Global Production Networks

GLOBAL PRODUCTION NETWORKS

BY MATT COTY

A Review of “Whither Global Production Networks in Economic

Geography”By Hess, Martin and Yeung, Henry

A Review of “Global Production Networks and the Changing Geography of Innovation Systems. Implications for

Developing Countries” By Ernst, Dieter

Overview

Structures in which to study global production systems

National to international innovation systems Mobility and diffusion of knowledge Implications for developing countries Conclusions

Structures in which to study Global Production Systems

How to study global production networks?

How to explain spatially uneven development in capitalist economies?

Structures in which to study Global Production Systems

Historical Antecedents Key Concepts Relevance for the GPNframework in economic geography

Value chain frameworksince the early 1980s

• Stages of production• Competitive strategies• Competitive advantage

• Spatial (re)organization of production activities• Importance of value as a concept in GPN• Production as both manufacturing and service activities

Networks and embeddedness perspectives since the mid-

1980s

• Inter-organizational relations to business formation and performance• Intertwined relationships between economic action and social structures

• Lead firms and their embedded networks• Networks as relations stretching across space• Value creation, enhancement, and retention in networks

Actor-network analysissince the mid-1980s

• Heterogeneous relations• Control from a distance• Actants as humans and nonhumans

• Networks and relations as foundation in GPN analysis• Power relations among actors in GPNs

Global commodity andvalue chain analysissince the mid-1990s

• Commodity production as a sequential chain• Value creation in chain organization

• Spatial configurations of GPNs and economic development outcomes• Institutional influence on GPNs

National to international innovation systems

National Innovation Systems – the institutional determinants of learning, knowledge creation, and innovation

Assumptions:Innovation is essential for growth and welfareWant to gain as a nation


National vs. International linkages

National:○ Nation contains a unique economic structure

Determines its specializationDetermines its path of innovationDetermines its linkages (both national and international)



International linkages of the host economy○ Suppliers to multi-national firms○ Licensed partners



Problem is that developing countries often lack linkages in their own country

So international linkages fill in the gaps○ R&D○ Production○ Supply

Mobility and diffusion of knowledge

Is innovation Immobile?


Knowledge and innovation tend to move slower than production or financial flowsTacit knowledge – slowImplicit knowledge – fastDesire to keep information to sustain

competitive advantagesSynergy created from geographic clustering


How then does knowledge and innovation move?

Unlike production, knowledge moves and concentrates in specific clusters (semi conductor industry)

Standardized production and implicit knowledgeHigh end production and tacit knowledge


Advantages of location are important in determining knowledge flowsProduct Life Cycle○ Short – suppliers and assemblers need to locate

near one anotherImplication: advantages of clustering – (spillovers,

efficiency…)○ Long – no need for co location

Implication: more even geographic dispersion (take advantage of cheap labor etc…)


Extension of these advantagesThrough time the knowledge flows through the

GPN○ Low end producers gain knowledge and produce

higher end products while outsourcing the lower end products (thus further extending the chain and moving up it themselves) Solectron

○ This is one way developing countries increase knowledge


Disadvantages of location are important in determining knowledge flows (when the chain grows spatially)General:○ Delivery and distribution ○ Communication○ Demand fluctuation

International: ○ Political○ Managerial○ Inferior processes○ Exchange rate fluctuations


Diffuse Cluster

•Standardized production

• Take advantage of cost savings

• Knowledge diffusion - slow

•High End Production

• Take advantage of knowledge spillovers

• Knowledge diffusion - quick


How to deal with these problems:

Standardized processes can be located far away

Hi end production close (cluster advantages)

Production location near high growth markets

Implications for developing countries

Integration of developing countries into global production networks

Help the country– diffusion of knowledge

Hurt the country – erode competitive advantages


Nation

Cluster

subsidiaryParent

CompanyKnowledge Flow

Knowledge Diffusion into a Developing Country


Industrial upgrading – shifting to higher value added products and production stages through increasing specialization.

-Ernst 2001

1. Assumptions:○ Knowledge○ Innovation


1. Specialization○ Inter-industry○ Inter-factorial○ Demand upgrade○ Functions upgrade

2. Identify links between ○ innovation○ Linkages

- specializations

3. Sustained Growth

Industrial Upgrading

Knowledge Innovation

Demand

UpgradesInter-IndustryFu

nctional

Upgrades

Inter-

Factorial

Innovation

linkagesspecialization

Sustained Growth


Policy Roles for Government concerning integration of GPN’s

Globalization makes governments enact policies○ Investment policies○ Trade policies○ Targeted industrial development to take advantage of

specializations and competitive advantages

Not to do so would be detrimental○ vulnerability to MNC’s○ international financial fluctuations


Interesting Theory: Intellectual property rights

Should developing countries encourage the diffusion of intellectual property? (i.e. weak property rights?) Then gradually increase protection as knowledge increases?

Conclusions

Global Production Networks and Developing Countries

Absorption of foreign ideas and knowledge

Reduce risk through diversification

Increase in knowledge leads to increase in innovation which leads to sustained growth

Global Production Networks

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