interdisciplinary theory-building in an age of globalization: the global value chains framework and...
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Interdisciplinary Theory-building in an Age of Globalization:
The Global Value Chains Framework and Its Limits
TIMOTHY J. STURGEON, Ph.D.Senior Research Affiliate, Industrial Performance Center, Massachusetts Institute of Technology
ITEC Research Fellow, Doshisha University, Kyoto Japan
Global Production Networks: Debates and Challenges. Geographical Political Economy Research Group, University of Manchester
Manchester, UK January 24-25
INDUSTRIALPERFORMANCE
CENTER
Industry studies are important, but not sufficient
• Distribution of industrial capabilities vary by industry
• Labor/skill requirements, costs, and availability vary by industry
• Product characteristics vary (size and weight, last-minute configuration)
• Technologies for design, production, and supply-chain coordination vary
• Regulations differ by product and industry
• Distinct business cultures
• Institutional factors vary (rules, regulations, certifications, insurance, etc.)
“Industry studies,” firm level research, including qualitative research Problem: how to compare industries, aggregate findings, and set policies.
Cross-cutting trends
• Increased outsourcing• Computerization of product design• Computerization of process technology• Formalization and segmentation of work tasks (e.g., services offshoring)• Increasing market volatility and industry clock-speed (Fine)• Increasing geographic scope of production systems• Better integration of geographically dispersed production systems• Increasing services trade• The rise of a new, global-scale supply-base• Rising affiliated trade (but may be global suppliers…)
The global value chains framework is an overarching rubric that can help to tie these trends together
New features are global suppliers, global buyers, and value chain modularity, which eases coordination between the two.
Structure of the Presentation
1. The global value chains framework
2. Comparison with other frameworks
3. So what?
PART I: The governance of global value chains: an analytic framework
Based on a paper by:Gary Gereffi, Duke University
John Humphrey, IDSTimothy Sturgeon, MIT
Published in:Review of International Political Economy, 12(1) 2005
Summary of approach with related literature can be found at the Global Value Chains Initiative website:
www.globalvaluechains.org
Theoretical Underpinnings(starting point: industrial organization)
1. Transaction Costs EconomicsKey concept: Asset specificityAcademic field: Institutional economics
2. Production Network Theory Key concepts: Trust, reputation, repeat transactions, social networks,
geographic proximity, powerAcademic fields: Economic sociology, economic geography
3. Complementary CompetenciesKey concepts: Resource view of the firm, learning, core competence,
co-evolution (bi-lateral and industry levels)Academic fields: Strategic management, operations management,
evolutionary economics
Three Variables
1. Complexity of information required for a transaction
2. Extent to which this information can be codified
3. Supplier capabilities in relation to a transaction’s requirements
• Three variables
• Two options for each - High or Low
• Eight possible outcomes
Complexity oftransactions
Ability tocodify
transactions
Capabilitiesin the
supply-base
Outcome:ValueChain
GovernanceLow Low Low
Low Low High
Low High Low
Low High High
High High High
High Low High
High High Low
High Low Low
The Matrix
Complexity of transactions
Ability to codify transactions
Capabilities in the supply-base
Outcome: Value Chain Governance
Low High Low Suppliers excluded from chain
Low Low
Low Low Low or High Unlikely to occur
Discard Three Combinations
While this combination does not yield a governance type, per se, it is an extremely important outcome because it is the reality for the vast majority of suppliers in developing countries.
Five GVC Governance Types
GovernanceType
Complexity oftransactions
Ability to codifytransactions
Capabilities inthe supply-base
Degree ofexplicit
coordination andpower
asymmetry
Market Low High High
Modular High High High
Relational High Low High
Captive High High Low
Hierarchy High Low Low
Low
High
Network org.
forms
Materials
Customers
Suppliers
Price
End Use
Market Modular
LeadFirm
Component and Material
Suppliers
Turn-keySupplier
Relational
Captive Suppliers
Captive
LeadFirm
Component and Material
Suppliers
Val
ue
Cha
inHierarchy
IntegratedFirm
Low HighDegree of Explicit Coordination
Degree of Power Asymmetry
LeadFirm
RelationalSupplier
Full-packageSupplier
Five GVC Governance Types
Global value chain dynamics:Opposing forces
• Codification vs. innovation
• Increasing supplier competence vs new suppliers and new requirements
• Stable value chain roles (process upgrading) vs. competitive bundling and re-bundling (functional upgrading)
Some Dynamics in Global Value Chain Governance
GovernanceType
Complexity oftransactions
Ability to codifytransactions
Capabilities in thesupply-base
Market Low High High
Modular Å High Ç High Ñ
High
Relational High É Low Ö High Ü
Captive High High Low
Hierarchy High Low Low
increasing complexity of transactions (harder to codify transactions, effective decrease in supplier competence) decreasing complexity of transactions (easier to codify transactions effective decrease in supplier competence) better codification of transactions (open or de facto standards, computerization, digitization) de-codification of transactions (technological change, new products, new processes) increasing supplier competence (decreased complexity, better codification, learning) decreasing supplier competence (increased complexity, new technologies, new entrants)
New product introduction in electronics manufacturing
Product Firm Contract Manufacturer
Industrial design Electronic design Circuit board layout
IC Design House Foundry
(Gerber file)
Electronic design Circuit geometry
(GDS2 file)
SMT placement Solder Re-flow Test Final Assembly
Lithography Deposition Test Dicing
Design for performance (size, weight, speed, power consumption)
“Pinch point” in the flow of activities (Baldwin and Clark)
Codified, standardized hand-off at the inter-firm link
New product introduction in electronics manufacturing
Product Firm Contract Manufacturer
Industrial design Electronic design Circuit board layout
(re)DFx•Design for manufacturability (yield)
•Design for cost reduction•Design for test
•Design for reliability (quality) and repair•Design for supply chain availability
•Design for environmental compliance and recycling
IC Design House Foundry
(Gerber file)
Electronic design Circuit geometry
(GDS2 file)
SMT placement Solder Re-flow Test Final Assembly
Lithography Deposition Test Dicing
Design for performance (size, weight, speed, power consumption)
PART II: Comparison with other frameworks
• Gereffi: Global commodity chains• Williamson, Powell, Ouchi, and Adler: Hybrid
organizational forms (networks) located between markets and hierarchies
• Herrigel and Wittke: Sustained contingent collaboration
• Dicken et al: Actor-network theory
Why we felt we needed to move beyond the GCC framework (other than confusion over the connotations of the word “commodity”):
convergence in global value chain structure toward external networks demanded more network types than Buyer Driven
Buyer Driven(Labor Intensive)
Retailers Retailers
Contract Manufacturers
Contract Manufacturers
Product Strategy, System Architecture and Detailed Design
Producer Driven -> Captive, Relational, and Modular(Technology and Capital Intensive)
Branded Technology Firms
Retailers
Producer Driven(Technology and Capital Intensive)
Vertically Integrated Transnational
Manufacturing Firms
The GCC typology was based on a static view of technology and barriers to network entry, but both are dynamic because of technological change and learning.
Comparison with other industrial organization frameworks
Coase, Williamson
Powell, Adler
Gereffi, 1994
Global Value Chains
Herrigel and Wittke
Market
Market/price
[Assumed]
Market
Arm’s-
length/spot market
Modular
Contract mfg.
Relational
Collaborative mfg.
Network/ community/
trust
Buyer-driven
Captive
Autocratic or captive
Hierarchy
Hierarchy/ authority
Producer-driven
Hierarchy
[Assumed]
Variation in organizational
form
Vertical integration
Static variation
Static variation
Massive
coordination of
differentiated networks
(simultaneous variation)
Sustained contingent
collaboration (variation over
time)
Network organizational
forms
Hierarchy
Market
Comparison with actor-network theory (as discussed in Dicken et al, 2001)
Global Value Chains
Actor-Network Theory
Independent
Variable
Structures
Processes,
actions, and “performances”
Dependent variables
Parsimonious (complexity,
codifiability, and firm competency)
Inclusive (many different things are important at different times
and places)
Theoretical function
Operational
(partially explain and predict
change)
Richly descriptive
Outcomes
Five governance types (hierarchy,
captive, relational. modular, and
market)
Infinite variation
Framework strengths• Industry-independent
– Began with research on electronics, autos, and apparel, but has worked well with research on horticulture and services
– Highlights industry differences within a unified framework
• Focus on roles played by firms in the chain– Fragmentation and functional specialization– Bundling and re-bundling of functions
• Focus on power in the chain– Market power– Coordination power, fishbone (captive) vs. web (relational)
• Operational model– Predicts outcomes based on variable characteristics
• Interdisciplinary approach– Has theoretical elements recognizable to economists, sociologists, geographers, and management– Builds on inter-disciplinary debate over modularity, which includes engineers and business
historians as well
• Simple framework with a manageable number of variables– Appealing to policymakers and activists seeking to understand and improve the position of specific
firms, industries, and locations in the global economy.– Works within with a defined set of variables and outcomes that help to define research questions
Framework limitations• Firm-level analysis “leaves out” workers, gender, race, ethnicity, place
• Institutional context and path dependence matter– Local, national, regional
• Corporate strategy and culture matter– “Open pathways” at the firm level (Berger, 2005)– Firm’s can and do choose governance forms
• International regulations matter– National, bi-lateral, multi-lateral; agreements between states and multi-lateral institutions can influence
global value chain patterns
• Underdeveloped view of consumption (productionist approach)– Advanced users have power in the chain– Consumer cultures and geographies can bring new meaning to products and services
• Multiple, overlapping, and dynamic value chain governance forms are the norm– Pragmatic collaboration (Helper, MacDuffie, and Sabel)– Sustained contingent collaboration (Herrigel and Wittke)– Hybrid collaboration (MacDuffie and Helper)– Massive coordination (Murtha et al)
Part III: So What?
• Upgrading (or not) in global value chains
• Consolidation, modularity, and growing knowledge intensity in GVCs affects inclusion and exclusion for late entrants
• Increased geographic flexibility poses new challenges for adjustment in advanced economies
Supplier Upgrading (and Downgrading) in Global Value Chains
More customers•Product upgrading
•Inter-sectoral upgrading
•Base process focus
More capabilities•Process upgrading
•Functional upgrading
•Functional bundling
Many customers
Many capabilities
Few customers
Few capabilities
CAPTIVE
FULL PACKAGE SUPPLIER
RELATIONAL
MODULARDe-codification and reduced competence
through technological change, new requirements, and new competitors
GVC Governance TypesLinks to Industrial Upgrading and Policy
Governance Type Linkage mechanism Firm roles and competencies
Policy emphasis
Market Arms-length exports Branded exporter and importer of standardized
goods and services
Brand and product development, market research and access, import substitution
and export promotion
Modular Buyer-supplier complimentary
specialization in cross-border value chains
“Deverticalized” lead firms and full package suppliers with generic, base process competencies, and a global
footprint
Knowledge of global standards, process- and information technology upgrading
Relational Collaboration with co-location or in cross-border value chains with lots of air
travel
Clusters of specialists buyers and suppliers with process
and/or domain-specific competencies
Competence building, support of clusters and districts, focus on building tacit
domain knowledge
Captive Foreign direct investment, equity ties
Dependent supplier, customer-specific
competencies
Recruitment of MNC affiliates and suppliers, local content rules
Hierarchy Foreign direct investment Lower tier supplier Recruitment of MNC affiliates, education and training, infrastructure development,
local content rules
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