Global Commodity Chains and Global Production Network

continued from » The Great Recession

Transnational Corporations

According to Hopkins, a ‘Global Commodity Chain’ (GCC) is “a network of labor and production processes whose end result is a finished commodity”.

A ‘Global Production Network’ (GPN) is an addition of commodity chains. GPNs are defined by adaption the recent economic development. GCCs had been characterized in 1980s, so that GPNs became GCC’s development. (cf. Henderson et al. 2001, p.13)

Globalization forces the economy to produce globally: the rise of transnational corporations (TNC) and global production chains. It’s important to make the right decisions within firms to make or to buy products or parts of it (insourcing vs. outsourcing).

There are four different categories of corporations to distinguish:

International corporations produce in their home country, and integrate their products in foreign countries (“center-for-global”). Examples are mainly shipyards and paper machinery.

Multinational corporations produce in foreign countries for foreign countries (“local-for-local”). Examples are mainly publishing houses and commercial television.

Global corporations see the global market as a whole, so they produce “global products” by integrating in global location networks (specialized centers of excellence). Examples are mainly consumer electronics.

Transnational Corporations (TNC) are mixture of multinational and global corporations (“global-for-local”). Examples are mainly pharmaceutical industry, mail industry and Telecommunication, like DHL and Telecom.

To combine the location with the company’s activities transport chains, different types of outsourcing and the international division of labor are very important.

An example for a production chain of jeans is the following:

The material is harvested in Kazakhstan before is manufactured into yarn in Turkey. After that step it is shipped to Taiwan for coloring, before it is weaved in Poland. France delivers material like buttons and rivets. All components are shipped to the Philippines for sewing. Final processing is taking place in Greece, before it is sold, for example, in Germany.

So, production chains are multi-steps-systems of production including serial processing, component assembly and internal division of labor.

There are two types of international production chains: producer driven and buyer driven commodity chains.

Automobile Industry

Producer Driven Commodity Chain:

TNCs act as lead firms to control the chain. Especially, capital and technological intensive industries are involved in this type of chain. Examples for that are the automobile industry, aeronautics, computer industry, semiconductor industry and engineering.

The lead firm delegate manufacturing to other countries to produce cheaper. The lead firm delegate contract processing to “the Global South” (also known as “third world countries”). The final products are sold in countries of “the Global North” (industrialized countries).

An example for a producer driven commodity chain is the production Daimler Benz (E-class) to see the production networks:

Cable sets come from Mexico, Portugal, Austria, Slovenia and Bulgaria. South Africa delivers cable sets and parts of exhaust pipe. Malaysia and the Philippines deliver circuit boards. Wooden parts come from Romania, glass panels come from Canada, fanfares come from Spain and sheet pressing parts come as well as air shrouds come from Italy. France produces components for the cooling and heating system and the USA produces sound systems. Many parts come from Japan: climate compression, radios, cd-changer and components for the navigation system.

Nike Inc.

Buyer Driven Commodity Chain:

Companies like brand producers as well as wholesalers and retailers work together with decentralized production networks in export countries. Examples of products (labor-intensive consumption goods) are clothes, shoes, toys and consumer electronics.

The companies expect their partners to produce on their conditions so that they have a lot influence in terms of backward linkages.

These companies assign factories to produce goods. Suppliers or subcontractors of the company are also in contact with these factories. The final product will be sold by the company.

An example for that is Nike. This transnational corporations is going to be introduced as an example for TNCs in Chapter 2.5. Just one thing is to be mentioned here to have a look at Nike’s global network. Nike has contractors all over the world: 54 in North America, 68 in Latin America,14 in Africa, 28 in Europe, 468 (!) in Asia and 4 in Australia.