In this section, four strategies are explicitly theorized in relation to the above three competitive dynamics. This strategy is particularly important because the existing GVC and outsourcing literature tends to focus exclusively on inter firm relationships. Despite the rich interdisciplinary literature on transnational corporations Dicken ; UNCTAD , we know surprisingly little about how firms in global production networks reorganize their internal value activity to meet the competitive challenges of the three structural dynamics identified above. In adopting intrafirm coordination, these firms are also more driven by the higher market imperative since product cycles stay dynamic, the industry remains unsaturated, and new market segments continue to emerge.
It allows the firm to gain control of critical technological or marketing resources in the face of such environments. This strategy of intrafirm coordination is likely to produce highly integrated global production networks in which corporate headquarters exercise tight control over their subsidiaries and affiliates. To illustrate briefly how intrafirm coordination works, we can look at the global retail industry. This strategy allows for greater value creation and capture. In their global operations, these giants tend to internalize most, if not all, their retail outlets, in order to achieve economies of scale in dealing with suppliers, brand and quality consistency, and efficiency in logistical support.
This pattern of intrafirm coordination applies also to their increasing presence in new and emerging markets outside their home countries. Tesco, on the other hand, comes from a much smaller home country, the United Kingdom. Tesco thus adopts a much more flexible and communicative strategy toward its intrafirm coordination.
In South Korea, for example, Tesco works with its strategic partner, Samsung, to penetrate into an otherwise difficult retail market characterized by highly competitive conditions, distinctive and demanding consumer preferences, and a strong local supply base Coe and Lee , Overall, these two contrasting examples help us understand why and how intrafirm coordination can be adopted as a key strategy to organize global production networks in the retail industry.
This strategy also allows them to be responsive to market demand and consumption patterns. Through technological platforms e. Both groups also share the various risks inherent in their intertwined global production networks. Intrafirm coordination becomes an effective strategy for them to mitigate these GPN risks.
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This outsourcing applies to key components or services, complete modules or service packages, and systems and subsystems. The high levels of explicit control of its suppliers and contractors are deemed necessary by a lead firm in order to gain collective competitiveness in its entire global production network. Moreover, externalization may be feasible if the market for a product or service is generally mature and saturated.
In addition, financial discipline tends to be high and induces firms to focus only on their core competence. This discipline imposes serious pressure on firms to extract greater financial returns from their current assets or investments in order to satisfy their shareholders. Finally, the risks associated with technological change and market shifts cannot be too high for outsourcing to take place because suppliers and contractors are less likely or willing to take on this risk. Without these external actors, a lead firm's outsourcing strategy will not work.
This theorization of the causal role of market, financial discipline, and risk in engendering interfirm control strategy allows us to provide a more nuanced analysis of the role of different actors lead firms, strategic partners, suppliers, and so on and their power relations in evolving global production networks. Our approach deepens the existing GVC analysis of the captive form of governance. Despite its explicit desire to control and lock in suppliers, for example, a lead firm may also be keen to develop supplier capabilities because of the potential for improving collective efficiency at the level of the global production network.
However, in today's highly globalized automobile industry, all producers require very substantial inputs from external and multiple tiers of suppliers. Lead firms in this industry not only outsource significant levels of component, module, and subsystem manufacturing to independent auto suppliers, but the lead firms also increasingly pressure these suppliers to establish production and supply facilities near to lead firms' final assembly plants in different locations.
This brief case of interfirm control in the automobile industry, nevertheless, conceals substantial intraindustry variations in the national origins and corporate cultures of different lead firm assemblers. Japanese automobile firms, on the other hand, are more likely to coinvest in their suppliers and develop closer interlocking relationships in these production networks that approximate the relational interfirm partnerships to be explained in the next section.
The presence of dense business networks i.
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In terms of network configurations, lead firms from different national origins may also develop production platforms in the same geographic location but with drastically different market orientation. In China, for example, some American and European assemblers are more likely to engage in localization through local design, engineering, and regional headquarters facilities Liu and Dicken ; Van Biesebroeck and Sturgeon Not all interfirm relationships are characterized by lead firms tightly controlling their suppliers and contractors.
In the above example of Japanese and South Korean automobile assemblers, cooperative relationships can also be formed between lead firms and their strategic partners and specialized suppliers. But our conception goes beyond these broad governance relationships within the same industry, as firms may also enter into interindustry partnership relationships with other firms, most notably with advanced producer service firms providing financial, legal, accountancy, information technology, management consultancy, advertising, and logistics services, among others.
Taking a network rather than an industry approach, we describe this cooperative strategy as interfirm partnership, defined as the collaboration, coevolution, and joint development of a lead firm and its strategic partner s or key suppliers in the same global production network in order to compete against other lead firms and their network partners.
The market imperative is clearly very significant for all firms in a cooperative global production network. The prospect of an expanding and unsaturated market assures a lead firm and its partners and suppliers that they can collectively benefit from their cooperative value creation process. Even though the capture of this value is unlikely to be evenly distributed among these network actors, partnership provides a more mutually beneficial competitive strategy for them to thrive in the global marketplace.
The risk environment in which all cooperative partners operate tends to be high.
These risks range from market volatility to technological shifts and supply chain disruptions. To reduce their exposure to these risks and to capitalize quickly on rapid market changes, the lead firm and its partners enter into cooperative arrangements underpinned by finely organized divisions of labor and mutual dependency.
To understand fully the peculiar configurations of a cooperative global production network, we need to analyze how each of these firm actors adopts the strategy of interfirm partnership.
Because of the cooperative nature of their interfirm divisions of labor, the power relations among these actors are not as hierarchical as in the case of a lead firm pursuing an interfirm control strategy. Importantly, these key suppliers are not envisioned as mere satellites orbiting a dominant but benevolent patron, dependent and beholden. The case of Apple Inc. In this intersection of multiple production networks across several segments in the ICT sector, we witness the significance of interfirm partnerships in creating the unprecedented market success of one major consumer product.
The role of nonfirm actors, such as the state, international organizations, labor groups, consumers, and civil society organizations, has so far been assumed in this article as generally supportive and cooperative. A growing body of empirical evidence suggests, however, that they have significant influence on global production network dynamics. In other industries, such as electronics and automobiles, these initiatives have much less purchase in shaping how lead firms configure their global production networks.
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These nonstate global setters of standards and norms in global industries play an increasingly vital role in the governance of inter and extrafirm relations. For example, the influence of the credit rating agencies extends far beyond that of financial institutions such as banks, affecting global lead firms and their strategic partners seeking funding in different capital markets. In practice, this highly diverse group of nonfirm actors is often driven by a large number of possible rationalities that go beyond any simple classification.
The strategy of extrafirm bargaining is critical because it provides the crucial analytical nexus for understanding how economic processes, embodied in firms, intersect with noneconomic issues e.
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It sheds crucial light on the institutional underpinning of the strategic coupling of regional economies with global production networks in the GPN 1. Firm and nonfirm actors pursue extrafirm bargaining strategies to achieve three interrelated objectives: 1 market power, 2 proprietary rights, and 3 social and political legitimacy. The first objective stipulates that global lead firms shaped by a strong market imperative are likely to be more interested in gaining market power from extrafirm bargaining relations with state actors who, for the most part, remain the key regulators of uneven market access even in an interconnected world economy.
For lead firms, high competitive pressures generate dual tendencies, namely, to globalize operations in order to achieve greater efficiencies while also localizing operations in order to ensure a certain degree of autonomy and responsiveness. These intense bargaining relationships are particularly evident in industries subject to strong state regulation such as resource extraction, automobiles, petrochemicals, retail, telecommunications, and finance.
Network outcomes in these industries are often mediated by geo political imperatives Glassman ; Smith ; Yeung The second motive prompting firms to adopt an extrafirm bargaining strategy is related to the quest for proprietary rights in the context of technological and market innovation. This bargaining process is prominent in industrial segments characterized by high levels of financial discipline and high risk of technological or market shifts e. These lead firms enter into robust negotiations with relevant domestic nonfirm actors such as state authorities, standards organizations, and industry associations.
As local firms acquire or develop greater technological and market capabilities, they may bargain with home institutions for preferential access to resources and fiscal incentives given to foreign lead firms. Over time, successful technological and market innovations are underpinned by strong extrafirm bargaining between lead firms and nonfirm actors in different geographic locations. The rapid growth of industrial and technological capabilities in Taiwan's ICT sector is a clear example of extrafirm bargaining between global lead firms and nonfirm actors such as state institutions and business associations Amsden and Chu ; Breznitz ; cf.
Yeung , In many other industries e.
Third, the noneconomic goals of firms and nonfirm actors can be a powerful imperative for pursuing extrafirm bargaining strategies. In fact, a number of today's global lead firms have social and political goals embedded in their corporate mantra. One specific way for these firms to attain these noneconomic goals is to gain broad social and political legitimacy through developing sustainable extrafirm relations with nonfirm actors.go to site
Global Production A Handbook for Strategy and Implementation
This strategy is particularly relevant to firms with multinational operations. While private and voluntary in nature, the Roundtable on Sustainable Palm Oil, for instance, is an international organization and certification scheme established through the participation of multiple stakeholders such as firms, advocacy groups, and local communities. Under certain circumstances, notably where there is active local participation and a strong collective sense of ownership, actors in local communities in the Global South can benefit from these governance initiatives in the sense that their value activities are not driven entirely by the capitalist imperative of global lead firms located elsewhere.
Reframing and going beyond the conventional wisdoms of GVC frameworks and the disparate conceptual categories in GPN 1. A more dynamic GPN theory not only accounts for the origins of these networks but also specifies their changing configurations over time. While for analytical purposes we have necessarily theorized these four strategies in isolation, the reality for many firms in global production networks is that they are usually actively combining two or more such strategies across their various operations and activities.
At face value, this theoretical mapping may appear to be generic and categorical. The variable strategic choices made by intentional actors offer strong support for our nuanced analysis of a highly complex and interdependent global economy characterized by a diverse range of firms and nonfirm actors operating at different geographic scales, from the global to the local.
Linking actors, dynamics, strategies, and the organizational modes of global production networks into one coherent explanation, our theoretical reframing helps to identify the explanatory mechanisms to inform future studies of the effects of these networks on the ultimate dependent variable—development outcomes UNCTAD Looking forward, we envisage some critical questions for a research agenda under the general rubric of GPN 2.
In particular, more theoretical work is needed to explain how and why the diverse actors and varied strategies profiled above shape developmental outcomes at different geographic scales. While the notion of strategic coupling in GPN 1. What our article has provided for is a set of causal mechanisms that can explain the specificities in coupling, decoupling, and recoupling. For example, how might we explain the impact of intrafirm coordination on regional development?
Coupling processes and their development outcomes can be much differentiated by types of firm origin, ownership, capabilities, and resources and their pursuit of intrafirm coordination mechanisms. These differences are likely to be even more accentuated in the case of interfirm control or partnership strategies Yeung ; Coe and Hess Buy eBook. Buy Hardcover. Buy Softcover. FAQ Policy. About this book What is the best configuration for a global production network? Show all. Table of contents 10 chapters Table of contents 10 chapters Why Go Global?
Tobias et al. Show next xx. It addresses new and emerging challenges; promotes the science-policy interface and enhances the integration of economic, social and environmental dimensions of sustainable development. It resulted in a focused political outcome document which contains clear and practical measures for implementing sustainable development. In Rio, Member States decided, inter alia, to launch a process to develop a set of Sustainable Development Goals SDGs , which were to build upon the Millennium Development Goals and converge with the post development agenda.
Aware of the challenges still faced by SIDS in the implementation of the programme, especially limited financial resources and the reduction in the official development assistance, the document listed a set of 19 priorities areas.