Economic Concentration Evaluation

Economic Concentration Evaluation

The Influence of Competition and Pricing on the Economic Concentration in Seattle-Tacoma-Olympia

One of the reasons for the economic concentration in the Seattle-Tacoma-Olympia area is the rising cost of employment. The aerospace industry is dependent on highly skilled workers (Materna, 2013). Therefore, even with a decline in profitability, industrial production, and capacity utilization, workers’ wages will still rise. Aircraft manufacturing workers earn more than the industry average at 120.6; hence, only a few firms can afford that.

Furthermore, fixed investments have contributed to economic concentration. As a general rule, reinvestment in a firm leads to increased productivity, efficiency, and profitability. Aircraft firms in the Seattle-Tacoma-Olympia area have reinvested their earnings into the business (Materna, 2013). These firms continue to dominate because they have sufficient resources to reinvest in the business, unlike upcoming companies with few resources. In the aerospace sector, reinvestments have led to increased operating efficiencies, profits, and, eventually more jobs in the sector.

Also, manufacturing extension partnerships in the aerospace industry have contributed to the economic concentration. The Manufacturing Extension Partnership (MEP) is a federal and state government program aimed at helping small and mid-sized US firms save time, create jobs, and enhance profits. Seattle-based firms have partnered with high-capacity industries through the program to improve sales (Materna, 2013). The MEP program also connects business owners with over 1400 experts who help businesses expand and enhance productivity. Therefore, the government has played a significant role in assisting companies in developing new customers, expanding into new markets, and creating new products.

The issue of reverse balances also manifested. The reverse balances rule requires banks to deposit funds into the Federal Reserve System. The requirement has since reduced the amount of credit available to aircraft manufacturers. Also, the guideline has reduced the amount of capital available for leasing and purchasing large aircraft, leading to the concentration among large manufacturers.

The Influence of Economic Concentration on the Supply Chain

One of the direct effects of the economic concentration in the aircraft industry is that smaller firms along the supply chain have been overstretched. Particularly, tier III and tier V manufacturers are unable to meet the increased production demands in the industry (Materna, 2013). Besides, there is a chance that specialty materials will be in short supply if the demand continues to rise. A study conducted across the sector by Price Water Coopers (PwC) shows that a fifth of manufacturers cannot meet the needs of different component and systems segments.

Increased globalization will also likely cause the bullwhip effect and the emergence of counterfeit parts. The bullwhip effect refers to cheating and amplification of inventory levels as orders move from the producer to the final user. Concentration and globalization are also likely to cause the emergence of counterfeit products. This is because production is moving to countries where anti-counterfeiting regulations are not as strict as in the US. For instance, a 2008 study established that counterfeit microchip parts from China had entered the US defense industry. The emergence of such counterfeits could not be possible without the concentration and resultant globalization of aircraft parts manufacturing.

The Influence of the Four Factors of Production on Economic Concentration

The Most Important Factors

Labor

Labor is one of the most important factors for concentration in the aerospace and aircraft industry. As the technology in the industry becomes more sophisticated, the skills required to test, repair, and manufacture engines and parts are becoming more specialized. It is more expensive to hire, train, and maintain a highly skilled workforce, hence the high concentration.

Capital

Capital is also a significant contributor to the economic concentration in the aerospace industry. The cost of test equipment to be used in the manufacturing process is high. Even though manufacturers can rely on onboard equipment, the cost of the equipment needed to test next-generation parts is high.

The Least Important Factors

Land

Space is not such an important factor in the production of aerospace and defense equipment. One of the reasons why space is not so important is because the manufacturing of most equipment is outsourced. Therefore, most factories assemble what has been manufactured elsewhere.

Entrepreneurship

Entrepreneurial skills are not so crucial in the industry. This is because sellers and buyers have limited bargaining power. Industry requirements mostly determine the prices and equipment requirements.

Anticipated Changes

Many countries are facing pressure to reduce military spending to balance their budgets. As a result, many nations are cutting back on their spending on research, development, and acquisition of new systems (Balcerzak, 2019). Instead, most countries are working on engineering efforts to extend the life of their current equipment. Besides, scheduled and unscheduled aircraft fleet maintenance makes more sense than acquiring a new fleet, even though repairing a fleet has a higher MRO (repair, maintenance, and operations) in the long run. Based on these factors, it is clear that the economic concentration is likely to go down as the demand for aircraft equipment and parts keeps reducing. Also, most fleet controllers on the global stage are likely to hire their engineers to work on existing equipment instead of acquiring new equipment.

References

Balcerzak, T. (2019). Global Aerospace Industry Risks. Scientific Journal of the Silesian University of Technology. Series Transport, 102, 5–27. https://doi.org/10.20858/sjsutst.2019.102.1

Materna, R. (2013). 3rd Edition Aerospace Industry Report. https://www.aia-aerospace.org/wp-content/uploads/2016/09/AIR-2012-Book.pdf

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1 of the economic concentrations (clusters) below:

Seattle-Tacoma-Olympia, WA aerospace/defense industry

Write a 700- to 1,050-word paper evaluating economists’ assessments of the role the 4 factors of production played in determining how the economic concentration you selected has evolved. Complete the following in your paper:

Economic Concentration Evaluation

Analyze how the economic concentration in the area you chose was influenced by competition and pricing.
Analyze how the economic concentration in the area you chose influenced the supply chain.
Analyze which of the 4 factors of production were the most and least important in determining the economic concentration of the area you chose.
Predict changes you anticipate for the area of economic concentration you chose. Support your predictions.

Consider the resources provided and other academically appropriate sources. The use of charts and tables to illustrate data is highly encouraged.

Cite at least 2 academically credible sources.

Format your assignment according to APA guidelines.