Linkage industries
Yvonne Harvey, Contributor

As always, it is a great pleasure to discuss another topic with you from the principles of business syllabus. We are still looking at production and the topic of linkage industries is very important for efficient production.

An industry is made up of a number of firms producing broadly similar items or items that are connected to each other. A linkage industry is an industry which is associated or connected to other industries in such a way that the existence of one is dependent on the other, or it enhances the other's production process. These industries are also referred to as 'spin-off' and 'screwdriver' industries.

Some examples of linkage industries are:

• agriculture linked to tourism
• bagasse linked to sugar-cane refining
• bauxite linked to aluminium
• petrol (gas) linked to crude-oil refining
• agriculture linked to the canning industry
• Road-building in Trinidad linked to the asphalt industry.

Can you think of other examples? Please add them to the list.

Types of linkages

Linkages are first of all internal (local) or external (international) and second, either backward or forward.

Internal linkages are formed where all the industries that are connected exist within the same country. These industries are often sited near to each other. An external linkage is where one or more of the industries is located in another country, for example, the motor car assembly industry in CARICOM is linked to the motor car parts manufacturers all over the world.

Internal and external linkages are also linked at different stages of production and, therefore, may be either backward or forward. A backward linkage exists when an industry obtains raw materials from an industry that is closer to the raw material stage than itself, for example the biscuit industry obtains flour from the flour mill.

A

(B obtains from A)

B

A forward linkage exists when an industry supplies another industry that is nearer to the marketing stage than itself, for example, the agricultural industry supplies the tourist industry.

A

B (A supplies B)

Opportunities for the formation of linkages

There are many opportunities for the development of linkage industries, especially where there are idle raw materials; where there are large amounts of unemployed persons and where relationships have developed between the various productive sectors, for example, primary with secondary sectors. Also, because many of these industries are in proximity to each other, linkages have been encouraged.

However, with the development of transport, this has become a less important factor. In instances where knowledge can be shared, linkages are also formed.

Benefits of linkage industries

• Resources are more efficiently used.
• More unemployed persons are able to find work.
• Investment, national income and standard of living increase with the formation of linkage industries.
• Countries are able to save on imports and increase exports through items produced by linkages. This will improve the balance of payments of countries and boost their economic development.
• Linkages can encourage large-scale production which can meet local as well as foreign demand.
• Innovation and new technology can be promoted through linkage industries.
• Self-sufficiency and self-reliance are encouraged.

From your reading, you can add other advantages. I will now point out a few of the problems experienced where the formation of linkages is concerned.

The greatest problem is the acquiring of capital to develop linkage industries. In addition, access to foreign markets is not guaranteed and the availability of local raw materials in some cases is limited and these may have to be sought from abroad using scarce foreign exchange. Again, you can add to these problems from your reading and previous knowledge.

Activity

Consider this question

(a) Define the term industry. (2 marks)

(b) Explain the term linkage industry. (2 marks)

(c) Explain the difference between an internal linkage and an external linkage (4 marks)

(d) Give FOUR examples of linkage industries. (4 marks)

(e) Differentiate between a forward linkage and a backward linkage. (4 marks)

(f) Discuss TWO benefits of linkage industries. (4 marks)

TOTAL: 20 MARKS

Honour-roll students at Hampton School in St Elizabeth pose for the camera. From left are Shada Sinclair, Sherice Spence and Michelle-Ann Johnson. - Photo by Sheena Gayle

Yvonne Harvey teaches at Glenmuir High School.