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Lecture 2

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GEO 301
Joseph Aversa

Week 2: Spatial Concepts and the Value of the Geographic Perspective Organic Growth - Opening new stores – Usually owned by the company - Usually slow – However, financing can speed it up - Two different types of organic growth 1. Hierarchal Diffusion: expand to thehighest order locations (highest population, income, business activity), then expand to a lower order of locations o Hierarchical diffusion – strategic regional development: Select some town(s) at about the same level in the hierarchy to develop while avoiding others 2. Contagious Diffusion: intensive development in a particular region expands outward into neighbouring locations o Coverage throughout hierarchy within an area 3. Hierarchical/ Contagious Combination o Contagious diffusion from a number of higher order centers o “Filling in” o Generally requires organization to have reached a large size ~ Companies that usually use this strategy have a large capital International Organic Growth - Difficult to break into markets in new countries with organic growth - Will often use contagious diffusions, expanding into areas just over the border first (less risk, less costly) - Slow… ~ Companies that use this strategy can acquire another company at any time Mergers and Acquisitions - Faster… - Mergers: two or more companies combine to create a new company, relative equality between firms - Acquisitions: purchase of over 50%of shares in one company by another company, purchased company disappears as subsidiary - Takeovers: also involve one firm purchasing controlling shares, however the purchased firm stays in existence Mergers and Acquisitions – Considerations A. Geographical Fit - Complementary coverage - International market entrance ~ Eg. same language, same culture, exposed to that company yet? B. Availability - Usually more important than geographic fit - Consider which companies are ripe for takeover or willing to merge at a given time Mergers and Acquisitions - Post-merger rationalization: eliminating redundancy and increasing efficiency - Newly merged firms will usually have significant geographical overlap in provision of service - Often, closures will occur where there is perceived overlap o However, such closures can sometimes result in loss of market share for combined entity Franchising - Selling/leasing of a company’s brand/products to someone else who will own and operate a location - Allows for fast expansion with low access to capital - However, reduces share of profit - Tim Horton’s ~ Eg. Boston Pizza is the biggest single banner dining restaurant. Joint Ventures and Strategic Alliances - Partnership that do not involve combining companies or exchanging shares - Exchange of expertise - Economies of scale/ network effects - Airline alliances… Warehousing - Retailing requires a system of depots for physically distributing goods to market - Previous decades have seen a rationalization from a larger number of smaller depots to a smaller number or larger depots - Increasing control by large retailers themselves - A geographical problem - The ability to expand into a new market/country depends on the geographical coverage of the distribution system - The reason contagious diffusion is often used for expanding into new markets is because it uses the existing system o Hierarchical diffusion might require a substantial investment in an expanded distribution system. Supply and Demand Supply Demand Store Customers Hospital Patients Library Patrons School Students Cinema Patrons Restaurant Clientele - Each of those aspects of Supply and Demand have: o A Geographical Distribution o Location Strategies - Distance decay: the decreasing rate of use with increasing distance from the source o Example: conventional distant decay curves for retail activities Market Range and Market Threshold - Market Range o the maximum distance a consumer is willing to travel to visit the store - Market Threshold - the minimum distance within which the demand is necessary for a business to be commercially viable o the minimum distance within which the business can draw enough customers to break even Distance Decay Curves - Range > threshold: business is viable - Range < threshold: trouble! (not enough customers) Distance Decay: Variations by Type of Goods/Services - Convenience (or low-order) goods/services (day-to-day purchases) o e.g. milk, bread, gas; a community shopping plaza - Shopping (or high-order) goods/services (department-store-type merchandise) o e.g. clothing, furniture, jewelry; a regional shopping centre - The Demand Curve – As the price of a good increases, few units of that good will be purchased - Cost and Distance – The greater the distance travelled, the greater thetransportation costs (economic geography) - Spatial Price Curve – The greater the distance from the store, the higher the cost to acquire that good (travel cost + price of the good - Spatial Demand Curve – The greater the distance, the less the quantity of purchased is. Spatial Choice - Work location, residential location,shopping location, migration… - Spatial choices - Spatial constraints - Consumer demand for goods/services  demand for travel  distance decay concept - Work location, residential location, shopping location, ……. - Consumer behaviour is supposed to be influenced by your work location, home location and store locations. - Subject to similar economic analysis  spatial consumer behavior - Economic analysis has been widelyused in analysis of consumer behaviour, as mentioned in Ch 5 of Jones and Simmon’s. For example, the rational approach to consumer behaviour which suggests that consumers are ‘economic men’ who are well informed and behave in a way to maximizethe benefit from each shopping trip. Similarly, spatial consumer behaviour can also be analyzed using economic approach. An example would be to include distance to stores as a disincentive which would decrease the benefit from the shopping trip. This aspect will be elaborated on later. - Spatial choices - Thus, every shopping trip, for example, grocery shopping, is manifested as a set of spatial choice. The choice of the Fortinos at Weston and Hwy 400 instead of the Highland Farm at Finch and Dufferin can be viewed as aspatial choice. - Spatial constraints - And this choice could be the result of certain spatial constraints, for example, you live closer to the Fortinos at Western and Hwy 400, or you have no access to a car and it is too far for you to go to the Highland Farm at Finch and Dufferin although you mightactually prefer the Highland Farm to the Fortinos. - Consumer demand for goods/services  demand for travel  distance decay concept - So it is always true to say that because of the consumer demand for goods/services, there is demand for travel. You always have to travel a certain distance to get to the store to buy. An extremely important concept in geography, which is also one of themost important concepts in consumer spatial behaviour, is ‘Distant Decay’. The greater the distance traveled, the greater the transportation costs (whether measured in time or money) and the less interaction between consumer and stores. Distance decay can be further illustrated by the spatial demand curve. - Spatial demand curve (simplistic) - Spatial demand affected by - Cost of acquisition (price of goods ,travel cost) - Destination attractiveness (size, variety, …) - Single purpose vs. multi-purpose trips - (time-saving, comparative shopping) - Substitutable and complementary destinations - (e.g. a clinic and a pharmacy located close to each other) - Spatial demand affected by - Cost of acquisition (price of goods + travel cost) - Destination attractiveness (size, variety, …) - The spatial demand curve shown in the textbook is the simplest abstraction of the reality. Besides cost of acquisition, which includes the price of goods and travel cost, spatial demand is affected by destination attractiveness. How much you buy from a store or how often you visit the store is also influenced by how attractive you think the store is. Often size and product variety, cleanliness, and servicelevel are major considerations. So you may go all the way to York Dale from Downtown instead of visiting the nearby Eaton Center because you think York Dale offers wider selections of clothes,
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