Global Production Networks (GPN) Perspective on Power in the Transnational Sourcing of Goods

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8th Feb 2020 International Business Reference this

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Critically evaluate the ways in which a Global Production Networks (GPN) perspective helps to understand power in the transnational sourcing of goods.

As the world becomes more globalised, supply chains and the sourcing of goods has taken on a greater transnational dimension. In order to understand this shift, three different perspectives have been introduced, Global Commodity Chains (GCC’s), Global Value Chains (GVC’s), and most recently, Global Production Networks (GPN’s) (Gereffi, 1994; Coe et al, 2002; Hopkins & Wallerstein, 1994; Henderson et al, 2002). In this essay, the transnational sourcing of goods, and who holds power within this process, will be seen through a GPN perspective, and the three strands of power: Corporate, Institutional and Collective. Often the balance of power within these complex and often messy arrangements hard to recognise, between many of the various actors within these networks, and this is best understood through the GPN perspective.

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Whilst the two other approaches (GCC’s and GVC’s) consider the organisational structure of global firms’ production systems and how particular regions ‘slot into’ these networks (Gereffi, 1994; 1996), GPN’s focus on three key aspects in the sourcing of goods. Specifically, they focus on value, embeddedness and power. It has been referred to as a particular kind of organisation innovation, that combines concentrated dispersion of the value chain across firm and national boundaries, with a parallel process of integration and hierarchical layer of network participants (Ernst & Kim, 2001). The key reason for firms to establish GPN’s is the access to specialised, flexible suppliers in low-cost areas, and if used correctly, can supersede the transnational corporation as the most effective form of global organisation (Coe et al, 2002). Within GPN’s there are three main sources of power: Institutional, Corporate and Collective.

Arguably the most influential form of power within the Global Production Network is that of corporate power. The lead firm in the GPN has the capacity to influence decisions and resource allocations in its own interests, however it is not a zero-sum game. The lead firms very rarely have a complete monopoly on corporate power, and lesser firms within the GPN often can cooperate with other smaller firms to improve their position in the GPN (Henderson, et al. 2002). TNC’s, such as international clothing retailers, in GVC theory are believed to be the key drivers of globalisation within their sector, with low dependence between suppliers and brands (Gereffi, 2005a). However, under a GPN perspective, power is more fluid. The case of Zara, a fast-fashion retailer that manufactures its products is a good example. The fast-fashion that Zara represents, with its increased variety and fashionability, have helped to tilt the balance of power towards, rather than away from, suppliers in part-industrialised countries such as Morocco and Turkey, against what GVC theory would suggest. Zara used to manufacture in Spain and Portugal in order to be close to market, but as supplier firms in places such as Morocco and further afield have gained the competence required to manufacture high-quality products with the required flexibility and speed, Zara has moved to source from these countries. Instead of Zara changing the geography of jobs, the geography of competency and jobs has changed Zara (Tokatli, 2008). After being an ‘exception to globalisation’ (Newsweek, 2001), Zara now provides evidence of the effects on supply chains of ‘cross-fertilisation of business practices’ (Berger, 2005). While Zara still has the power over where it sources goods from, albeit slightly diminished, there is increasing evidence of a “pushing back” against certain supply practices, such as the just-in-time production model (Raj-Reichert, 2015). Certain Contract Manufacturers (CM’s) are large corporations, with high degrees of production and other capabilities. Within the electronics industry, the top 5 CM’s conduct 80% of manufacturing for brand firms (European Commission, 2012). From a business perspective, CM’s have become increasingly indispensable to brands. In 2010, even after several worker suicides at Foxconn’s factory, Apple was unable to change supplier as Foxconn was the sole manufacturer of the iPhone and iPad (Chakrabortty, 2013). As CM’s begin to engage in other industries, diversifying away from the brands they initially supplied, such as Foxconn, designing its own semiconductor chips, the power of brands within GPNs diminish significantly (Shilov, 2014; Raj-Reichert, 2015). Whilst a GPN perspective may not focus in depth on the relationships within firms, such power dimensions would be missed without its multi-dimensional viewpoint.

Institutional power has arguably increased in power in recent years. It has been argued by geographers that even in the increasingly globalised world that now exists, the state still matters, and transnational capital cannot, and does not, operate in a borderless world (Dicken, 2011; Yeung, 1998). Compared with a more firm, central approach, GPN’s incorporate a wider variety of actors, and thus can help to provide a broader understanding of governance and where power lies (Coe et al, 2008). The power and influence of the state in GPN’s is something that is not mentioned within GVC’s and GCC’s, with them preferring to focus more on corporate power. Indeed, within two of Gereffi’s key articles on GVC’s and GCC’s, the word “firm” was used 50 and 100 times respectively, compared with “state” which was mentioned only twice and never, respectively (Horner, 2017, Gereffi, 1999, Gereffi et al., 2005b). Different states play different roles in each GPN, although there are four generally defined roles which they have; Facilitator, Regulator, Producer and Buyer (Horner, 2017).  At one end of the spectrum, states can act as the facilitator in order to assist firms, and to incentivise them to move to or stay within that region, through tactics such as tax incentives, and at the other end, states can act as the buyer and procurer of certain goods, such as military equipment and pharmaceuticals (Horner, 2017). One example was Petrobras, the Brazilian state oil company, was recently mandated to buy more equipment from local companies (The Economist, 2013). In this case, the TNC, Petrobras, had ‘power’ in where they sourced goods from, but was under state pressure to source locally, rather than transnationally. Donald Trump’s ‘America First’ agenda, putting pressure on American manufactures to move production back to the United States (UPI, 2017) has led to some companies moving production back to America, but others, such as Harley Davidson, choosing to move manufacturing to Thailand to avoid tariffs caused by an escalating trade war. Using the GPN approach allows for a recognition of the state as a key actor within global production, including through its interaction with TNC’s (Coe et al, 2008; Dicken & Malmberg, 2001).

One of the most influential examples of institutional power can be found within China and the impact that the State has had both on the GPN’s which are located within China, and on those which are not. China overtook Japan as the World’s second largest economy in 2010 (McCurry & Kollewe, 2011), and whilst this is symbolic and evidence of China’s economic growth, it must be balanced against high-income inequality as well as low income per capita. China’s GNI in 2008 was $2940 compared with $38,210 in Japan (Henderson, 2011). However, what is more significant than the economic data, and has more relevance to GPN’s, is the scale at which labour is being combined with capital to transfer raw materials into commodities. Within this process, there is considerable potential for innovation within China’s political economy and society (Appelbaum et al., 2011). This research, funded heavily by the State, in the role of facilitator, helped power the rise of China as a manufacturing and export powerhouse. The Chinese state’s role, along with the unintended skill and technological consequences of the policies of the Malaysian state, with their ethnically rooted affirmative action policies, and general shifts in electronics GPN infrastructure, have meant that the Malaysian electronics industry is now locked into a low to medium technology spiral, and thus has minimal power when it comes to the transnational sourcing of goods (Henderson & Phillips, 2007). The role of the state in both countries therefore significantly has impacted on the ability for TNC’s to source products, both positively and negatively, consequences that would only be fully explored within a GPN perspective.

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Alongside institutional and corporate power mentioned above, collective power is a crucial aspect in understanding the process of the transnational sourcing of goods. Collective agents seek to influence companies and TNC’s, either at specific locations, or globally, especially if the influence is being exerted from the TNC’s major markets. These organisations can include Non-Governmental Organisations, Trade Unions, employers’ associations and even charities. In addition to exercising constraining power on the TNC’s who are sourcing the goods, they also can seek to influence institutions and the power than they can wield over the supply chain, such as governments and international organisations (Henderson, 2002). In Bangladesh, the Rana Plaza garment factory collapse in 2013 killed over 1,100 people and caused global outrage. Many international retailers sourced their goods from Rana Plaza and as such there was a public outcry against such an incident, which leads to pressure on brands to improve conditions in their supplier factories (Raj-Reichart, 2015). After the disaster, there were calls for much tighter regulation regarding workers rights and health and safety, and many TNC’s were forced to reassess how and where they source their goods. Whilst retailers such as Primark have substantial corporate power, as mentioned earlier, collective power has had significant impact in sourcing of goods with regards to the quality and standard of production. Primark now has an ‘Ethical Trade and Environmentally Sustainable’ team of over 100 which vets and monitors its factories in the countries where it sources its products (Primark, 2018). Firms changed their policies due to stakeholder pressure through NGO’s and trade unions which can mobilise consumers through traditional or social media (Donaghey et al. 2014). However, the extent of collective power, and the pressure that these agencies can exert, is limited. Whilst Rana Plaza did lead to some significant improvements in safety for workers in the Bangladesh garment industry, with many retailers signing up to accords and improving their standards, some TNC’s did not. Reasons for not signing up to the Accord on Fire and Building Safety in Bangladesh included not having significant operations in Bangladesh and choosing to simplify and make the supply chain more transparent. Some of these retailers did however mention that since Rana Plaza, ‘the heat from NGO’s has increased’ (Wright et al, 2018). Retailers who were perceived to have higher supply chain standards were exempt from NGO pressure, and as a result did not sign the accord (Wright et al, 2018). Whilst collective power is limited, it can and does play an important role in the transnational sourcing of goods, something which a GPN perspective demonstrates.

To conclude, whilst it does have its limitations, such as where is the entry point for study on a specific GPN and analysing the structure within clearly defined networks of production, GPN’s offer a much broader perspective compared with GCC’s and GVC’s, which focus mainly on inter-firm governance, with GPN’s encompassing all relevant sets of actors and relationships and totally flexible in terms of scale. The ability to understand that various actors, whether it be institutions, firms or even NGO’s, have varying degrees of power within the transnational sourcing of goods, is unique to GPN’s, and that is why its perspective is so valuable to our understanding.

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