CCSS4048 Introduction to Human Geography Lecture Seven PDF

CCSS4048 Introduction to Human Geography Lecture Seven: The geographies of global production networks  Learning objectives  To define production networks生產網路  To make sense of spatial division of labor  To describe the governance of production networks  To identify the production ne...

CCSS4048 Introduction to Human Geography Lecture Seven: The geographies of global production networks  Learning objectives  To define production networks生產網路  To make sense of spatial division of labor  To describe the governance of production networks  To identify the production networks in their institutional contexts  To make senses of the two global production activities  Upgrading  Offshore outsourcing  Every economic activity can be thought of as a production chain—a linked series of value-adding activities  While simple chains can be thought of in linear terms, in reality, these chains are enmeshed交織with much wider networks of relationships involving a broad range of other functions that are necessary for economic activities to take place Inter-firm relations are embedded in broader financial and regulatory systems  What is a production network?  Products and related services are provided by production networks where autonomous enterprises are linked by relatively stable material, information, and financial flows  A production network typically includes nodes of suppliers and manufacturers involved in direct value-adding activities, distribution centers and logistics service providers, as well as facilities and channels for reverse logistics  This concept puts emphasis on the fact that enterprises operate within the fabrics of economy, society, and ecosystem: they have to respect not only their customers’ and own interests but also those of other stakeholders, including the social and natural environments Context: Globalization of production  Traditional production modes were localized  Modern production is networked and globalized → spatial division of labor: the allocation of specialized tasks among and within places and across space  Rise of the global commodity chain (GCC)(全球商品鏈), i.e. the worldwide network of labor and production processes yielding a finished commodity  A phenomenon where production is broken into tasks and activities that are carried out in different countries What is a global production network? Global Production Network (GPN)全球生 產網 “The nexus連接of interconnected functions, operations and transactions through which a specific product or service is produced, distributed and consumed." In reality, in a context of increased global competition, the dominant trend has been for firms in many sectors to focus on their core activity or “competency”, while seeking non-core inputs via external relationships These increasingly important external networks can take on many forms Markets  Inputs of low value/ standardized inputs to be purchased by firms on the open market  No long-term relationship between the 2 parties  Firms can readily switch between suppliers Subcontracting  Firms buying inputs that have been made, under contract, to meet their own specific requirements  Subcontracting  Formality and length of contract affect stability of relationship  Commercial subcontracting: it involves the entire manufacture of a particular good/ service  Industrial subcontracting: a firm buying in particular inputs that it does not have the skills/ capacity to produce cost-effectively “in-house”自力設計  More about subcontracting  Agreement to hire another person or company to do the job you have been hired to do  Difficulty of monitoring due to prevalence of subcontracting  Orders placed with one contractor may be turned over to ten subcontractors who may in turn pass subcontracts onto networks of home workers who complete jobs in basement and living rooms  The greatest number now operate in the IT and information sectors of business  Strategic alliances/ joint ventures  Firms come together to create a new corporate entity in order to undertake a particular task  Participating firms still remain competitors in many other aspects  Franchising and licensing  Firms allow a company (the franchisee/ licensee) to sell their product/ service in a particular territory under given terms and conditions, and in return for a set fee  It is common in the service sector → allowing rapid geographical expansion  Cigars and franchise in the US  The United States’ recent steps toward normalization of relations with Cuba will definitely expand access to the country’s high-end cigars, providing an opportunity for the industry to maximize profits  The fact that there are emerging laws restricting people to where to smoke cigars, cigarettes and tobacco makes it one of those businesses that is in high demand  A cigar lounge is where smokers go to buy their preferred cigar brand and smoke freely without the fear of being embarrassed, arrested or fined  To start the cigar lounge business, one of your options is to buy a franchise Geographies of production networks: Spatial division of labor Every production network requires a spatial division of labor  Division of labor refers to the disaggregation分 散of complex activities into discrete tasks that comprise a continuous extension of the division of labor and the development of a new spatial division of expertise Spatial Division of labor (Massey 1984) Spatial variations are both created and exploited by the ongoing restructuring of capitalist firms in their pursuit of profit Spatial restructuring of the UK economy in 1960s and 1970s: Intra-firm (internal) and intra-national division of labor Corporations were increasingly looking to separate spatially the control functions performed by managerial workers from the execution functions undertaken by manual workers Low-skilled manual tasks in peripheral areas Managerial/ R&D tasks in core cities and their surrounding regions  Spatial divisions of labor are constructed through combinations of intra-firm, and increasingly, inter-firm (external) networks, and at the international scale  Rise in the number of transnational corporations (TNCs)in organizing spatial division of labor at the international scale  Global production networks have become one of the most important organizational features of contemporary global economy  Different phases of development of the global economy  Traditional international division of labor (IDL)  19th C to 1950s  IDL depicted a trading system  Developing world/ periphery was largely relegated to providing raw materials and agricultural plantation productions for industrialized economies of the core  High-value manufactured goods were exchanged between industrialized countries, and some were exported back to developing countries https://youtu.be/79gCqjl6ihQ?t=300  Fordist style production system Fordist Approach pioneered by Henry Ford A form of mass production in which each worker is assigned one specific task to perform repeatedly Products are highly standardized The dominant mode of mass production during the 20th century until the late 1960s Production of consumer goods at a single site  New international division of labor (NIDL)  1960 onwards  European, Japanese, North American TNCs created labor-intensive export platforms in newly industrializing economies (NIEs) in East Asia in response to falling profit rates in the core countries  Shift from Fordism to post-Fordism production esp. between 1970s and 1990s  Post-Fordism is characterized by the following attributes: Flexible production specificity-oriented flexible goods, individualized goods Small-batch production New information technologies The rise of the service and the white-collar worker The feminization of the work force  NIDL (in post-Fordist style of production): strengthened economic relations between nations The establishment of export-based secondary manufacturing in developing countries The creation of OECD (since 1961) to stimulate economic progress and trade The rise of newly industrialized countries (NICs) Organization for Economic Co-operation and Development (OECD) countries “First wave” of NICs (red): Hong Kong, South Korea, Singapore and Taiwan. Present NICs (brown): Brazil, China, Malaysia, Mexico and Thailand.  MNC/ TNCs establish branch plants in developing economies to reduce costs NICs offer low-cost labour, assemble goods using components made in OECD countries, and export goods back to OECD HK in 1960 – 1980s (e.g. watches, toys) SE Asia, S. Asia, Africa for garments, shoes, etc. Production is spatially reorganized Thanks to logistic innovations (e.g. containerization),ICT, and changes in world financial system  New global division of labor  Range of NIEs has broadened and deepened considerably in Asia  Increasing investment in NIEs to access their domestic markets  Significant outward investment by NIE TNCs  Continued high levels of investment between developed economies and the emergence of complex divisions of labor in the service sector  The contemporary global economy is not characterized by one single type of IDL but rather many different forms  Traditional IDL and the NIDL remain important in a range of industries e.g. natural resources, clothing/ toys, respectively  They have subsequently been overlain by, and have interacted with, newer and more complex international divisions of labor  Geographies of global production networks  Geographical complexity is increasing, enabled by a range of developments in transport, communication and process technologies  Geographic configurations of global production networks are becoming more dynamic and liable to rapid change  Use of space-shrinking ICTs  Increased use of subcontracting and strategic alliance relationships allows firms to switch contracts between different forms and places without incurring costs of moving production themselves  Geographical clustering of economic activity  Types of clusters in the global economy  Labor intensive craft production clusters  Clothing industries involved in tight subcontracting networks and often use high levels of immigrant labor/ homeworkers  High-technology innovative clusters  Highly skilled labor markets in sectors such as computer software and biotechnology (such as Silicon Valley in the US)  Production satellite clusters  Congregations of externally-owned production facilities  Export processing zones of the developing world  Business service clusters  Business services activities such as financial services, advertising, law, accountancy are concentrated in leading cities– NYC, London and Tokyo—and their hinterlands  Consumption clusters  Consumer service activities such as retailers, bars, restaurants, cultural, leisure and tourism activities are clustered in central urban areas Governance of production networks How a production network is controlled and coordinated The way in which some firms use their power over other firms to control or “drive” the overall system These “lead” firms are able to define which other firms can join the network, the roles they perform etc. despite not directly owning them The authority esp. powerful corporations and power relationships that determine how financial, material and human resources are allocated and flow within a chain  Buyer-driven: larger retailers (e.g. Walmart) or branded merchandisers (e.g. Nike)  Producer-driven: capital- and technology-intensive industries (e.g. Boeing, Toyota) Source: Gereffi (1994)  Producer-driven Buyer-driven Controlling type of Industrial Commercial capital Capital/technology High Low intensity Labour characteristics Skilled/high wage Unskilled/low wage Controlling firms Manufacturer Retailer Production integration Vertical/bureaucratic Horizontal/networked Control Internalized / Externalized / market hierarchical Contracting/outsourcing Moderate & High increasing Suppliers provide Components Finished goods Examples Automobiles, Clothing, footwear, computers, aircraft toys Source: Coe et al. (2013), p. 237 垂直整合 橫向合併  Market Governance Simple exchange relationship Little cooperation Low cost of switching to new partners It uses standardized and widely accessible technology Buyer has no controlling interest in production, producers have little info on what market wants and how to produce it Governance mechanism: price Example: a trader buys produce at the farm gate or in a wholesale market and either sells it in the local market or exports it Captive Governance Why “captive”? Small suppliers depend on a few powerful buyers → power asymmetry Suppliers adapt to specific conditions set by buyer→ high switching costs High degree of monitoring and control by lead firms The core competence of lead firms falls outside of production. They are the most likely to invest in the product and process upgrading of their suppliers Suppliers may not get fair pay Example: US chicken farmers and processors Poultry Industry in the U.S. Relational Governance Buyers and sellers rely on complex info that is not easily transmitted or learnt Frequent interactions and knowledge sharing, with trust and mutual dependence Lead firms still specify what is needed. Have some control over suppliers More differentiated products Relational linkages take time to build, higher cost of switching to new partners Example: High-end manufacturing - Apple and Foxconn for personal mobile devices Hierarchical Governance Vertically integrated. Tight managerial control Lead firms develop and manufacture products in-house Product specifications cannot be codified, products are complex, or highly competent suppliers cannot be found Provide regular employment, guarantee quality and build producer capacity Example: Some government services, some healthcare services  Institutional context Every relationship in a production network is shaped by its institutional context (i) This is significant at various scales Subnational: local governments seek to stimulate particular kinds of economic activity in their locality National: nation-states still wield a huge range of policy measures to promote/ steer economic growth within their boundaries; measures designed to restrict or promote movements of traded products, investment, and migrants across national boundaries Macro-regional: regional blocs such as the EU have considerable influence on trade and investment flows within their jurisdiction Global: supra-national institutions like WTO/ IMF determine the regulatory frameworks for global trading and financial relationships  Formal and informal institutional frameworks  Formal: rules and regulations that determine how economic activity is undertaken in particular places (e.g. trade policy, tax policy, environmental regulations etc.)  Informal: less tangible, place-specific ways of doing businesses that relate to the social, economic, and political cultures of particular places  Industrial upgrading產業升級 in production network Governance – a top-down view Upgrading – a bottom-up view Moving to higher value activities in global production networks to increase benefits from participating in global production Help analyze success of or failure in improving technological capabilities and positioning in production networks over time Geographical (e.g. relocation, acquisition收購) and temporal dimensions  Process upgrading: transforms inputs into outputs more efficiently by reorganizing production system or introducing superior technology; Product upgrading, moving into more sophisticated product lines through developing design capacity → improving product quality and increasing value for consumers Functional upgrading: acquiring new functions (or abandoning existing functions) to increase the overall skill content of the activities (i.e. manufacture and sell products under their own brands); and Chain or inter-sectoral upgrading: firms use their expertise to shift into entirely new production networks (e.g. from laptops to smartphones)  Outsourcing外判/外包  The transfer of activities once performed by an entity to a business in exchange for money  Example 1: Health care  The work of the radiologist is increasingly being outsourced  X-rays can be easily digitized and sent via the Internet  A digitized x-ray taken in London can be read quickly and easily by a lower-paid radiologist in Asia  Example 2: The military  The transportation of soldiers by military organizations is increasingly being outsourced  North Atlantic Treaty Organization (NATO) soldiers fighting in Afghanistan are flown there on leased airplanes or commercial airlines of NATO nations, rather than on planes from their own air forces  Offshore outsourcing離岸委外/外包  Sending work to companies in other countries  Example: Call centers in India  One recent trend is the increasing offshore outsourcing of high-level white collar and service work, such as IT, accounting, law, architecture, journalism and medicine  Case study: Offshore services IT allows for quick and easy info transfer Enable the global outsourcing of multinational corporations (MNCs) To improve their efficiency levels in the global economy, reduce costs and increase flexibility MNCs unbundle their corporate functions, e.g. HR management, customer support, accounting and finance, and procurement operations, and “offshored” these activities Creating the offshore services industry Typically involving developing countries  The Nike Model (Phil Knight)  Nike was founded in 1964 as an importer and distributor of Japanese specialty running shoes  Lower-cost, better quality Japanese producers were beginning to take over the US consumer appliance and electronic markets  Other leading sportswear companies such as Adidas were still manufacturing their own shoes in high-cost countries such as the US and Germany  Knight believed that by outsourcing shoe production to Japanese manufacturers, the company could undersell competitors and break into the market  Began importing shoes from Japan’s Onitsuka Tiger  The company was launched as Nike in 1972 and developed a strong working relationship with two Japanese manufacturers  https://www.youtube.com/watch?v=2U6vKwAAmqY  Advantages of outsourcing for Nike  Cutting costs  Employing workers at a reduced rate or paying less for plant operation  This allows Nike to invest the additional profits into other areas of the business such as advertising  Increase competitiveness  Outsourcing enables Nike to more efficiently produce its product and reduce costs, it can more competitively price its products  This also enables Nike to price its brand at a competitive rate with other companies that sell a similar product  Finances and risk reduction  Nike can skirt some of the financial obligations it might face with the confines of tax laws in the United States  Less risk associated with producing its product such as insurance liability  Exporting the Nike model  The enormous success of the Nike model inspired emulation from across the industry  Series of changes  Vans company closed existing factories in California and contracted production in South Korea  Adidas shut down company-owned factories in Germany and moved to contracting-out in Asia  Levi Strauss shut down eleven plants in 1997 (6300 workers being laid off; manufacturing in China instead)  Impact on outsourcee countries  Outsourcing and global production and negative impacts  Many branded companies are closing existing factories in home countries and contracting production to the “third party manufacturers” in other countries  Manufacturers felt less responsible about their workforce  Serious issue of labor exploitation in outsourcee countries  Enforced casualization of labor in outsourcer countries  Frequent reports of labor right abuse in free trade zones and export processing zones in developing countries such as Indonesia and Malaysia  Nike was notorious to use sweatshops during 70s to 90s  Poor working conditions  Lack of protection for migrant workers  Race to the bottom逐底競爭  For less developed countries to compete and succeed in the global economy, they need to undercut competition by offering:  Lower wages  Poorer working conditions  Longer hours  Higher pressure and demands  Lax environmental regulation  One country may be willing to go further than others in order to attract investment  Resulting an ever-spiraling decline in wages, working conditions, etc.  The countries that get the work are those that win the race to the bottom  These are almost always pyrrhic victories慘勝since the work is earned on the basis of creating poorly paid and horrid circumstances for the workers within the “victorious” nation  Example: Foxconn  Many inland Chinese cities competed fiercely for the chance to host a Foxconn base  Local government officials provided a lot of conveniences to woo Foxconn  Fast track processing for the import of its facilities and construction materials  Coordinate the provision of migrant workers and students to ensure that Foxconn has continuous quality labor supply  Consequences  Child labor  Suicide in Shenzhen  Full report: http://tech.sina.com.cn/it/2010-07- 22/13354459129.shtml  Benefits of outsourcing  For corporations: 24/7 operation  For outsourcee countries  jobs, wealth creation  Upgrading  Countries moving away from low-value to relatively high-value production, with higher pay and better working condition for at least some workers  1st example: China  The early success of Chinese industry was based on their victory in the race to the bottom  Now China is shifting to the production of higher-value products with higher pay and better working conditions for some Chinese workers  E.g. Made in China 2025 (MiC2025) was officially launched in May 2015 to support the development of advanced industries and technologies in China https://www.crugroup.c om/knowledge-and- insights/spotlights- blogs/made-in-china- 2025/ 2nd Example: Mexican maquiladoras保税 加工 Maquiladoras are manufacturing operations in free trade zones where workers assemble imported parts into products for exports  Changes in maquiladoras  1st generation: labor-intensive, limited technology, assembled finished products for export using imported parts from the US  2nd generation: less oriented toward assembly and more toward manufacturing processes that use automated and semi-automated machines and robots in automobile, TV and electrical appliance sectors  3rd generation: oriented to research, design and development, reliance on highly-skilled labor https://novalinkmx.com/mexico-manufacturing- advantage/the-maquiladoras-in-mexico/ Pietra Rivoli - The Travels of a T-Shirt in the Global Economy (2005) Nations must win the race to the bottom in order to ultimately succeed in the global economy Generalized the above argument from the textile industry in: England (Manchester) The US (New Hampshire and North Carolina) Japan (Osaka) Hong Kong China All these nations and areas that have won the race to the bottom are now among the most successful global economies in the world  Victory in the race to the bottom is the “ignition switch” that turns the economy on and gets it rolling  This view is highly controversial  It has a clear association with neoliberalism  It endorses the race to the bottom for all countries interested in development  Greatly advantages the Global North → Global South continues to be the source of low-priced goods and services as one country replaces another at the bottom  Winning the race to the bottom is no guarantee of adaptive upgrading, but it is a guarantee of low wages and poverty for an unknown amount of time  Those against offshore outsourcing  Outsourcing results in job loss ~14 million white collar jobs are vulnerable to being outsourced in America  Outsourcing intensified head-to-head competition between local workers and foreign workers Being physically present in the country no longer gives local workers an edge over foreign workers  Outsourcing means giving skills and technologies away to other countries Outsourcing country’s own competitiveness eroded  Impact on outsourcer countries  The outsourcing of job overseas results in loss of employment in outsourcer countries  Enforced casualization僱用臨時工制of labor  Temporary contracts replacing full, secure employment  Job becoming increasingly unstable, low- paying and part-time  McJob: a low skill, low pay, high stress, exhausting and unstable job  Associated phenomenon  Disproportionate number of “apprentice” and “interns” that are not paid  “Temps”, “part-timers”  “Contingency workers”  Freelancers  Employers free from pressure and responsibility of providing good wages and upward mobility向上流動  Those workers are trapped in a permanent state of transience瞬變and easily replaceable  Amazon: https://www.youtube.com/watch?v=gYUJjpIxkCU