Services PP #2

SERVICES PP #2

Why are consumer services distributed in a regular pattern?

Consumer services and business services do not have the same distributions

Consumer services generally follow a regular pattern based on size of settlements Larger settlements offer

more consumer services than smaller settlements

Central Place Theory Selecting the right location

for a new shop is probably the most important factor in the profitability of a consumer service Central Place theory helps

explain how the most profitable location can be identified

Central Place Theory 1st proposed in 1930s by

German geographer Walter Christaller Theory applies most clearly in

regions that are neither heavily industrialized nor interrupted by major physical features such as rivers or mountain ranges

Concept was further developed in the United States in 1950s

Central Place Theory A Central place is a

market center for the exchange of goods and services by people attracted from the surrounding area Centrally located to

maximize accessibility from surrounding area

Central places compete against each other to serve as markets for goods and services for the surrounding region

This competition creates a regular pattern of settlements

Market Area of A Service The area surrounding

a service from which customers are attracted is the market area or hinterland Market area is like a

nodal region A region with a core

where the characteristic is most intense

To establish a market area, a circle is drawn around a node of service on a map The territory inside the

circle is the market area

Customers prefer to get services from nearest location Consumers near the center

of the circle obtain services from local establishments

The closer to the periphery of the circle, the greater the % of consumers who will choose to obtain services from other nodes

The entire United States can be divided into market areas based on the hinterland surrounding the largest urban settlements About 171 functional

regions called “daily urban systems”

To represent central place theory, geographers draw hexagons around settlements Used instead of circles b/c

no gaps

Designated Market Areas

Size of Market Area The Market area of every

service varies To determine the extent of a

market area need two pieces of information about a service Range and threshold

Range of Service Definition:

Maximum distance people are willing to travel for use of a service

Range is the radius of the circle drawn to delineate a service’s market area

Expressed usually in travel time (minutes, hours) than in distance

People are willing to go short distances for everyday services, like groceries Willing to drive further distances for

other services, like a concert Example:

In a large urban settlement a fast-food franchise has a range of roughly 3 miles whereas a concert arena has a range of roughly 60 miles

Threshold of Service Definition:

Minimum number of people needed to support the service

Every business has a minimum number of customers required to generate enough sales to make a profit

Once range is determined, provider must determine where a location is suitable by counting potential customers Census data helps with

determining population Example threshold for a

supermarket is about 30,000 people

How potential customers are counted inside the range depends on the product Example: Movie theaters attract

younger people Also wealth is taken into account

Market-Area Analysis Profitability of a location

Is a good or service going to be profitable in that location? Compute range, threshold, and draw a

circle with a 15 mile radius and count people within circle

Optimal location within a market Next question after range and

threshold is where IN the market area should the service be located to maximize profitability? Best location in linear settlement

Gravity model: predicts that the optimal location

of a service is directly related to the number of people in the area and inversely related to the distance people must travel to access it

Customer patterns: Greater # of people living in a

particular place = greater potential customers

Farther people are from particular service, less likely are to use it

Best location in non-linear settlement Geographers still apply the

gravity model to find the best location, following these steps

Identify a possible site for a new service

Within the range of the service, identify where every potential user lives

Measure the distance from the possible site of the new service to every potential user

Divide each potential user by the distance to the potential site for the service

Sum all of the results of potential users divided by distances

Select a possible location for the new service, and repeat steps 2, 3, 4, and 5

Compare the results of step 5 for all possible sites. The site with the highest score has the highest potential number of users, therefore the optimal location for the service

Hierarchy of Services and Settlements Small settlements are

limited to consumer services that have small thresholds, short ranges, and small market areas, because too few people live in small settlements to support many services A large department store or

specialty store cannot survive in a small settlement because it needs a large population to support it

Larger settlements provide services having larger thresholds, ranges, and market areas Services more diverse

We only travel further distances if the price is much lower or unavailable locally

Nesting of Services and Settlements According to Central Place

Theory, market areas across an MDC would be series of hexagons of various sizes, unless interrupted by physical features MDCs have numerous small

settlements with small thresholds and ranges, and far fewer large settlements with large thresholds and ranges

Nesting pattern is illustrated with overlapping hexagons of different size Four different levels of market

area Hamlet

Very small market area, represented by the smallest contiguous hexagons

Village Town City

Christaller Showed that distances

between settlements in southern Germany followed a regular pattern Indentified 7 sizes

market hamlet, township center, county seat, district city, small state capital, provincial head capital, regional capital city

In Germany, Hamlets had an average population of 800

Principle of Nesting Market Areas Also works at the scale

of services within a city

Rank-Size Distribution of Settlements

Geographers observed in MDCs that ranking settlements by size (population) produces a regular pattern or hierarchy

Rank-Size Rule Country’s nth-largest

settlement is 1/n the population of the largest settlement i.e. second largest city is ½ size

of the largest third largest city is 1/3 size of

the largest and so on….. Should graph like a straight line

If it does not graph on a straight line, then the country does not have a rank-size distribution

Important because a country that follows the Rank-size rule, like the United States, tends to be a society that is sufficiently wealthy to justify the provision of goods and services to consumers

Don’t always follow Rank-Size Rule Primate City Rule

Largest settlement has more than twice as many people as the second-ranking settlement

Largest city is called primate city Example: Denmark- Copenhagen United Kingdom- London Romania- Bucharest

LDCs often follow primate rule Indicates that there is not enough

wealth in society to pay for a full variety of services

Have to travel much further for shops, hospitals, etc.

Periodic Markets Services at the lower end of

the central place hierarchy may be provided at a periodic market

Definition: collection of individual vendors

who come together to offer goods and services in a location on specified days

Typically set up in a street or other public space

Provides goods to mainly residents of LDCs or rural areas of MDCs Vendors often mobile, part-

time, provide small quantities

Frequency varies by culture Muslim countries Rural China Korea Africa

Why do Business Services Locate in Large Settlements?? Every urban

settlement provides consumer services to people in a surrounding area But not every

settlement of a given size has the same number and types of business services

Hierarchy of Business Services

Services in World Cities

World cities are most closely integrated into the global economic system because they are at the center of flow of information and capital

Business services concentrate in disproportionately large numbers in world cities

New forms of transportation and communication services were expected to reduce the need for clustering of services in large cities

Example: the Railroad in the 19th century or motor vehicle in the 20th century

In some cases opposite

Hierarchy of Business Services

Business services in world cities Clustering of business

services in the modern world city is a product of the Industrial Revolution

World cities attract the headquarters of banks, insurance companies, and specialized financial institutions

Shares of major corporations are bought and sold on the stock exchanges, which are located in world cities

Lawyers, accountants, and other professionals cluster in world cities to provide advice to major corporations

Advertising agencies, marketing firms, and other services concerned with fashion and style also locate in world cities

Consumer services in world cities Because of large size, world

cities have retail services with extensive market areas

But they may have even more retailers than large size alone would predict

A disproportionately large number of wealthy people live in world cities

Leisure services of national significance cluster in world cities

Example: concerts, plays, professional sporting events

Contain largest libraries and museums

Hierarchy of Business Services Public services in

world cities World cities are centers of

national or international political power

Most are national capitals, often contain:

Palaces, mansions for heads of state

Imposing structures for national legislature

Courts Offices for government

agencies Also clustered in world

cities are offices for groups having business with the government

Foreign embassies, labor unions, etc.

Exception!!! New York City is unlike

other world cities, it is not the nation’s capital

Home to the world’s major international organizations, the United Nations, it attracts thousands of diplomats and bureaucrats

Hierarchy of Business Services Four Levels of Business services

World Cities Dominant

London, NYC, Tokyo Each is largest city in one of

three main regions in developed world

Major Chicago, L.A., D.C., Brussels,

Frankfurt, Paris, Zurich, Sao Paulo, Singapore

Secondary Houston, Miami, San Fran, Toronto Bangkok, Bombay, Hong Kong,

Manila, Osaka, Seoul, Taipei Berlin, Madrid, Milan, Rotterdam,

Vienna Buenos Aires, Caracas, Mexico

City, Rio de Janerio Johannesburg, Sydney

Command and Control centers Contain headquarters of large corps,

well developed banking facilities, etc. Two divisions: regional, subregional

Specialized Producer-service centers Offer more narrow and highly

specialized variety of services One group specializes in management

and R&D activities related to specific industries

Example: motor vehicles- Detroit, Steel- Pittsburgh, semi-conductors- San Jose, CA

Second group specializes as centers of government and education

Notably state capitals that also have a major university

Example: Albany, NY; Raleigh-Durham, NC; Columbia, SC

Dependent centers These provide relatively unskilled jobs

and depend for their economic health on decisions made in world cities, regional command and control centers, and specialized producer-service centers

Four sub-types in United States Resort, Retirement, and Residential

Centers Manufacturing centers, Military

centers Mining centers

Business Services in LDCs In the global economy, LDCs

specialize in two distinctive types of business services: Offshore financial services

Provide two important functions

Taxes Taxes on income,

profits, and capital gains are typically low or non-existent

Corporations have incorporated in an off-shore center also have tax-free exemption regardless of nationality of owners

U.S. loses an estimated $70 billion in tax revenue each year

Privacy Secrecy laws can help

evade disclosure in home countries

Can protect assets from malpractice suits or divorce

Can hide illegal activities

Example: Cayman Islands

Back-office functions Known as business-

processing outsourcing (BPO)

Include processing insurance claims, payroll management, transcription work, etc.

Also includes centers for responding to billing or technical inquires

LDCs attract BPO because: Low wages Ability to speak English

Economic Base of Settlements A settlement’s

distinctive economic structure derives from its basic industries Basic Industry

export outside of settlement

Can be identified by computing the % of community’s workers employed in different types of businesses

The % of workers employed in a particular industry in a community is then compared to the % of all workers in the country in that industry

If % is much higher in the local community, then that type of business is a basic economic activity

Non-basic Industry customers live in same

community

Economic base unique collection of

basic industries defines its base

Important because exporting by the basic industries brings money into the local economy

Stimulates the provision for more non-basic consumer services for the settlement

That attracts new workers, who bring more families

That brings more consumer services to meet new needs

Economic Base of Settlements Specialization of Cities

in Different Services Settlements in the U.S.

can be classified by their type of basic activity Each type of basic

activity has a different spatial distribution

Concept of basic industries used to be referred to as manufacturing

In post-industrial America, increasingly the basic economic activities are in business, consumer, or public services

Examples: Business Services

General business : large metro areas such as L.A., NYC, and Chicago

Computing and data processing: Boston and San Jose

High-tech: Austin, Orlando, Raleigh- Durham

Management-consulting: D.C. Consumer Services

Entertainment and Recreation: Atlantic City, Las Vegas, Reno

Medical Services: Rochester, Minnesota

Public Services State capitals Large Universities Military bases

Economic Base of Settlements Distribution of

Talent Individuals

possessing special talents are not distributed uniformly among cities

Some cities have a higher % of talented individuals than others Correlation found

between the distribution of talent and the distribution of diversity in the largest U.S. cities