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Contents 1 The Motor Vehicle Industry - A Consumer Industry 1.1 Fordist Mass Production (Just in Case) 1.2 Lean Production Method (Just in Time) 1.3 Comparing Mass production & lean production 1.4 Role of Government in Location of industry 1.5 Supranational governments 2 The Japanese Motor Vehicle Industry in N America 2.1 Pattern of Growth 2.2 Reasons for Japanese expansion into N America 2.3 Product 2.4 Effect on the US Domestic Production 3 Coventry – Car Industry 3.1 Changes in industry in Coventry 4 Changes in the Car Industry - Proton - Malaysia 4.1 Malaysia as an NIC 5 Brazilian Car Industry 5.1 Stage 1 – No Home Manufacture 5.2 Stage 2 – Import Substitution 5.3 Stage 3 – Home growth & Exports 5.4 Role of Government & TNCs 5.5 Buying on Credit 6 Also See 7 Comments

The Motor Vehicle Industry - A Consumer Industry

This is 1 of the world’s most important industries. It is dominated by TNCs with production mainly in MEDCs where there are markets. However there is an increasing amount of production in Brazil & SE Asia due to new markets & good infrastructure.

Fordist Mass Production (Just in Case)

Mass production developed to produce a people’s car – cheap. An assembly line is used to bring the components together & each worker performs a specific, repetitive task for economies of scale. However only a small range of models can be made. They are now looking for new locations to reduce costs & find new markets.

Lean Production Method (Just in Time)

Combines the benefits of mass production with increased flexibility. There is a reduction in costs, an improvement in quality & a greater range of products. There are also a number of sub-assemblies. Workers are guaranteed long-term employment & good wages.

Comparing Mass production & lean production

	Mass Production	Lean Production
Technology	Complex & rigid. Time & cost penalties involved in switching products	Highly flexible, modular component systems
Labour Force	Semi-skilled or unskilled performing a repetitive task	Multi-skilled workers in teams
Supplier Relationship	Distant relationship. Large stocks held at the plant "Just in Case"	Very close relationship
Production Volume	Extremely High	Extremely high
Production Variety	Narrow range of standardised designs	Increasingly wide range of products.

Role of Government in Location of industry

Government has a very important role in the location of industry.

• State policy – Some governments may have a direct stake in the company e.g. Fiat. There may also be controls on how much foreign firms can access domestic markets to help their own firms e.g. France gives only limited access. Tariffs can force companies to set-up branch plants to access the markets.
• Local Content – The government may insist on a substantial number of parts being made domestically to ensure there is a beneficial multiplier effect e.g. Brazil 50%
• Concessions & incentives – Governments want to encourage investment as it provides economic stimulus & competition for domestic firms. Incentives may also be offered by local regions to attract companies there.

Supranational governments

Policies influenced by joint policies between countries e.g. EU single currency has created the world’s largest single market. Therefore Japanese companies use UK as launch pad for Europe.

The Japanese Motor Vehicle Industry in N America

The Japanese motor vehicle industry has a large impact in the USA with 25% of the US market. The Japanese industry has decided to locate in the traditional rustbelt:

Glocalisation – A system of production whereby production takes place outside the home country.

Pattern of Growth

11 of the 12 Japanese plants are located in the rustbelt from Ontario to Tennessee. This is called auto alley. The factories are located along interstate highways for transport links. The suppliers are located nearby as part of an integrated vehicle production complex. The suppliers need to be no more than 2 hours away for JIT to work.

Reasons for Japanese expansion into N America

• Avoid the threat of tariffs on imports.
• Rise in the value of the yen leads to greater export costs from Japan to N America.
• Markets are more competitive in Japan so they seek new markets.
• Japanese manufacturers were becoming more productive than US companies.
• As the Japanese share of the US market grew, investment in the US became more attractive.
• Competitive reaction after Honda & Nissan move to the US
• Component manufacturers also move as they have contracts in Japan.
• Incentives from local governments in the US

Product

Phase 1 – Company introduces a new product to the home market due to technical innovation

Phase 2 – Output expands to take advantage of economies of scale, keeping prices down.

Phase 3 – A market is identified in another country & the company begins to export.

Phase 4 – Company sets up an assembly plant in the host country and the product is sent as a kit to be assembled in the host country.

Phase 5 – Company develops manufacturing in the host country, allowing the factories to become more efficient.

Phase 6 – Company invests in additional plants. Rival plants follow suit to the host country as a competitive reaction to create a cluster.

The last stage of this product cycle is Foreign Direct Investment.

Effect on the US Domestic Production

As Japanese companies take a larger share of the market US profits fall meaning that many factories have had to close with the loss of 1000s of jobs. GM is now no longer the richest Car Company although it is still the biggest. US companies are therefore less able to put money back into design & R&D and so the trend continues. However, competition does encourage greater efficiency.

Coventry – Car Industry

Changes in industry in Coventry

• Development of industry in 1930s.

  The Midlands is a good location in the middle of the UK with good access to markets. The area already has an engineering heritage and so there is a skilled workforce. There was a progression from:

  Silk --> Watches --> Bicycles --> Cars.

• Agglomeration of Industry

  More industries grow up around successful industries as part of the multiplier effect. Suppliers set up to be close to industry causing more industry to locate near to them.

• Decline since 1970s

  General contraction of the industry as plants move abroad for cheaper labour & merge for economies of scale. This leads to job loss in the area. There was decline in the Midlands due to government policy e.g. encourage companies to NE away from the Midlands. However there have been grants, financial support & motorway improvements to help the Midlands.

There is now very little manufacturing left in Coventry & lack of investment means that they are unable to compete with Europe. Therefore many companies e.g. Ford move to Europe, especially due to strong pound. Companies in the UK can’t compete with foreign competition in LEDCs.

Changes in the Car Industry - Proton - Malaysia

The Malaysian economy has grown rapidly due to the location of the car industry there with up to 8% per year. The area used to have high unemployment but it is now less than 4% and there are some shortages in certain jobs. The important point is that profits for Proton remain in Malaysia. This has allowed Malaysia to develop & improve its plants. Wages have increased & so some cheap labour from Bangladesh is now used.

Malaysia as an NIC

• Types of industry

  There are many types of industry, in particular the car industry with proton and its component manufacturers. Tyres are made locally and the rubber industry was already very important. There is also quite a large hi-tech industry.

• Money

  Most of the money is provided by outside investors who want the cheap labour & nearby markets of Malaysia e.g. Mitsubishi funded Proton. The government also helps with a 10-year tax break & grants.

• Markets

  Generally cars are sold to SE Asia but they are now also exporting to Europe & the US. The home market is only small so most is exported.

Brazilian Car Industry

Stage 1 – No Home Manufacture

Stage 2 – Import Substitution

Stage 3 – Home growth & Exports

Role of Government & TNCs

Both TNCs and the government played an important role in the success of the car industry in Brazil. However, governments were more important as they helped to attract industry. At first, the government controlled imports and so only the rich could afford cars. This also affected industrial growth. The car industry in Brazil only started when the governments allowed TNCs in and in particular only when the government allowed cars to be bought on credit. This allowed economies of scale and caused the multiplier effect to occur. Since then the high production means that some cars can be exported, improving the economy. TNCs are not as important as local industry has now developed, although they were crucial at the start.

Governments are able to alter import and export regulations, offer incentives and give grants to help the car industry, which normal people are not able to do. They can lower taxes to encourage industry to certain areas or block imports to help their companies.

Buying on Credit

Allowing people to buy on credit was important to the car industry as it opened up the industry to a mass market. People were able to afford cars and so the ripple effect meant that there was rapid industrial growth. This meant that companies could use large-scale production and economies of scale to cut costs. They could also export cars to make larger profits and improve the economy. More jobs are created, as there are more suppliers for the plant.

Also See

Other ‘Economics Systems’ revision notes at A Level:

• Motor Vehicle Industry
• The Global Economy and Multinational Corporations
• The Rise of Manufacturing in NICs
• Location Models
• Stages of Economic Development
• Taiwan
• The Iron and Steel Industry
• Nike – A TNC
• Product Life Cycle Theory
• World Trade

Comments

These notes were originally written by F1_fanatic and posted here on TSR Forums. They are suitable for people studying for geography at A Level.