C3 / Changing industrial location / P.

39

3.4 What are the location factors of the information

technology industry?
Focus of this unit:
 Characteristics of the IT industry  Comparison of location factors
of the iron and steel industry in
 Location of the IT industry in the USA
China and those of the IT
 Characteristics of IT industrial sites industry in the USA
 Location factors of the IT industry (R&D and  Impact of globalisation on the
production stages) location of the IT industry
 Recent changes in the location of the IT industry in the
USA (intensification of outsourcing and reshoring of
production operations to the USA from the LDCs)

A What is the IT industry? Textbook p. 65

Complete the table below to show the two main areas involved in the IT industry.

(Credit: Ivan Bandura/Flickr) (Credit: Kiewic/Flickr)

1 Manufacturing of computers, related 2 Development of computer

electronic products and communication software and networks,
equipment and various related services

B What are the characteristics of the IT industry?

Textbook pp. 66–70 HKDSE MCQ 2015 Q18, 2016 Q18; DBQ 2014 Q3a
1 Figure 1 shows some information about Samsung, a globally famous Korean IT firm.
Samsung was the largest smartphone maker in the world in 2018. The firm ranked the first
among high-tech firms in terms of R&D expenditure in the same year, which amounted to
15.2 billion US dollars.
Source: Online newspaper in December 2018
Figure 1
 C3 / Changing industrial location / P.40

a i With reference to Samsung, describe the intensity of technological and capital inputs
of the IT industry.

Technological input ( Small / Large ) Capital input ( Small / Large )

ii Explain your answers in Question ai.

The IT industry adopts the latest technologies to produce ( low-value / high-value )

products. To design a product, the firm has to invest a large amount of capital on
research and development (R&D) . Therefore, the firm depends
heavily on the inputs of technology and capital .

iii Which type of industry does the IT industry belong to? Tick ‘✓’ the correct answers.

✓ Capital-intensive ✓ Technology-intensive/High-tech

✓ Research and development-intensive

b i As an IT firm, are the products of Samsung targeted at consumers in South Korea only
or at consumers all over the world? (Hint: Do you, your family or friends own a
Samsung smartphone?)
The products of the IT industry are targeted at consumers all over the world.
ii Explain your answers in Question bi.
The IT industry invests a large amount of capital on R&D to produce a
product. The products are sold in global markets so as to bring ( less / more ) profits to
cover the huge amount of money spent on R&D.
2 Figure 2 shows the product life cycle model for IT products.

Figure 2
 C3 / Changing industrial location / P.41

Describe the product life cycle for IT products.

The life cycle of IT products is ( short / long ). It may take only a few years from the
development stage (Stage I) to the decline stage (Stage IV).
3 Figure 3 shows the distribution of the headquarters, regional headquarters, R&D centres and
production plants of Epson, a globally famous producer of imaging products such as printers,
scanners and projectors.

Figure 3
a i Where are the headquarters, MOST of the regional headquarters, R&D centres and
production plants of Epson located respectively? Tick ‘✓’ the correct boxes.

Less developed country More developed country

(LDC) (MDC)

Headquarters ✓

Regional headquarters ✓

R&D centre ✓

Production plant ✓

ii Which mode of production has the IT firm adopted?

It has adopted multi -point and multi national production.
 C3 / Changing industrial location / P.42

b The location of production of the IT industry is closely related to its production

requirements at different stages (Figure 2 on p. 40). Complete the table below to show the
production requirements at each stage.

Preferred location
Production requirement
of production

Stage I: ‧ ( Labour- / R&D- ) intensive In headquarters and

Development R&D centres in the
‧ A ( small / large ) number of scientists and
engineers for carrying out R&D ( less / more )
developed regions
‧ A large amount of ( semi-skilled / skilled )
or countries
Stage II: labour for pilot production
Introduction
and growth ‧ High technological levels

‧ Good access to capital, particularly

venture capital

Stage III: ‧ ( Labour- / R&D- ) intensive In production plants

Maturity in the ( less / more )
‧ Abundant cheap and ( semi-skilled /
skilled ) labour for standardised developed regions
Stage IV:
Decline production or countries

4 Figure 4 shows the distribution pattern of the IT industry in the USA in 2018.

Figure 4
 C3 / Changing industrial location / P.43

a What is the distribution pattern of the IT industry in the USA as shown on the map?
The IT industry is concentrated in clusters .
b Complete the table below to show the benefits brought by such a distribution pattern.

Benefit brought by such a distribution pattern

IT firms can enjoy agglomeration economies

R&D centre Production plant

‧ Induce innovation ‧ Share infrastructure/facilities

‧ Establish business contacts (e.g. transport and logistics facilities);

‧ Share infrastructure/facilities ‧ Attract labour

(e.g. high-speed WiFi networks and ‧ Benefit from low land rents
industrial 3-D printers); offered by the local governments

‧ Create innovative culture

and business environment that further
attract investment and talents

‧ Build business reputations

C Where is the IT industry in the USA? Textbook pp. 71–2

1 Refer to Figure 4 on p. 42. HKDSE MCQ 2013 Q19, 2016 Q19, Q21

a i Describe the distribution pattern of the IT industry, as well as the relationship between
the location of the industry and the large cities in the USA.

In the USA, IT industries usually group together to form industrial clusters .

They are in a ( dispersed / concentrated ) pattern. They are usually located in and
around the large cities .

ii What is the name of IT industrial cluster X? Silicon Valley

 C3 / Changing industrial location / P.44

2 Figure 5 is a map showing the location of industrial cluster X mentioned in Question 1aii.
Figure 6 shows the industrial landscape of the industrial cluster.

Figure 5

(Credit: Patrick Nouhailler/Flickr)

Figure 6
Complete the table below to show the characteristics of the IT industrial cluster.

Figure 5

Characteristic Description

Near Collaborate with these academies in researches, get access to a

universities large pool of IT professionals and faciliate the exchange
and research institutes of innovative ideas

Well-developed ‧ Good transport linkages with the ( city centre / suburbs )

transport enable the firms to seek services conveniently
infrastructure ‧ Proximity to airports facilitate the international
flow of talents and managerial staff
 C3 / Changing industrial location / P.45

Figure 6 (p. 44)

Characteristic Description

Pleasant working IT talents are attracted by

environment ‧ plenty of greenery, good community and ancillary services in
the suburbs; and

‧ low and dispersed office-plant-laboratory

buildings with modern designs

Convenient working Having the offices, pilot plants and laboratories at

environment the same location facilitates the flow of work

D What are the location factors affecting the IT industry?

Textbook pp. 74–5 HKDSE Essay 2018 Q5, 2019 Q7

1 Complete the table below to show the location requirements of the IT industry at different
stages.

Location factor R&D (Development stage) Production (Maturity stage)

Access to ‧ Good access to researchers, Required a large pool of

labour scientists or technicians for ( semi-skilled / skilled ) labour for
carrying out R&D standardised production

‧ Good access to ( semi-skilled /

skilled ) labour for pilot
production

Access to Good access to venture ‧ Required a large amount of

capital capital to support innovation and capital in the form of
the development of new products foreign direct
investment to set up factories
overseas

‧ Required less capital if

outsourcing is used
 C3 / Changing industrial location / P.46

Location factor R&D (Development stage) Production (Maturity stage)

Government Favourable policies such as Provision of good infrastructure,

policies ‧ providing financial support amenities and various incentives

for R&D (e.g. low land rents

and tax concessions) by the
‧ maintaining a favourable
government
business environment and an
innovative culture within the
community

Land The ( centre / suburbs ) of a large A cheap land site in an industrial

attributes city with plenty of greenery and cluster with good infrastructure
good amenities

Technology and Good access to innovation and Regions ready to receive

innovation ( low / high ) levels of technology, transferred technology from
e.g. locating R&D laboratories and high-tech regions
pilot plants near universities/
research institutes

Access to market and ‧ Required the access to the ( domestic / global ) market
business partners ‧ Good access to suppliers and customers for gathering information
for improvement

Transport and Well-developed transport networks and

telecommunications telecommunications infrastructure

2 Which kind of regions/countries, the less developed or the more developed ones, are more
preferable for the R&D stage and the production stage respectively?
‧ R&D stage: More developed regions/countries
‧ Production stage: Less developed regions/countries
 C3 / Changing industrial location / P.47

E What are the recent changes in the location of the IT industry in the
USA? Textbook pp. 77–81 HKDSE DBQ 2014 Q3ciii
1 a Over the past decade, many US IT firms have contracted out some of their manufacturing
activities to other companies. The process is known as outsourcing .
b Below is some examples of the manufacturing activities outsourced.

‧ Software development and computer system maintenance is being

outsourced to India .

‧ R&D work is being outsourced to the ( less / more ) developed countries

with less expensive researchers and relevant facilities, e.g. China.
2 Figure 7 shows a fact sheet about India.

India
Time zone: GMT +5.5 (California, USA: UMT –8)
Official languages: Hindi and English
Number of graduates in higher education in engineering and technology
(2018): 1.5 million

Monthly salary of a software developer (USD) (2018): 474 (USA: 8,340)

Favourable government policies on the IT industry:

• Tax incentives for scientific industrial R&D
• Tax holidays for businesses set up in the designated IT industrial parks

Telecommunications infrastructure: Availability of high-speed computer

networks and Internet connection in the designated IT industrial parks

Figure 7

What are the pull factors in India that attracted the outsourcing of manufacturing activities
of the US IT firms mentioned in Question 1b?

a Government policy

The Indian government offers tax/financial incentives and infrastructure

support to attract foreign direct investment.
 C3 / Changing industrial location / P.48

b Access to labour

‧ India has a ( small / large ) pool of well-educated labour specialising in the field of
engineering and technology .

‧ The salary of a software developer in India is about one- twelfth of that in

the USA. Therefore, the labour costs in India are ( less / more ) competitive.

‧ The Indian workers are ( poor / good ) at English.

c Land attributes

The time difference between India and the USA (California, for example) is 13.5
hours. This means that when staff in the USA stop working in the evening, staff in India
( start / stop ) working. Therefore, the US IT firm can maximize productivity.

d Telecommunications

The telecommunications infrastructure is ( poorly- / well- ) developed in India. This

facilitates long-distance communication between the headquarters in the USA and the
branch offices in India.
3 a Some US IT firms have been moving back their production operations from China to their
home country since the 2010s. Complete the table below to show the reasons.

( Pull / Push ) factor of China Description

Increasing labour costs The costs are rapidly rising due to labour shortages
and better labour protection

Increasing land costs The keen land use competition has

driven up the land costs in the urban areas

Appreciation of RMB has risen more than 30% over the past decade
currency (RMB)

Insufficient legal protection against The contracted companies may adapt the transferred
intellectual property technologies to establish their own businesses without
the consent of the US firms
 C3 / Changing industrial location / P.49

( Pull / Push ) factor of the USA Description

Favourable government ‧ Local governments provide tax incentives and

policies technical support to manufacturing firms that create
jobs

‧ The federal government has imposed high

tariffs on some imported IT products

Automation Adopting automation can offset the high labour

costs

( Lower / Higher ) labour quality This means ( lower / higher ) labour productivity

Large domestic market Locating the production operations in the USA can
for IT products ‧ save transport costs of the finished
products; and

‧ enable the IT firms to be ( less / more ) responsive

to market changes

Better product quality and brand ‘Made in the USA’ means a better product quality. This
image helps increase sales and establish a good brand
image

The comparative advantages relating to the production costs of manufacturing goods in

China is ( diminishing / increasing )

b The phenomenon of moving back the outsourced production operations to the home
country is called reshoring .
c Apart from the factors mentioned in Question a, such a relocation of production operations
is also a result of political influence. For instance, many US politicians have urged the
local IT firms to relocate their production operations back to the USA since:

‧ such a relocation helps create jobs in the manufacturing sector. This can
ease the problem of unemployment in the USA; and

‧ the firms have the social responsibility to support the domestic

economic development.
 C3 / Changing industrial location / P.50

d The scale of such a relocation remains limited. Complete the table below to show the
reasons.

The US IT firms can still reduce production costs by

relocating their production operations to other low-cost
less developed countries, e.g. (name TWO examples)
Mexico/Bangladesh/Cambodia/Indonesia/Vietnam
(any two or other appropriate examples )

(Credit: ILO in Asia and the

Pacific/Flickr)

Reolcation incurs ( low / high ) costs

‧ Strong labour unions and frequent

strikes in the USA may increase production costs

‧ The labour regulations in the USA are ( stricter /

looser ) than those in the LDCs. This means the
labour costs are still higher in the USA

Locating the production operations in the USA, the IT

firms have to spend ( less / more ) money to comply
with the environmental protection regulations

Moving the production operations away from China

may ( weaken / strengthen ) the competitivesness of the
US IT firms in China, which is an emerging market of
IT products
 C3 / Changing industrial location / P.51

F Do the iron and steel industry and the IT industry share the same
group of location factors? Textbook pp. 82–3

1 Complete the table below to show the differences of the characteristics between the iron and
steel industry in China and the IT industry in the USA.

Iron and steel industry in China IT industry in the USA

‧ ( Light / Heavy ) industry ‧ Light and high -tech industry

Type of
‧ Raw material- and power - ‧ Research and
industry
oriented development (R&D) -intensive

Mode of Mostly single -point Mostly multi -point and

production production multinational production

Traditional industrial areas ‧ R&D stage: Sites with pleasant

environment in the ( centre /
Industrial
suburbs ) of large cities
landscape
‧ Production stage: Traditional
industrial areas

Serious air pollution ‧ R&D stage: Nearly no pollution

Pollution
‧ Production stage: May cause
problems
pollution

Market Mainly ( domestic / global ) market Mainly ( domestic / global ) market

2 Complete the table below to show the major location factors of the iron and steel industry in
China and the IT industry in the USA.

Iron and steel industry in China

‧ In the north-east (before 1950): Access to raw materials and power resources

‧ Inland shift (1950s–70s): Government policy

‧ Coastal shift (1980s–Early 2000s): Government policy and access to market

‧ Developing new production centres in the south and moving production away from
large cities (since the early 2000s): Government policy and access to market
 C3 / Changing industrial location / P.52

IT industry in the USA

Since the 1980s

Production stage
R&D stage (in the USA)
(in the less developed countries)

‧ Technology: ( Low / High ) ‧ Labour: Abundant ( cheap / high-wage )

‧ Labour: ( Semi-skilled / Skilled ) and ( semi-skilled / skilled ) labour

‧ Land attributes: Suburbs of ‧ Land attributes: Cheap land

large cities or near universities site

Since the 2010s

Outsourcing of software development and Reshoring of production operations

computer system maintenance (to India) (from China to the USA)

Pull factors in India: ‧ Costs of labour and land in China:

‧ Labour: Abundant supply of cheap Rapidly ( decreasing / increasing )

labour with ( low / high ) education ‧ Labour productivity in the USA:

levels and English proficiency ( Lower / Higher )

‧ Government policies: Provide good ‧ Adoption of automation can

infrastructure and incentives, such as tax offset the disadvantage of high labour
holidays and low land rents costs in the USA

‧ Locating near the major market (the

USA) saves transport costs
of the finished products. The firms can
be more responsive to market changes

‧ Better legal protection of intellectual

property in the USA

‧ ‘Made in the USA’ helps build a good

brand image and means a ( lower /
higher ) product quality
 C3 / Changing industrial location / P.53

G What impact has globalisation had on the location of the IT industry?

Textbook pp. 83–4 HKDSE MCQ 2015 Q20; Essay 2012 Q6, 2019 Q7
In order to maximize profits, the IT industry has adopted the strategies of globalisation in
marketing, production and sourcing inputs.
1 How does the IT industry carry out globalisation in marketing? With reference to the figures,
describe each of the methods.
a Production plant of
Firm A
Headquarters of
Firm A Products
Manufacture
sold
overseas

Home country

Manufacturing products in the home country and sell them in the ( local /
foreign ) market

b Headquarters of
Firm A Grant a license Products sold in
Manufacture foreign country

Home country
Production plant of
Foreign country
foreign producer

Granting a license to a ( local / foreign ) producer to manufacture the

products and sell them in the ( local / foreign ) market

c Headquarters of
Firm A Products sold in
Set up
Manufacture foreign country

Home country
Production plant of Foreign country
Firm A

Setting up a production plant in the ( local / foreign ) market as foreign direct investment
and selling the products there
2 How does the IT industry carry out globalisation in production? Tick ‘✓’ the correct strategies
below.

Headquarters is kept in the home Production plants are moved to areas

✓ ✓
country with low production costs

R&D centres are relocated to

✓ Standardized production is outsourced
low-tech regions/countries
 C3 / Changing industrial location / P.54

3 What are the advantages of having globalisation in sourcing inputs?

By purchasing components from different suppliers all over the world in bulk, an IT firm can

‧ have great bargaining power over their component suppliers; and

‧ choose the suppliers which provide the firm with reliable and quality inputs at ( low /
high ) prices.
C3 / Changing industrial location / P.55