Place A.

In the 1950s In the 2000s

 Low labour costs  High labour costs
 Low taxes  High taxes

Figure 2
a A manufacturer has set up an electronics factory in Place A in the 1950s. What were the
favourable location factors for setting up the factory there?
The labour costs and taxes were low, therefore the production costs were greatly
reduced.
b In the 2000s, the manufacturer has moved the factory away from Place A. Why?
The manufacturer has moved the factory away from Place A because the location factors

are no longer ( unfavourable / favourable ). ______Labour costs_______ and

_____taxes_____ were high which greatly _____increased_____ the production costs.

3 Figure 3 shows the locations of the headquarters and production plant of an IT firm in the
1970s and 2000s respectively.
In the 1970s: Poor telecommunication network

Headquarters Production plant

Country A

In the 2000s: Well-developed telecommunication network

Satellite

Headquarters
Production plant Note: Country A is a more
developed country and Country
B is a less developed country

Flow of information
Country A Country B

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Figure 3
a Describe the locations of the headquarters and production plant of Firm A in the 1970s
and 2000s.

Headquarters and production plant were located in the same

In the 1970s country /Country A.

Headquarters and production plants are located in different

In the 2000s countries/Headquarters is located in Country A while production plant

is located in Country B.

b Complete the flow chart below to show the reasons for the changes in the location of
production plant of Firm A.

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 ____Advancements____ in telecommunication technologies

Flow of information between the headquarters and production plant in

different countries is ( efficient / inefficient ) and the cost of
communications is ___low___.

Production plant can be located away from headquarters to the less

developed country to tap the advantages of _____low wage_____ and
___rents___.

Appearance of new production mode:

_____Multi-point_____ production

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4 Figure 4 shows a simplified manufacturing system of a semiconductor chips production plant.
Table 1 shows some information about Places A and B.

Inputs Semiconductor chips

Outputs
Toxic materials such
as mercury

Figure 4

Table 1
Place A Place B
Environmental awareness of
High Low
the people

Pollution control Strict Less strict

a If you were a manufacturer of semiconductor chips, where will you set up your
production plant in terms of economic consideration only?
Place B.
b Explain your answer in a.
The production plant not only produces useful outputs, but also harmful outputs such as
toxic materials. These harmful outputs will pollute the surrounding environment.
People in Place A may protest against the set up of the plant as their environmental
awareness is high. In addition, the pollution control is strict and this increases
production costs. In contrast, it is easier to set up the plant in Place B as
environmental awareness of the people there is low and pollution control is less strict
which can lower production costs.

C What is the impact of industrial relocation and the appearance of

new modes of production?
5 Complete the flow chart on p. 47 to show how the relocation of industry affects the flow of
labour.

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 Relocation of industry

affects

______Job opportunities______ in both old and new industrial areas

Examples

The iron and steel industry in The IT industry in the USA

China in the 1960s
 Factory workers were
encouraged to move to the
____inland____ as the
central government has
relocated the iron and steel
industry there.
 This creates an
 inter-region flow of labour
 international flow of labour
 Production plants are
relocated to less developed_
countries so as to enjoy
___lower production costs__
_______ some managerial
personnel and __specialists_
in the USA are sent to less
developed countries
 This creates an
 inter-region flow of labour
 international flow of labour
 Research and development
centres are relocated to the
____suburbs____ of large
cities  attracts scientists
and engineers to move from
____urban____ areas to
____suburban____ areas
 This creates an
 intra-urban flow of labour
 international flow of labour

6 Figure 5 shows how the relocation of industries causes the decline of local economies.

Relocation Factories are forced to close Job losses

___Less___ money to spend

New investment in local shops and services
____shrinks____
Failure in subsidiary
industry
People move Local economy declines
____Decline____ in the quality of away
infrastructure for the local community
and industrial development ___Less___ tax income
for local government

Figure 5

49
 a Complete Figure 5 on p. 47.
b Briefly describe how the relocation of industries give rise to unemployment in China and
the USA.

Iron and steel works have to adopt new modes of production in order

to be competitive. This has forced many outdated iron and steel works

In China to close or merge into larger ones. Restructuring of the iron and steel

works has caused many workers to lose their jobs.

As more and more IT firms relocate their production bases and

software services to the less developed regions, a large number of IT-

In the USA related jobs have moved overseas. Many unskilled and semi-skilled

workers have become unemployed.

c What adverse effects will unemployment cause?

Unemployment will cause social problems such as drug addiction, drunkenness and
family abuse.

7 What is the impact of the relocation of factories to the Zhujiang Delta Region on the economy
and employment structure of Hong Kong?
 Economy

_________Scale of production_________ has enlarged as firms moved their factories to

the Region. While headquarters remain in Hong Kong, businesses between the Region

and Hong Kong ( decreased / increased ). This has lead to an ( decreasing / increasing )

demand for producer services such as finance, banking, logistics, etc. and this caused a

______restructuring_____ of our economy. The land in ________old industrial

areas_______ can be used for commercial, high-tech industries, etc. and this may lead to

further change of the economy.

 Employment structure

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 As the demand for producer services increased, more and more people work in the
tertiary sector in Hong Kong.

8 What is the impact of relocation of computer manufacturing from more developed countries to
less developed countries have on the environment?
_________Toxic chemicals_________ such as mercury are used in computer manufacturing.

When these materials are not treated or disposed of properly, it may cause serious

_________water pollution________ and ________health hazards________. As more and

more IT firms set up computer manufacturing factories in ( more / less ) developed countries,

pollution will become more serious as environmental protection laws are ( strict / not strict )

there.

The life-cycle of IT products is ___short___, many IT products become outdated within a

few years and this generates a large amount of _____e-waste_____ every year. As most of the

e-waste is shipped to ( more / less ) developed countries for ____disassembly____ and

disposal, the ____improper____ dismantling methods has caused serious environmental

problems there.

9 Complete the flow chart below to summarize the impact of industrial relocation and the
appearance of new modes of production.
Flow of labour
Socio-economic impact
 _____Intra-urban____,
inter-region and

Relocation of industries _____international_____

and appearance of new flow of labour
production modes

Unemployment
Environmental impact

Restructuring the economy

D What measures can be taken to ease problems caused by changing

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 industrial locations and modes of production?
10 a What are the advantages of adopting the principle of eco-efficiency in production?
More goods and services can be created by using less materials and energy. This can
increase profits on one hand and reduce waste and pollution on the other hand.

b Which of the following are measures of eco-efficiency in production? Tick () the
correct answers.
 Reduce material use  Reduce energy use
 Recycle material  Extend the life-cycle of the products
 Use non-renewable resources  Increase energy-efficiency of the products
 Make products more durable  Create more demand for products

11 Table 2 shows some suggested measures to ease problems caused by industrial relocation and
the changing modes of production in Hong Kong. Figure 6 shows the advantages and
disadvantages of these measures.
Table 2
Advantages Disadvantages

Setting minimum wage D G, H

Improve social security system F B

Lower tax E, I A

Retraining programme for laid-off workers C, J B

A Reduce government revenue F Provide a safety net for the

B Increase government expenses
C Increase the competitiveness
of workers
unemployed and the poor
G Factories may move out
H Discourage new investment

D Protect worker’s income I Attract new investment

E Help to keep existing firm J Reduce unemployment rate

Figure 6
a What are the advantages and disadvantages of the measures shown in Table 2? Write

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 down the letters in the appropriate column.
b Why is it not easy to build a sustainable economy?
It is because there are ______diversified______ interests among different social groups in

a community. _____Conflict_____ may arise as policies or programmes cannot satisfy all

social groups.

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