Formal and informal sectors?
Most LEDC cities have grown rapidly and the number of people is often far greater than the jobs that are available.
The informal sector of employment is created by people finding work for themselves. This is usually due to the rapid growth of LEDC cities. Some examples of jobs are scrap collectors, street entertainers and shoeshiners.
The formal sector of employment is controlled by the government and large companies. Some examples of formal jobs are factory workers, shop assistants and nurses.
Transnational corporations (TNCs) in LEDCs
A transnational company (TNC) is a global company in that it operates across national boundaries. They are attracted to the large pool of labour, low wages, taxes and fewer restrictions of LEDCs.
A transnational company has factories and offices in several countries. Therefore it is a global company in that it operates across national boundaries.
The headquarters of a transnational company is usually in an MEDC with branch factories worldwide.
Transnational companies have the power to choose where to locate their factories. They are attracted to LEDCs due to the large pool of labour, low wages and taxes and fewer restrictions.
TNCs bring economic, social and environmental advantages and disadvantages to the host countries.
Reasons for Industrial Change
LEDC’s have begun to play a dominant part in world markets due to good access to raw materials and the ability to charge less for products.
People in LEDC’s are willing to work for less money so industries are able to charge less for their products. Large multinational companies, many from MEDCs, have now begun to locate their industries in LEDC’s for the same reasons as above and this has ensured that the gap between MEDC’s and LEDC’s in terms of development has remained consistent.
Case Study: Ford in India (Chennai)
In 1995 Ford set up an assembly plant producing 100,000 cars a year. 1800 direct skilled jobs were created within the factory, it is highly automated factory (mechanised). The plant used 95 Indian suppliers and opened 33 dealerships. It was set up in partnership with an Indian company.
- Jobs in the factory are direct secondary manufacturing jobs that are more suited for males. Indirect jobs are created within the 95 suppliers, as these businesses expand due to more business, which are also secondary so are suited to locals.
- Service tertiary jobs such as cafes, banks etc are also created as more money goes into local economy due to higher disposable incomes which are more suited to females. All these jobs are suitable to the unskilled local population and many need skills training by the MNC so employees gain skill and increases job aspects if needing to find new work.
Ford is in partnership with an Indian company so some of the profits go back to India and is less likely to leave at a future date so jobs are permanent and consistent.
What attracts TNCs to India?
- India has a huge population with over 60 million “middle class” people, India has a growing economy so as it becomes more developed, people have higher disposable incomes so there is a large potential market in the near future.
- Lots of well-educated hard working work force, as India has high unemployment so people want and need the jobs more so are more committed and fight harder to keep them.
- There are fewer trade unions, government regulations etc. so less health and safety regulations therefore lower set up and overhead costs and wages are lower so higher profits. Ford seems ‘friendlier’ than some of the Indian companies because they give out higher than average wages and longer than average holidays. This also benefits Ford as these are still much lower than in MEDCs so profits are higher.
Did the project benefit India?
- 95 Indian suppliers used so more jobs are created within local area due to multiplier effect so unemployment decreases. Ford on average pays higher wages than other Indian companies so employees have a larger income so can afford more and have a better standing of living. People spend more in local economy as they have larger disposable incomes so more services open creating even more jobs and people have better access to a larger range of services which increases quality of life. As businesses expand they pay more tax so local government has more money to spend on infrastructure so people have greater access to basic infrastructure such as water etc. so quality of life increases. Area becomes more developed.
- Ford paid for two health clinics to be opened so access to health care in the area increases so people are less likely to become ill so quality of life increases.
- Ford is working towards sustainable use of water and energy. The company treats all waste water on site so there is no harmful water, which could wash into local rivers etc and harm local wildlife, and then re-uses it to conserve water supplies in the local area. The cars are designed to be more environmentally friendly and 85% of the components used can be recycled or dismantled. Ford is conscious of the environment and are minimising the impact they have so are sustainable, meeting needs of the people now without compromising those of people in the future.
- Ford is in partnership with an Indian company so some of the profits go back to India and is less likely to leave at a future date so jobs are permanent and consistent. The image of the area is improved therefore other TNCs are attracted there, creating even more employment and boosting economy.