2 Organization   组织 Purchased

Global production networks are synonymous with economic globalization—the former as the key organizational platform for industrial and service production on a worldwide basis and the latter as a highly contested set of political–economic processes. This and the following two chapters collectively aim to explain how the organizational dynamics of economic globalization can serve as a powerful impetus for structural change in different national economies. This dynamic is particularly relevant in globalizing industries such as agro-food, apparel, automobiles, information and communications technologies (ICT), advanced producer services, finance, logistics, and retail. From a development perspective, under the right conditions the emergence of global production networks can provide an unprecedented opportunity for domestic firms and producers to acquire market access, capital, technology, knowledge, and capabilities from beyond their home economies. Their learning may now no longer be limited to domestic economic and institutional endowments, but rather is increasingly grounded in trans-local networks of economic activity that go well beyond the bureaucratic control and organizational confines of their home states and associated economic actors. In this process, domestic firms are progressively dis-embedded from their home economies and become gradually re-embedded in global production networks of various kinds.¹ This process of re-embedding represents a form of actor-specific stabilizing tactic, as described in Fligstein’s The Architecture of Markets (2001), enabling firms to re-create a new conception of control that simultaneously allows them to move away from a structural dependence on the home economy towards new possibilities for growth in an interconnected global economy.
全球生产网络与经济全球化同义——前者是全球范围内工业和服务业生产的关键组织平台，后者是一系列高度竞争的政治经济进程。本章及后续两章旨在共同阐释经济全球化的组织动态如何成为推动不同国家经济结构变革的强大动力。这种动态在全球化行业尤为重要，例如农产品、服装、汽车、信息和通信技术 (ICT)、先进生产服务、金融、物流和零售。从发展角度来看，在适当的条件下，全球生产网络的出现可以为国内企业和生产者提供前所未有的机会，使其能够从本国经济之外获得市场准入、资本、技术、知识和能力。他们的学习如今可能不再局限于国内经济和制度禀赋，而是越来越扎根于跨地域的经济活动网络，这些网络远远超出了其母国及相关经济行为体的官僚控制和组织界限。 在此过程中，国内企业逐渐脱离本国经济，并逐渐重新嵌入各种全球生产网络。1 这种重新嵌入的过程代表了一种特定于行为主体的稳定策略，正如弗利格斯坦在 《市场架构》 （ 2001 年 ）一书中所描述的^那样 ，它使企业能够重新创造一种新的控制概念，同时使它们能够摆脱对本国经济的结构性依赖，转向在相互关联的全球经济中实现新的增长可能性。

As we saw in Chapter 1, since the early 2000s considerable progress has been made in the social sciences towards the development of sophisticated conceptual frameworks for analyzing cross-border production networks, territorial formations, and economic development in this interconnected global economy. This genre of theoretical development has demonstrated the continuing unevenness in the territoriality of production and consumption, the differentiating role of structural and institutional conditions at various geographical scales, and the diverse responses and strategies of the firms, extra-firm organizations, and state institutions that shape the global economy across space and time. Global production network (GPN) theory postulates that the nature and trajectories of economic development in particular economies are highly dependent on the dynamic processes through which domestic firms are strategically coupled with, or emerge as lead firms in, global production networks. The explanatory power of GPN 2.0 hinges on its analytical capability of accounting for the complex organization of global production networks and the different strategies of economic and non-economic actors in these networks in the face of competitive dynamics in global industries. Industrial transformation and economic development therefore cannot be fully understood if an analysis is limited only to a particular economic agent (for example, the firm or the industry), geographical scale (for example, the state or a region within a national economy), or economic dimension (for example, trading tasks or trade in intermediate goods and services). Instead, a GPN analysis requires attention to multiple actors and their differentiated value activities across multiple geographical scales.
正如我们在第一章中所见，自 21 世纪初以来，社会科学在构建复杂的概念框架以分析互联互通的全球经济中的跨境生产网络、地域构成和经济发展方面取得了长足的进步。这类理论发展揭示了生产和消费地域性的持续不均衡性，不同地理尺度上结构和制度条件的差异化作用，以及塑造全球经济时空格局的企业、企业外组织和国家机构的多样化应对和策略。全球生产网络（GPN）理论认为，特定经济体经济发展的性质和轨迹高度依赖于国内企业与全球生产网络战略耦合或成为其中领先企业的动态过程。GPN 2.0 的解释力取决于其对全球生产网络复杂组织以及这些网络中经济和非经济行为体在全球产业竞争动态中采取的不同策略的分析能力。因此，如果分析仅限于特定的经济主体（例如，企业或行业）、地理尺度（例如，国家或国家经济中的某个地区）或经济维度（例如，贸易任务或中间产品和服务贸易），就无法全面理解产业转型和经济发展。相反，GPN 分析需要关注多个行为主体及其在多个地理尺度上的差异化价值活动。

As the overarching conceptual departure point for the remaining chapters of this book, this chapter delimits the main building blocks of GPN theory for the analysis of economic development. In so doing, it consciously breaks with both methodological individualism and state-centric forms of social science. It takes stock of our existing understanding of the organization of global production networks and reconceptualizes value activity, key actors, networks, and their territoriality. We believe such an organizational delimitation of global production networks is necessary because of the wide adoption of the existing GPN framework and the varied and sometimes inconsistent ways in which its key terms and categories have been mobilized. The first three sections of this chapter focus on redefining value activity, actors, and networks—three indispensable analytical devices in any GPN analysis. We define the concept of production as the collective participation in value-adding activity by a variety of actors in different sectors, industries, and locations to create finished goods or services. These actors can be business firms and extra-firm institutions that are brought together by intermediaries connecting multiple actors in global production systems. These intermediaries play an important functional role in enabling the effective realization of value activity. This organizational constellation of value activity is best conceived as a form of network. We argue, therefore, for a network conception of the global economy in which economic activity becomes increasingly organized through network relationships within, between, and beyond individual firms and extra-firm institutions. The emergence of global production networks is underpinned by this organizational shift from intra-firm hierarchical control, as typified by Fordism (see Chapter 1), to inter-firm and extra-firm networks. In the penultimate section, we offer further conceptualization of a significant lacuna in GPN 1.0—territoriality. Despite the role of territoriality being a widely recognized advancement within the GPN framework, the territoriality of global production networks remains quite elusive and underdeveloped. We attempt to advance this geographical political economy thinking by reconceptualizing the global–local verticality of scales and intra-national horizontal interfaces in the spatial organization of global production networks.² Overall, this chapter conceptually clarifies and further develops the basic building blocks of GPN 2.0.
作为本书其余章节的总体概念出发点，本章界定了全球生产网络理论（GPN）在经济发展分析中的主要构成要素。在此过程中，本章有意识地打破了方法论上的个人主义和以国家为中心的社会科学形式。本章评估了我们目前对全球生产网络组织的理解，并重新概念化了价值活动、关键行动者、网络及其地域性。我们认为，由于现有 GPN 框架被广泛采用，且其关键术语和类别的运用方式多种多样，有时甚至不一致，因此有必要对全球生产网络进行组织界定。本章的前三节重点重新定义价值活动、行动者和网络——这三种分析工具在任何 GPN 分析中都不可或缺。我们将生产定义为不同部门、行业和地区的各种行动者集体参与增值活动，以创造成品或服务。这些行动者可以是商业公司，也可以是企业外的机构，它们由连接全球生产系统中多个行动者的中介机构聚集在一起。这些中介机构在有效实现价值活动方面发挥着重要的功能作用。这种价值活动的组织结构最好被理解为一种网络形式。因此，我们主张全球经济的网络化概念，其中经济活动日益通过个体企业内部、企业之间以及企业外部机构之间的网络关系进行组织。 全球生产网络的出现，其基础是组织结构从以福特主义为代表的企业内部等级控制（参见第一章）向企业间和企业外网络的转变。在倒数第二部分，我们进一步概念化了 GPN 1.0 中的一个重要空白——地域性。尽管地域性的作用是 GPN 框架内得到广泛认可的进步，但全球生产网络的地域性仍然相当模糊且尚未得到充分发展。我们试图通过重新概念化全球生产网络空间组织中全球-地方的垂直尺度和国内的水平界面来推进这种地理政治经济学思想。2 总体而言， ^本章从概念上阐明并进一步发展了 GPN 2.0 的基本构成要素。

GPN analysis seeks to explain the nature and organization of global production networks, which involve both capitalist firms and diverse economies in organizationally complex and geographically extensive ways. To analyze the divergent trajectories of economic development, it explicitly recognizes the causal role of the strategic priorities and choices made by actors embedded in these economies and global production networks. These actors can be capitalist firms and state and non-state institutions. Their developmental action is primarily oriented towards the creation, enhancement, and capture of value. Of course, the constitution and significance of this value may vary from firms to extra-firm institutions. Even among capitalist firms, the production of value can be perceived differently, ranging from market dominance and industrial control to continual growth and sustained profitability. Among institutions, state agencies (for example, tax revenue) may view value differently from labour organizations (for example, wages), industry associations (for example, supplier linkages), consumer groups (for example, lower prices), and civil society organizations (for example, ethical and fair production). Nevertheless, it is useful to think of these firms and extra-firm institutions as primarily interested in value, with economic development (or decline, potentially) representing the contested outcome of their diverse conceptions and production of value.
全球生产网络（GPN）分析旨在解释全球生产网络的性质和组织结构，该网络以组织复杂、地理分布广泛的方式涉及资本主义企业和多元化经济体。为了分析经济发展的不同轨迹，GPN 明确承认了这些经济体和全球生产网络中参与者的战略优先事项和选择的因果作用。这些参与者可以是资本主义企业、国家和非国家机构。他们的发展行动主要面向价值的创造、提升和获取。当然，这种价值的构成和意义可能因企业而异，也可能因企业外部机构而异。即使在资本主义企业中，对价值生产的理解也可能不同，从市场主导地位和产业控制到持续增长和持续盈利。在机构中，国家机构（例如税收）对价值的看法可能与劳工组织（例如工资）、行业协会（例如供应商联系）、消费者团体（例如较低的价格）和民间社会组织（例如道德和公平生产）不同。尽管如此，将这些公司和公司外机构视为主要对价值感兴趣的人是有益的，经济发展（或潜在的衰退）代表了它们对价值的不同概念和生产的争议性结果。

In retrospect, the value chain concept associated with Porter’s work (1980, 1985) provided an initial analytical category for the GPN framework—especially in relation to value and its contestation over space. This explicit concern with how value is created, enhanced, and captured in different geographical configurations of global production networks fundamentally underpinned GPN 1.0. As noted in Chapter 1, GPN analysis defines value in terms of both political economy notions of surplus value and more conventional understandings of economic rent or profit. Surplus value arises from the conversion of labour power into goods or services, and the subsequent difference between the labour value and exchange value of these goods or services. It is concerned with the employment, skills, working conditions, and social reproduction of labour in and through global production networks. By economic rent, we refer to profits accrued to firms and other economic actors that possess proprietary or unique branding, technologies, and expertise; management know-how and organizational relationships; and dominant or monopolistic market positions.³ This combination of value generated from the labour process (surplus value) and industrial organization (economic rent) allows for the diverse ways in which value can be created, enhanced, and captured by different actors in the same global production network—some specializing in higher value-adding activities such as technological innovation and new market development in search of greater economic rent from consumption, with others relying on extraction of surplus value from low-cost labour in production. In short, value encompasses much more than the market value of goods or services, which represents value merely at the point of its exchange. Rather, value is a multifaceted concept incorporating the entire process of production, exchange, and consumption. In GPN 2.0, we continue with this line of conceptual delimitation by bringing together several strands of the analysis of value in an integrated form.
回顾过去，与波特著作（ 1980、1985 ）相关的价值链概念为全球生产网络框架提供了一个初步的分析类别，尤其是在价值及其空间争夺方面。这种对价值如何在全球生产网络的不同地理配置中创造、提升和获取的明确关注，从根本上支撑了全球生产网络 1.0。如第一章所述，全球生产网络分析既根据政治经济学中的剩余价值概念，也根据更传统的经济租金或利润来定义价值。剩余价值源于劳动力转化为商品或服务，以及随后这些商品或服务的劳动价值与交换价值之间的差额。它关注的是全球生产网络中以及通过全球生产网络进行的劳动力就业、技能、工作条件和社会再生产。我们所说的经济租金是指拥有专有或独特品牌、技术和专业知识；管理知识和组织关系；以及市场支配地位或垄断地位的公司和其他经济行为者所获得的利润。 ³ 劳动过程产生的价值（剩余价值）和产业组织（经济租金）的结合，使得同一全球生产网络中的不同参与者能够以多种方式创造、提升和获取价值——一些参与者专门从事技术创新和新市场开发等更高附加值的活动，以寻求从消费中获取更大的经济租金，而另一些则依赖于从生产中的低成本劳动力中提取剩余价值。 简而言之，价值远不止商品或服务的市场价值，后者仅仅体现了其交换环节的价值。相反，价值是一个涵盖生产、交换和消费整个过程的复杂概念。在 GPN 2.0 中，我们延续了这一概念界定，将价值分析的多个分支整合成一个整体。

Another important contribution of the value chain concept to the development of GPN thinking is that it recognizes the conceptual inseparability of manufacturing and service activities in constituting economic production and value creation. In the original version of Porter’s value chain, both kinds of economic activities were central to value chain processes. The conceptual significance of this integrated understanding of production in relation to the social divisions of labour becomes magnified through GPN analysis.⁴ We simply cannot understand manufacturing activities, for instance, without a concomitant analysis of how these value activities are organized through a wide range of service tasks such as research and development (R&D), design, finance, logistics, distribution, and servicing. A recent joint report by the OECD–WTO–UNCTAD (2013: 16) estimates that, as intermediate inputs to global production, services contribute directly and indirectly to over 30 per cent of the total value added in all manufactured goods. In turn, several of these service activities are themselves organized and delivered through global production networks, as seen, for instance, in finance, advertising, logistics, and retailing.
价值链概念对 GPN 思维发展的另一个重要贡献是，它认识到制造和服务活动在构成经济生产和价值创造方面在概念上的不可分割性。在波特价值链的原始版本中，这两种经济活动都是价值链流程的核心。这种将生产与社会分工联系起来的综合理解，其概念意义通过 GPN 分析得到了放大 ^。4 例如，如果不分析这些价值活动是如何通过研发、设计、金融、物流、分销和服务等一系列服务任务进行组织的，我们就无法理解制造活动。经合组织、世贸组织和贸发会议最近发布的一份联合报告（ 2013 ：16）估计，作为全球生产的中间投入，服务业直接或间接地贡献了所有制成品总增加值的 30%以上。反过来，其中一些服务活动本身也是通过全球生产网络组织和交付的，例如在金融、广告、物流和零售领域。

In essence, economic production refers to an amalgamation of value activities that transform tangible materials and intangible inputs into manufactured products and/or services for industrial customers or final consumers. ‘Production’ in GPN analysis, therefore, does not refer exclusively to manufacturing activity. Rather, it encompasses all forms of economic activity, from resource extraction to manufacturing and services, involved in the creation, enhancement, and retention of value. Some of these activities may be concerned with value creation—a process through which a residual economic surplus is generated by the transformation of materials and inputs into a new product or the provision of new services by a group of interrelated actors, irrespective of whether these actors are organized in the form of craft production, vertically integrated production, or inter-firm production networks. Firms are the primary nexus through which such value creation is produced, but extra-firm actors such as the state and labour organizations can also contribute to value creation through direct subsidies (for example, grants and loans), indirect investment (for example, infrastructure and education), and skill development (for example, training enterprises). This value creation through new products or services usually begins with the original innovator or developer, and it eventually leads to the market success of these products or services. Depending on their differential capacity to define and control the final market for these products or services, different actors receive disproportionate returns from their participation in this process of value creation. The social and geographical distribution of this value becomes the most critical question for any theory of economic development.
本质上，经济生产是指将有形材料和无形投入转化为工业客户或最终消费者所需的制成品和/或服务的一系列价值活动的融合。因此，GPN 分析中的“生产”并非专指制造活动。相反，它涵盖了从资源开采到制造和服务的所有形式的经济活动，这些活动都涉及价值的创造、提升和保留。其中一些活动可能与价值创造有关——价值创造是一个过程，通过一组相互关联的行为主体将材料和投入转化为新产品或提供新服务，从而产生剩余的经济盈余，无论这些行为主体是以手工艺生产、垂直整合生产还是企业间生产网络的形式组织起来。企业是此类价值创造的主要纽带，但国家和劳工组织等企业外的行为主体也可以通过直接补贴（例如，赠款和贷款）、间接投资（例如，基础设施和教育）和技能开发（例如，培训企业）为价值创造做出贡献。这种通过新产品或服务创造价值的过程通常始于最初的创新者或开发者，并最终促成这些产品或服务的市场成功。不同的参与者因其对这些产品或服务最终市场的界定和控制能力不同，参与这一价值创造过程的回报也存在差异。 这一价值的社会和地理分布成为任何经济发展理论最关键的问题。

Economic surplus, however, need not come only from value creation. It can also be generated through value enhancement, whereby actors add tangible or intangible inputs to an existing good or service in order to make it more valuable. This value enhancement process does not necessarily entail the production of new goods or services. It can be accomplished through the Schumpeterian-style entrepreneurship of bringing together ‘new combinations’ (Schumpeter 1934: 66) of existing materials and/or ideas. Technological innovation and knowledge are central to such value enhancement processes. Upgrading the technologies and skills of existing firms and suppliers can also increase their propensity to offer such value enhancement.⁵
然而，经济盈余并非仅仅来自价值创造。它也可以通过价值提升产生，即行为主体为现有产品或服务添加有形或无形的投入，以提升其价值。这种价值提升过程并不一定需要生产新的产品或服务。它可以采用熊彼特式的企业家精神，将现有材料和/或创意进行“新组合”（Schumpeter， 1934 ：66）。技术创新和知识是此类价值提升过程的核心。升级现有企业和供应商的技术和技能，也可以增强他们提供此类价值提升的倾向 ^。5

As value activities created or enhanced by actors generate economic surpluses in geographically diverse ensembles, the most crucial determinant of development outcomes becomes the ability and capacity of these actors and related institutions to retain and/or capture these surpluses. It is one thing for an economic actor to create and/or enhance value in a global production network. It is quite another for this value to be retained and captured partially or fully by that actor in situ. Value capture thus becomes the most important strategic imperative for actors and institutions in any global production network. This value capture is both actor-specific and territorially specific in that the same actor (for example, a transnational corporation) may capture the value created/enhanced in one location, but shift it to another place through intra-firm transactions (for example, transfer pricing). Equally, local actors may capture more value and retain it in the same place through territorially specific social relations of production (for example, ‘buy local’ movements). We will return to this territorialization of value capture in greater detail in Chapter 5. Overall, our conception of value is concerned with both the dynamics of value production and their territorial specificities.
由于行为主体创造或提升的价值活动会在地理分布各异的群体中产生经济盈余，因此，发展成果的最关键决定因素就在于这些行为主体及相关机构保留和/或获取这些盈余的能力。经济行为主体在全球生产网络中创造和/或提升价值是一回事，而该行为主体在当地部分或全部保留和获取这些价值则是另一回事。因此， 价值获取成为任何全球生产网络中行为主体和机构最重要的战略要务。这种价值获取既特定于行为主体，也特定于地域，因为同一行为主体（例如跨国公司）可能获取在一个地方创造/提升的价值，但通过公司内部交易（例如转移定价）将其转移到另一个地方。同样，本地行为主体可以通过特定于地域的社会生产关系（例如“购买本地产品”运动）获取更多价值并将其保留在同一地点。我们将在第五章更详细地讨论价值获取的地域化。总体而言，我们的价值概念既关注价值生产的动态，也关注其地域特殊性。

Value creation, enhancement, and retention are intimately linked to the ways in which value activities are organized. This primary concern with the organization of value activities—be they resource, manufacturing, or service-related—in global production networks necessarily brings us to the delimitation of the actors in these networks: that is, who are involved in value activities, and how do they coordinate, control, and govern these activities? Three groups of economic and non-economic actors are particularly integral to the constitution of a global production network—firms, extra-firm actors, and intermediaries. Such a network cannot operate without the simultaneous presence of these groups. We should point out, however, that these three groups of actors are not meant to be functionally equivalent and commensurable. Our actor-specific conception of global production differs from the stage-based view of value and production chains in the existing literature.⁶ In this view, illustrated schematically in Figure 2.1, value activity is typically broken down into several stages of production—including the sourcing of material inputs, manufacturing or processing, logistics, distribution, and/or retailing—within the broader context of financial, technological, and regulatory regimes. This focus on production functions within the value chain approach, however, does not shed sufficient light on the complex motivations and strategies of the different interest groups and competing institutional fragments involved in the organization and governance of global production.
价值创造、提升和保留与价值活动的组织方式密切相关。对全球生产网络中价值活动（无论是资源、制造还是服务相关）的组织方式的首要关注，必然会引导我们界定这些网络中的行动者：即谁参与了价值活动，以及他们如何协调、控制和管理这些活动？三类经济和非经济行动者对全球生产网络的构成尤为重要——企业、企业外行动者和中介机构。如果没有这三类行动者的同时存在，这样的网络就无法运转。然而，我们应该指出，这三类行动者并不意味着在功能上等同且可比。我们针对特定行动者提出的全球生产概念与现有文献中基于阶段的价值链和生产链观点不同。 ⁶ 在这一观点中，如图 2.1 所示，价值活动通常被分解为多个生产阶段，包括材料投入的采购、制造或加工、物流、分销和/或零售，并置于更广泛的金融、技术和监管制度背景下。然而，这种对价值链方法中生产功能的关注，不足以充分揭示参与全球生产组织和治理的不同利益集团和相互竞争的机构碎片的复杂动机和策略。

By focusing on firm and extra-firm actors, GPN 2.0 analyzes this diversity of interests and strategies in the different functional segments associated with globally organized value activity. Instead of thinking merely about how R&D, branding, and design activity can offer more value than labour-intensive assembly or retail sales in the production function of a product or service, our approach identifies specific actors that control and produce such value activity within the same or different functional segments. Are these higher-value activities located within a specific group of firms in a global production network, or are they more widely co-produced and shared in two or more groups of firms in various territorial ensembles? Even within the same firm, does the corporate headquarters view value activity in the same way as its subsidiaries at home and/or abroad? Do finance, marketing, engineering, and manufacturing divisions within the firm hold similar strategic views of the firm’s integration into a global production network? How are other extra-firm actors involved in the production of value activity? Moreover, as global production has become more sophisticated and complex over time, new economic actors that intermediate these inter-firm and extra-firm relations have also emerged as powerful brokers and standards-setters in the organization of these value activities. Despite their ability to arbitrage access to unique repertoires of information (for example, about markets and finance) and knowledge (for example, concerning production and technologies) in diverse networks, these intermediaries have not been well conceptualized in the existing literature. Our analytical task in this section is thus to elaborate on these three important groups of actors that together co-constitute a global production network and make it work.

Business firms are the basic building blocks of a global production network. While we view firms and their interrelationships as constituting and driving production networks, at the same time we are aware of the different types of ownership and varying national origins of firms. Ownership types can range from privately held corporations (for example, family firms) and publicly traded firms (for example, listed on stock exchanges) to enterprises with substantial or majority equity control by group-based shareholders (for example, cooperatives) and institutions (for example, state-owned enterprises). Their national origins (for example, Anglo-American, Scandinavian, continental European, Japanese, Chinese, and so on) can be equally significant in shaping the organizational cultures and strategic predispositions of these firms in global production networks.⁷ At this point, however, it is useful for us to hold these two firm-specific variables constant, bearing in mind that considerations of ownership type and national origin will apply to firms in all roles and functions of a global production network, such as lead firms, strategic partners, suppliers, and customers. We will, therefore, leave these firm-specific variations to our conceptualization of global production network dynamics and actor-specific strategies in the next two chapters.

Taking this initial step of differentiating firms on the basis of their roles and functions in a global production network, we can identify in Table 2.1 a variety of firms, namely lead firms, strategic partners, specialized suppliers (industry-specific or multi/cross-industrial), generic suppliers, and customers. In GPN 2.0, a global production network necessarily entails the central role of one globally significant lead firm, and its organizational coordination and control and territorial configuration of a sufficient number of intra-firm affiliates, strategic partners, suppliers, customers, and extra-firm institutions. Three clarifications are useful in relation to this definition. First, the necessary presence of a global lead firm differentiates a global production network from a (global) commodity chain because the latter may not be organized around a single lead firm. This lead firm should be clearly identifiable within a particular industry, which may of course be characterized by the existence of multiple lead firms. A lead firm’s industrial position can be measured in terms of market power (for example, revenue or share) or product definition (for example, branding, technology, or knowhow). A firm involved in multiple industries may play different functional roles—for example, being a lead firm in one industry and a supplier in another. By defining each global production network on the basis of a single lead firm, we should be able to avoid much of the definitional and conceptual confusion in the existing literature around what constitutes a global value chain or a global production network.⁸ Our definition allows for methodological clarity that in turn makes it easier to identify a global production network as constituted by a lead firm and other firm and extra-firm actors.

Second, by ‘significant’, we mean a global lead firm that is defined by its firm-specific power and organizational capacity in exercising market control through product and market definition, rather than merely by its leadership in manufacturing processes and technologies or service provision. For example, a lead firm that is strong in branding and/or marketing may take control of market and product definition over another manufacturer or service provider in the same industry (for example, agro-food, electronics, and apparel). Its asymmetric capacity to exercise corporate power allows a lead firm to influence the investment and decisions of other firms and extra-firm institutions and to integrate them into its global production network in order to complete different value processes. In short, a lead firm is significant because it has the capacity to coordinate and control directly its production network—be it in the role of a buyer, producer, coordinator, controller, or market-maker, or a composite of one or more of these roles. As we will explain in the next section on networks, this coordination and control can be realized in varying degrees in relation to other actors in the same network and broader structural dynamics.⁹

Third, a lead firm internalizing all the value activities involved in producing a product or service (see Figure 2.1) may constitute a vertically integrated network of intra-firm affiliates. But it is not a global production network until it externalizes some of this value activity to a sufficient number of other firms. We define this sufficiency not in terms of the absolute number of firms external to a lead firm, but rather in terms of their organizational roles and functions. A global production network must have three or more roles, as described in Table 2.1, performed by different and independent firms such as a lead firm and its strategic partners or external suppliers and customers. In the existing literature, a chain or a network is often vaguely defined in sectoral terms by counting the number of lead firms (buyers or producers) and their suppliers. This dyadic conception of firm roles and functions in a global production network can be problematic because it does not account fully for the critically important range of diverse roles undertaken by the same firm or different firms in the same network. In our conception, a global production network is really meaningful if there are at least three such roles and functions involved in the global organization of production. More crucially, the existing literature does not allow for the same firm performing simultaneously different roles in two or more global production networks. Its conception of firms tends to be static, and locks firms into a particular lead firm or a supplier role in an existing organizational arrangement. In contrast, our conception allows a firm to serve as a lead firm in one network and a specialized supplier in another.

With these caveats, we can now proceed to characterize in more detail the role of lead firms in global production networks. We postulate that global lead firms exist in most manufacturing, service, and resource industries. Good examples are Apple, Hewlett-Packard, and Google in the ICT industry, Sony, Philips, and Samsung in consumer electronics, Toyota and General Motors in automobile, The Gap, Nike, and Adidas in apparel and footwear, AT&T and Vodafone in telecommunications, Citicorp and HSBC in banking, Hilton and Marriott in hospitality, British Airways and Singapore Airlines in passenger air travel, Wal-Mart and Tesco in retail, UPS and DHL in logistics, Exxon-Mobil and Shell in oil and gas, BHP and Rio Tinto in mining, Kraft and Nestlé in agro-food, and so on. Tables 2.2 and 2.3 list some of the most influential brand name lead firms in apparel and electronics. In the manufacturing sector, and through their intra-firm affiliates in different locations, global lead firms often specialize in the upstream activities of R&D and downstream activities of branding, marketing, and post-sale services. These lead firms are commonly engaged in original equipment manufacturing (OEM) and original brand manufacturing (OBM). While they continue to engage in high-value manufacturing activities and services (for example, branding and marketing), these global lead firms are increasingly compelled to outsource a large portion of their product categories to suppliers that are external manufacturers providing partial or complete manufacturing solutions. Since the 1970s, as noted in Chapter 1, this breakdown in vertical or intra-firm integration has led to the proliferation of horizontal or inter-firm production networks. In most global industries—for instance, ICT, apparel, toys, and footwear—large contract manufacturers have emerged to offer both technological solutions and massive economies of scale and scope to their lead firm customers. In many cases, these independent manufacturers have graduated from their earlier role as low-cost OEM suppliers to become increasingly involved in original design manufacturing (ODM), offering partial or complete design and manufacturing services to OEM lead firms.

When OEM and OBM lead firms eventually undertake no manufacturing and rely exclusively upon such ODMs for manufacturing their products, we conceive these latter firms as strategic partners to global lead firms because of their mutually dependent relationships. Through various organizational arrangements, global lead firms now rely more on the design, manufacturing, and logistic services of their strategic partners (see Table 2.1). As noted by Sturgeon and Lester (2004: 43):

Today, suppliers must provide a capability for independent process development and an ability to perform a wide range of value adding functions associated with the manufacturing process, including help with product and component design, component sourcing, inventory management, testing, packaging, and outbound logistics. Lead firms are also demanding that suppliers have the ability to support the lead firm’s operations and market-serving activities around the world.

Because of their firm-specific capability in offering value added services extending well beyond manufacturing production (for example, joint product and technological development), these partners are strategically important to their global lead firm customers within the same global production networks. In many ways, their relationships with global lead firms resemble a partnership more than a customer–supplier transactional relationship. In short, global lead firms and strategic partners enter into inter-organizational relations of strong mutual interdependence in order to compete as a network of interdependent firms. We will address these inter-firm partnerships in greater detail in Chapter 4.

In industries producing intermediate goods, there are highly specialized producers of high-value components, modules, machinery, and equipment for global lead firms in both manufacturing and service industries. These producers can also be thought of as strategic partners to their key customers (Table 2.1). Typical examples are microprocessor chip manufacturers to computer makers, machine tools and equipment suppliers to leading automobile and semiconductor manufacturers, shipbuilders to marine transport service providers, and aircraft manufacturers to passenger airlines. In many of these industries, the organizational relationships between producers and customers are highly complex and strategic because substantial proprietary information and knowledge (for example, relating to strategic plans or market development) are shared between them. The transaction values are also very high because of the high costs of producing machines or equipment customized to the production and service requirements of key customers that are global lead firms in their respective industries.

In the service sector, lead firms are often market leaders in terms of brand names, the unique value proposition of the service offering, and marketing capabilities. They develop outsourcing relationships with independent suppliers of manufactured goods and services. In telecommunications services, for example, global lead firms enter into strategic partnerships with equipment suppliers such as producers of telecommunications equipment and mobile handsets. These producers can be lead firms in their own global production networks. There are therefore overlapping and even cross-industry global production networks with organizational interstices occupied by the same firm. A lead firm in one production network can be a strategic partner to a lead firm in another network. As will be explained and illustrated in the next section on networks, the key to distinguishing such organizational positionality of one firm (for example, as a lead firm or a strategic partner) rests with its capacity to exercise power and control, sometimes through collaborative efforts, in coordinating a particular global production network.¹⁰

Apart from lead firms and strategic partners, a global production network invariably involves a variety of independent suppliers in manufacturing and service industries. These suppliers can be further divided into specialized suppliers and generic suppliers (see Table 2.1). As specialized suppliers, firms can provide manufactured goods (for example, parts and components) and services (for example, OEM assembly) or producer services (for example, legal services or logistics) that are well integrated into the value activity coordinated by a particular global lead firm. The role performed by these specialized suppliers can be industry-specific or crossing different industries. In manufacturing, a specialized supplier may provide components (for example, ball bearings) to one or more global production networks in the same industry (for example, automobiles). Other specialized suppliers can provide parts or modules (for example, Panasonic’s audio-visual systems or ABB’s motors) for manufacturing products in various industries (for example, electronics, automobiles, power systems, and aviation). Specialized suppliers in the service sector are often providers of advanced producer services such as finance, legal services, logistics, management consultancy, wholesale and distribution, and so on. Some of them serve as specialized suppliers to other firms in the same industry (for example, financial products and management consultancy for banking institutions). Other providers offer specialized services to lead firms from a variety of industries (for example, logistics firms servicing banking institutions and semiconductor manufacturers).

Over time, some of these specialized suppliers may emerge to become strategic partners to global lead firms when their inter-firm relationships are underpinned by much greater asset specificity and mutual dependency. On the other hand, generic suppliers are those that offer fairly standardized and relatively low-value products or services to other firms in the same global production network, such as the lead firm, its strategic partners, and/or specialized suppliers. These client firms usually face low switching costs when they choose from diverse generic suppliers of goods (for example, regular plastic parts) or services (for example, office cleaning).

Finally, no global production network can be complete without key customers who pay for the goods or services produced by a variety of other firms in spatially dispersed territories. The consumption of the goods or services produced through global production networks represents the ultimate realization of value transferred from these customers to global lead firms for further distribution to other firms in the same network. For manufacturers of intermediate or capital goods and suppliers of producer services, these key customers can entail other lead firms in manufacturing and service industries. Inter-firm relationships thus prevail in the organizational configuration of these global production networks. In the ICT industry, the key customers for mobile devices made by lead firms such as Apple and Samsung are telecommunications services firms (for example, AT&T and Vodafone) that package these devices as part of their wireless communications services in various regional and national markets. In services, commercial banks count on key corporate customers who raise funds through debt financing and require other financial services. These customers can be lead firms in their respective global production networks. In air transport, cargo services are extremely important to the effective functioning of many global production networks through which lightweight products are manufactured worldwide.

Apart from managing their intra-firm affiliates and inter-firm organizational relationships with other firms in the same global production network, lead firms must also engage with extra-firm actors such as the state, international organizations, labour groups, consumers, and civil society organizations in the diverse localities that are articulated into these networks. These state and non-state institutions can be highly significant extra-firm actors shaping value activity in different global production networks. While not meant to be exhaustive, Table 2.4 summarizes the main role and value activity of these extra-firm actors. The role of the state in economic governance is well recognized in the literature on development.¹¹ The state can participate directly in firm activity through direct equity investment and favourable industrial policies. By taking up equity positions in firms within global production networks, the state can influence the configuration and governance of these networks through its ownership of lead firms. Some of today’s global lead firms are indeed such state-owned enterprises (for example, Huawei and Petrobras) or government-linked companies (for example, Singapore Airlines and Renault).¹²

Apart from the equity option, the state can promote specific firms through industrial policies that offer preferential grants, loans, and tax benefits. These policies may help stimulate particular kinds of value activity, such as R&D, design, and branding, which matter most to the development trajectory of a particular regional or national economy. In East Asia, for example, the prominence of the ICT industry in South Korea, Taiwan, and Singapore is clearly a direct outcome of extra-firm initiatives in the form of state-led industrial policy.¹³ However, the successful articulation of these economies and their domestic firms into ICT global production networks owes as much to firm-specific strategies as to direct state sponsorship through policy interventions. National firms have, over time, developed their own technological innovations and organizational capabilities that enable them to enter into cooperative inter-firm relations with global lead firms. In some states, particularly those in developing economies, there are substantial differences in the state’s role across different regions within their national economies. Some regional states (for example, Karnataka in India and the coastal provinces of China) have instigated highly effective industrial policies that in turn provide crucial impetus for connecting their regional centres (for example, Bangalore and Shanghai) with lead firms in global production networks.

Moreover, the state at various geographical scales (for example, national, regional, and local) can set and enforce formal and informal rules and regulations that favour particular configurations of global production networks. This regulatory role of the state has often been discussed in the existing literature.¹⁴ Suffice to say that the state’s role as a regulator depends very much on its bureaucratic capacity and institutional legitimacy and therefore varies significantly across and within national formations. In principle, state regulation can extend from labour and land issues to financial markets, and from health and safety issues to environmental concerns. While most firms in global production networks are subject to some or all of these regulatory influences, their responses are again highly variable. Firms from diverse countries of origin are often embedded in different regulatory relationships with their home states. In national economies with a more liberal market stance (for example, the United States and the United Kingdom), state regulation tends to be more formalized and less beholden to particular actors in global production networks. For example, labour market policies are generally applicable to all firms, irrespective of whether they participate in a global production network. In more coordinated market states such as Germany and Japan, however, the regulatory role can be more targeted, including sector-specific regulations and closer policy coordination of distinct interest groups in global production networks.

In recent decades, many national states have ‘up-scaled’ their regulatory functions to international organizations such as the World Trade Organization (WTO) and the International Monetary Fund (IMF) that are vested with increasing regulatory authority over key policy instruments and enforcement mechanisms, such as anti-dumping actions and protection of intellectual property rights, financial sector liberalization, and fiscal prudence in public finance. As production becomes more globally dispersed, international organizations have also developed important codes of conduct for labour conditions (for example, International Labour Organization) and business and investment ethics (for example, the United Nations Conference on Trade and Development (UNCTAD)). Taken together, these international actors, sanctioned and supported by national states, play a significant and often complementary role to state regulation of global production networks.

In addition to the state and international organizations, we witness a variety of other non-state actors in global production networks (Table 2.4). Through their collective action, these non-state actors—such as labour groups, consumers and civil society organizations, and transnational advocacy networks—are important extra-firm actors because they can facilitate or disrupt the efficient functioning of global production networks.¹⁵  Labour organizations are obviously important here because all firms are organizational devices bringing together the collective value production by labour—whether they are workers, managers, professionals, and so on. Similar to the state, the role of labour organizations as an extra-firm actor varies substantially across national economies. In national systems with historically substantial labour involvement in industrial governance (for example, Germany), the governance of different production networks entails more than just lead firms in inter-firm relations, incorporating both firms and labour in the (re)configuration of value activities in industrial production.¹⁶ In national economies with weak labour organizations (for example, parts of the Global South), value extraction by firms in global production networks tends to be given almost a free rein. In other words, we expect a continuum, from very strong to very weak, in the role of labour organizations in co-governing value activity by firms in global production networks.

For manufacturers of finished goods and providers of consumer services, the notion of final customers refers to individual consumers in various national economies. As extra-firm actors, these consumers can engage global lead firms through their individual and/or collective action in the form of consumption preferences and choices, boycotting, litigation, and so on.

While these consumers often have little direct control over the value activity in the global production of these goods and services, their active role in a global production network can be enhanced through extra-firm collective action such as consumer groups and advocacy organizations. These civil society organizations can translate consumer preferences and views into collective pressure on particular firms and extra-firm actors (for example, the state) in global production networks. While recognizing their importance in addressing consumer and other social concerns (for example, gender issues and the environment) in the value activity of global production networks, these organizations can be highly diverse in their objectives and interests. Their legitimacy and effectiveness again vary enormously across localities, making it analytically very difficult for us to prescribe a priori a particular role for their involvement in disparate global production networks. In reality, this role can be better illustrated through empirical studies because of its sectoral and geographical specificities. For example, ethical and fair trade initiatives in developed countries, strongly advocated by the state and civil society organizations, are generally more effective in influencing sourcing strategies of certain kinds of lead firms, such as major retailers and their domestic and foreign suppliers in the agro-food and apparel industries.¹⁷

In other industries such as electronics and automobiles, these initiatives have much less purchase in shaping how lead firms coordinate their global production networks. Instead, we are witnessing the growing importance of what Büthe and Mattli (2011) term the ‘new global rulers’ through the privatization of regulation. These non-state global setters of standards and norms in global industries play an increasingly vital role in the governance of inter-firm relations. For example, the influence of the credit-rating agencies extends far beyond that of financial institutions such as banks, affecting global lead firms and their strategic partners seeking funding in different capital markets. This pressure in turn shapes their production and sourcing strategies (see more about this in Chapter 3). Private associations and consortiums in high-tech industries are also highly crucial in setting new industrial standards and technological parameters that profoundly influence the value activities of lead firms, their strategic partners, and customers. We describe these new global players as intermediaries because they often intermediate diverse interests and objectives of firms and extra-firm actors in global production networks spanning most industries.

In our conception, intermediaries bridge and connect multiple actors in a global production network, allowing them to engage in value activity of mutual benefit. These intermediaries can be firms or extra-firm actors; they are therefore not a third category of actors. Instead, intermediaries are conceptualized in relation to their functional role in global production networks. Indeed, some intermediaries (for example, financial institutions or logistics firms) are lead firms in their own industry-specific global production networks. In this case, intermediation leads to the intersection of multiple networks across different industries. Extra-firm intermediaries can be business and industry associations that represent and engage the collective interest of firms in a particular national and/or industrial context. The participation of these intermediaries ensures the provision of unique inputs, mostly intangible in nature, to make these networks work. While illuminating the complex power relations governing lead firms and their suppliers in cross-border production networks, past research has not paid much attention to these power brokers, who enable the effective functioning of global production networks. In this section and Table 2.5, we attempt to incorporate and conceptualize three such critical intermediaries: finance, logistics, and standards.¹⁸

A few caveats are necessary here. First, our choice reflects the enormous market power of these service providers in the 2000s and beyond. We do not deny the continued significance of other more traditional intermediaries, such as sourcing agents in apparel, toys, and footwear, import–export traders in electronics, and wholesale distributors in automobiles and food.¹⁹ The under-theorization of these new intermediaries in global production networks, nevertheless, represents a missing link in our existing knowledge base. We believe the initial work done in this area needs to be significantly extended. Second, each of these service providers clearly serves as an important actor in contemporary economic systems. But their role in most global production networks is neither the same as lead firms, nor equivalent to that of strategic partners or suppliers. These intermediaries should be conceived of as enablers that global production networks need to function effectively. Third, intermediaries are necessarily the ‘go-betweens’ among key actors in global production networks. In this sense, they intermediate diverse interests between, say, lead firms, their partners, suppliers, customers, and other extra-firm institutions. In some cases, global lead firms task these intermediaries (for example, consultancies and advisory agencies) to govern their relationships with other actors in global production networks. In other instances, state institutions may flex their muscles with respect to these intermediaries (for example, financial lending practices) in order to put regulatory pressure on global lead firms. Fourth, intermediaries (for example, logistics providers) often engage in deep integration with lead firms and other actors in global production networks and control a significant amount of proprietary information critical to the successful operation of a particular global production network.

Let us now consider the role of financial intermediaries. The financialization of the global economy since the breakdown of the Bretton Woods system in the 1970s has undoubtedly put finance at the forefront of global capitalism.²⁰ But how does finance play an intermediating role in global production networks? During the Fordist era of vertical integration and mass production, hierarchically organized multidivisional firms tended to use retained earnings and debts (for example, bank borrowing) to fund their productive activity. While the largest and most dominant Fordist firms issued public offerings in stock exchanges, the extent of the capital market’s penetration into everyday corporate life was relatively modest even in the United States and United Kingdom—the archetypes of Anglo-American capitalism. In the contemporary era, however, the massive securitization of corporate assets and financial re-engineering of firms, revolutionized by such intermediaries as investment banks in corporate finance, has brought finance into the core of the globalization of production networks. Global lead firms are now no longer masters of their own destiny. Their CEOs are increasingly driven by shareholder interests and credit ratings in capital markets. In short, a GPN analysis engaging directly with these financial intermediaries can illuminate better the functioning and operation of global production networks.²¹

More specifically, we consider four particular ways in which finance intermediates global production networks. First, global finance impinges directly on value creation, enhancement, and retention in global production networks. This is perhaps the most important role of finance in intermediation. The enormous complexity in managing financial risks such as interest and exchange rates in global production challenges even the most powerful global lead firms. The kind of financial knowledge and expertise required to handle these risks has gone far beyond the capability of their in-house finance teams and treasury departments. These lead firms often look to financial intermediaries to provide critical services so that these firms can actually capture substantial value from their productive activity. These services include credit lines, financial advice, investment evaluations, value projections, tax strategies, and so on. Moreover, these financial intermediaries may provide additional services such as arranging credit for key partners and suppliers of global lead firms and handling financial transactions between them. In so doing, these financial intermediaries play a substantial role in greasing the wheels of global production networks.

Second, finance intermediates the innovative trajectories of global production networks. As the innovation of new products and services requires massive investment in new technologies, expertise, and knowhow, financial intermediaries play an indispensable role in loan syndication, risk calculations, market projections, and earnings estimations associated with these new products and services. Behind the introduction of successive generations of iPhones and iPads, for example, Apple needs to engage a number of financial intermediaries to ensure the market success of its products. In order for a telecommunications service provider to bid for a new broadband service project, it needs to bring in financial intermediaries to ensure the availability of syndicated credits at the best rates and the mitigation of market uncertainties associated with these medium-term projects. As such, finance penetrates deeply into the core functions of any global production network—the configuration of value activities and new innovations.

Third, financial reporting is of considerable importance for value calculation among lead firms in global production networks because the tendency towards short-term reporting in most capital markets compels these firms to reduce their time horizon in production planning and supplier relationships. Financial intermediaries can help lead firms to plan and restructure their existing production networks in order to respond more effectively to this pressure. Fourth, greater access to capital markets can fundamentally reshape the relationship between ownership and management, particularly in publicly listed lead firms, which in turn requires adjustments to the time horizons of corporate performance, value capture expectations, and firm-specific governance models. Through their advisory services and credit provision, financial intermediaries can enable global lead firms to make these adjustments successfully.²²

The increasingly indispensable role of finance as an intermediary in global production networks sits alongside the rise of logistics in making these networks truly global in their spatial reach. In general, logistics refers to the entire process of planning, implementing, and managing the movement and storage of raw materials, components, finished goods, and associated knowledge from the point of origin to the point of consumption.²³ It is about more than just supply chain management because logistics providers increasingly engage in backward integration by helping lead firms establish and/or relocate their production operations and manufacturing facilities. This pre-production role of logistics intermediaries distinguishes them from specialized suppliers, such as supply chain managers, which do not have the same depth and breadth of logistical capabilities. Meanwhile, some logistics providers integrate forward to reach out to final consumers on behalf of global lead firms and their strategic partners. These providers intermediate lead firms’ demand for high quality and efficient distribution services and their strategic partners’ high-speed and high-volume production arrangements. Logistics providers are thereby becoming more embedded in entire production networks spearheaded by global lead firms and are developing longer-term cooperative relationships that connect together these lead firms and their strategic partners and global suppliers.

In the logistics literature, firms are categorized into first, second, third, and fourth party providers. First party logistics refers to the in-house provision of transport, warehousing, and other supply chain and distribution functions within global lead firms. Second party logistics is characterized by the outsourcing of these functions to an external service provider, known as a specialized supplier in Table 2.1. But this intermediation is specific to a particular customer and does not yet constitute a production network comprising of two or more actors engaging in inter-firm relations. For logistics to play a truly intermediating role in global production networks, third and fourth party logistics should also be considered. In the former, two or more firms within a particular production network agree to contract the same service provider to take care of their entire logistics requirements. This intermediary is involved in value activity that stretches between R&D, production, marketing, and distribution of a particular good or service. Between R&D in a lead firm and production in overseas partners, for example, a third party logistics (3PL) provider such as DHL or UPS may be responsible for information sharing, transfer of documents, blueprints, prototypes, and delivery from suppliers of materials and components. The same service requirement also exists between production and marketing/distribution. A global lead firm is likely to demand speedy time-to-market from a 3PL, in collaboration with strategic partners such as contract manufacturers. This 3PL must also work with strategic partners that are particularly concerned with continuous manufacturing operation, efficient inventory management, and just-in-time production to save costs and to capture more value. Overall, it is clear that the intermediating role of a 3PL in a global production network can be highly complex; it can be a make or break factor in the creation, enhancement, and retention of value among actors in a network. In recent years, a new form of logistics intermediary has emerged to integrate actors in global production networks with logistics service providers. These fourth party logistics (4PLs) providers are effectively market integrators that specialize in more than just logistics (such as 3PLs). They have to provide non-asset and skills-based services, such as financial and management consulting, software development and integration, brokerage of transport and import/export requirements, and so on.

If finance and logistics are obvious intermediaries shaping the configuration, operationalization, and governance of global production networks, standards intermediaries are far less tangible and visible in their imprints on these networks. By standards, we mean intermediaries that are involved in the establishment, enforcement, and harmonization of protocols and codified knowledge and specifications in the global production of goods and services. Table 2.6 summarizes the major attributes and actors involved in these standards. To Nadvi (2008), compliance with these standards has become a sine qua non for any actor to participate in global production networks. At the international level, these standards can refer to production (for example, labour and environmental) and consumption domains (for example, quality and safety).²⁴ International standards can pose a significant barrier of entry into global production networks because of the high economic, social, and institutional costs associated with their compliance. A change in international standards can also impinge on existing network configuration and governance, producing distinct losers and winners. At the industry level, standards are highly important in fostering technological innovations and new services in areas such as telecommunications and biotechnology.²⁵ Industrial standards are critical to vertical specialization among key actors in global production networks. Without common technical interfaces and modularity standards in constituent components and subsystems, it is doubtful that the worlds of production in electronics and automobiles could be as highly globalizing as they are.

Now that the intermediating power of international and industrial standards is rendered more visible, it is useful to introduce the key intermediaries that establish and enforce these standards. In general, we can conceive a wide range of institutions as being involved. International organizations such as the International Organization for Standardization (ISO) and the United Nations’ Food and Agriculture Organization (FAO) tend to be more prominent in setting standards that should be complied with on a global basis. But the actual implementation of these standards on the ground falls to an assortment of intermediaries such as quasi-state institutions, civil society organizations, transnational advocacy networks, and inspection agencies. Because of this diversity in intermediaries at the level of implementation and compliance, global standards are really ‘global’ only in name. Their concrete realization in governing production networks varies significantly across different jurisdictions and institutional contexts.²⁶ For example, while global standards on labour conditions are well recognized and established, many suppliers to brand name global lead firms (e.g. retailers) continue to flout these standards.

In comparison, industrial standards are often better enforced and produce tangible outcomes in shaping the configuration of global production networks. By setting new technological and product or service standards, important intermediaries such as industry associations and certification agencies play a dominant role in intermediating diverse interfaces within global production networks—for example, between lead firms and their strategic partners, between customers and their suppliers, between producers and consumers, and so on. In terms of technological standards, lead firms, and industry associations are often actively involved in setting standards, albeit with radically different vested interests. A lead firm and its key partners and suppliers can reap exceptional profits and capture high levels of value if their technology becomes the industry standard. Well-known examples are automobiles (for example, energy efficiency and safety standards), computer operating systems (for example, MS-DOS versus UNIX), electronics (for example, Blue-ray versus HD in DVD technology), and mobile telecommunications (for example, GSM versus CDMA and iOS versus Android). In industries where compliance to common standards is required (for example, agriculture and services), certification agencies become crucial intermediaries between customers and suppliers in disparate global production networks. For example, organic food certification and ethical trade initiatives have relegated much of the certification power in governing agro-food production networks to independent, and often private, agencies. Compliance with labour standards is also increasingly monitored and verified by specialized social audit firms such as Cal-Safety, Global Social Compliance, and Veritas. The rise of these new private regulators has complicated existing governance relations among firms in production networks.²⁷

As global standards are becoming a more standard operating procedure for governing global production networks, both existing actors in these networks and new actors trying to enter into these networks require new knowledge about these standards and their implications. With global standards come a whole array of specialized providers of such knowhow about the nature of, and compliance with, these standards, whether at the international or the industry level. The massive demand for this knowhow has created a whole new industry of standards consultancy and service providers that intermediate the ways in which actors in networks conform to and/or evade these standards. For example, ethical and labour standards are increasingly tied to corporate social responsibility (CSR). Global lead firms are particularly susceptible to CSR liabilities because of the risk of substantial reputational damage. These firms often actively involve CSR consultants and specialists to re-examine and re-evaluate their entire production networks and to monitor ethical and labour code implementation in order to minimize CSR liabilities and potential damage. These consultants in turn wield tremendous leverage over other actors in the networks (for example, local suppliers). Similar to the intermediation role of logistics service providers, these standards consultancies capitalize on their intangible and tacit knowhow of international and industrial standards to mediate the competing interests among lead firms, strategic partners, local suppliers, and consumers in global production networks.

The above section has presented three functional groups of actors—firms, extra-firm actors, and intermediaries—that play the most significant roles in shaping the configuration and governance of value activity in the global economy. The interrelationships between these actors are necessarily complex. As a collective and complementary process, the creation, enhancement, and retention of value do not begin and end with a global lead firm in a linear chain-like manner. Rather, we need a network conception of this organizationally complex and geographically extensive process of configuring value activities because of the mutually interactive and recursive nature of the relationships involved. As outlined in Chapter 1, we argue in this book that the organization of diverse manufacturing and service activities by a wide range of actors and institutions in multiple locations is best understood conceptually as a global production network. For the purpose of methodological clarity, we begin the identification and analysis of each network by identifying a global lead firm and then building in a wide range of other related firms and extra-firm actors in order to constitute fully this network.

Our network conception also points to the diversity of organizational modes through which any particular global production network can be configured and coordinated. The governance of global production networks cannot simply be assigned solely to lead firms in a static and hierarchical manner, because of the often contested and evolutionary relationships between lead firms and other actors in inter- and extra-firm settings.²⁸ The politics of governance goes beyond the partial equilibrium view expressed in the existing value chain governance approach. Reflecting on this issue, Levy (2008: 944) argues that the GPN approach should pay ‘attention to the agency of actors in mobilizing and deploying resources, forging alliances, shaping regulatory structures, and framing issues. From this perspective, GPNs resemble contested organizational fields in which actors struggle over the construction of economic relationships, governance structures, institutional rules and norms, and discursive frames’. In short, global production networks are constituted by and through actors that in turn are shaped by the various dynamic logics of global competition.

In particular, we conceive economic actors such as the firm not as individual agents per se, but as a constitutive part of the wider network through which emergent power and strategic effects are realized over time and in different territorial ensembles. Firms are not standalone ‘black boxes’, but rather actively contested organizational devices for the accumulation, mobilization, and deployment of resources and competencies in the production and extraction of value. This dynamic conception of actors and their power relations improves on earlier work on value chain governance that focuses primarily on transactional linkages between firms (for example, buyer and supplier relationships). Focusing analytically on the articulation of firms into global flows of capital, labour, and knowledge, GPN analysis also ventures beyond a state-centric interpretation of economic development. We argue that this articulation in search of new and complementary assets for value production and extraction is a firm-specific organizational choice based, crucially, on the emergent dynamic capabilities of firms and their evolving relations with other firm and extra-firm actors. Our conception therefore places significant analytical emphasis on firms and their strategic action in and through global production networks.²⁹ As argued in Henderson et al.’s earlier influential work (2002: 438) on global production networks,

if the object of our endeavours is the possibilities for economic development and prosperity, then we should recognize that in order to speak authoritatively on these issues, we need to study what firms do, where they do it, why they do it, why they are allowed to do it, and how they organize the doing of it across different geographic scales.

In the following two subsections, we describe the distinct organizational configurations and power relations of actors in global production networks.

This subsection attempts to illustrate some possible configurations of a stylized global production network and explains how such multiple networks can intersect both to form an industry and to bridge different industries. This attempt brings us closer to understanding how actors and industries intersect in various global production networks and how these intersections can be aggregated up to form different industries and sectors. Figure 2.2 describes two common organizational configurations of global production networks, each with a distinctive lead firm and encompassing a wide range of other firm and extra-firm actors. In the first configuration, known as a strategic partnership model, a global lead firm engages another firm as a strategic partner to provide partial or complete solutions for its product or service delivery to key customers. This inter-firm partnership criss-crosses with tangible and intangible inputs from specialized suppliers and intersects with broader structural initiatives intermediated by industrial associations such as standardization and modularization.

In the manufacturing sector, the strategic partner is likely to be a total solution provider such as supply chain managers in apparel (for example, Li & Fung) or contract manufacturers in ICT (for example, Hon Hai Precision). In services such as transport, a strategic partner can be a manufacturer of major transport equipment such as aircraft-makers (for example, Boeing and Airbus) and shipbuilders (for example, Hyundai Heavy Industries). To deliver the finished products to the customers of the lead firm, a strategic partner has to engage with logistics service providers. Responsible for most, if not all, of the manufacturing activity, it is also subject to lobbying pressures from extra-firm actors such as labour organizations that push for better working conditions and higher labour standards in its factories. Specialized suppliers such as platform leaders are also involved in the branding and marketing activity of the lead firm, as it reaches out to its customers (for example, ‘Intel Inside’ in personal computers). Consumer groups may exert pressures to ensure the corporate social responsibility of a lead firm. Overall, this configuration of a global production network places a significant degree of analytical attention on the complex inter-firm relationship between the lead firm and its strategic partner in the context of other inter- and extra-firm intersections. Coordination and governance in this model tends to be shared between the lead firm and its strategic partner. The model can be commonly observed in both manufacturing (for example, apparel and ICT) and service industries (for example, transport).

By contrast, the second configuration of a global production network in Figure 2.2 does not provide for the role of a strategic partner. Instead, this is a lead firm-centric model of organizing a global production network in which the lead firm dominates and drives the entire network. This model is often observed in such industries as automobiles, ICT, and banking. In each of these industries, we can identify lead firms that take charge of a significant proportion of the production of goods or services. In the automobile and ICT industries, a lead firm may bring together material inputs from specialized suppliers (for example, key modules and core components) and generic suppliers (for example, plastic parts) to produce finished or intermediate goods (for example, semiconductors). Because of their firm-specific choices (for example, technological and strategic concerns), these lead firms prefer to internalize much of the production process in order to exercise greater control over the quality and delivery of their products to customers. This delivery and distribution may involve other firms such as logistics and retail service providers. As the manufacturers of these products, lead firms are subject to lobbying and other interventions from state and non-state actors. In the service industries, major banks, for example, are lead firms that draw upon material and intangible inputs from their specialized suppliers (for example, computer hardware and information systems) to offer financial products and services to their corporate customers and individual consumers. In this lead firm-centric model, our analytical focus tends primarily to fall on the lead firm and its forward and backward linkages with specialized suppliers and key customers. Other inter- and extra-firm actors may mediate these linkages such that the governance power of the lead firm in this network is partially constrained.

Taken together, these two illustrative configurations of global production networks are premissed on the organizational roles of diverse actors such as lead firms, strategic partners, suppliers, and extra-firm actors. While each configuration tends to resonate more strongly in particular sectors and industries, we do expect both configurations to be possibly found in the same sector or industry. These configurations may also evolve in a dynamic fashion over time. In the automobile industry, for example, which is generally characterized by the lead firm-centric model, a specialized supplier of core components (for example, gear boxes) or services (for example, automobile design and distribution) may, over time, take up the role of a strategic partner through firm-specific initiatives or industry-wide transformations. This dynamic evolution can lead to a reconfiguration of the global production network from a lead firm-centric model to a strategic partnership model. In a similar vein, the intense inter-firm relationship between a lead firm and its strategic partner can disintegrate over time when the latter ventures into product or market definition—the core competence and function of the lead firm—by developing its own branding and products. Under threat from its strategic partner, this lead firm may internalize some or all of its manufacturing activity. It may also engage with another solution provider, even though this new inter-firm relation may be less strategic and mutually dependent. Equally, the strategic partner may evolve to become a lead firm and thus exit its partnership with the lead firm. In these dynamic scenarios, a strategic partnership configuration may be transformed into a lead firm-centric model of global production networks.

Moving beyond the dynamic configuration of a single global production network, we can now consider how multiple networks can aggregate and intersect. This aggregation is conceptually significant because it allows us to overcome the ‘unit of analysis dilemma’ identified by Bair (2005: 166)—how firm-level investigations of value chains can be aggregated and mapped onto larger units of analysis such as the regional or the national economy.³⁰ Our conception also provides a clear and consistent approach to analyzing domestic and international linkages in global production networks across different industries. In Figure 2.3, we map out three such organizational possibilities: (a) aggregation of multiple global production networks to form an industry; (b) intra-industry intersection of global production networks through common strategic partners or specialized suppliers; and (c) inter-industry intersection of global production networks through firms undertaking different roles in different global production networks.³¹ In the first possibility (Figure 2.3(a)), we can aggregate multiple production networks, some global and some local, to form an entire industry. The personal computer industry, for example, is comprised of multiple global production networks, each having one lead firm and resembling either model in Figure 2.2. The top ten global lead firms and other firms involved in their global production networks can be readily aggregated to form almost the entire global computer industry. But to account fully for the computer industry in a particular regional or national economy, other local firms in the same industry may matter, even though their production and marketing activity may be oriented towards the domestic economy. A more complete GPN analysis may therefore bring in these local firms that are not yet integrated into any global production network. In this way, an industry can be thought of as an aggregation of multiple global production networks and localized firms.

As we move from one global production network to another within the same industry, we often observe that several major partners or suppliers tend to provide manufacturing or other value activity to multiple lead firms. We call this intra-industry intersection of multiple global production networks (see Figure 2.3(b)). In the ICT industry (B1), for example, single or multiple ODMs or EMS providers can serve the manufacturing needs of several brand name lead firms. These manufacturers become the nodes through which the global production networks of these lead firms intersect. In the retail sector (B2), major food and confectionery producers (for example, Cadbury and Kraft) may supply multiple lead firm customers (for example, Wal-Mart and Tesco). While lead firms in these industries do not intersect with each other, they tend to share common strategic partners and/or specialized suppliers, leading to criss-crossing of their global production networks.

More importantly for the analysis of firm strategies and developmental outcomes (Chapters 4 and 5, respectively), our conception of global production networks allows for inter-industry intersections that enable cross-sectoral and inter-industrial analysis of economic development. In these intersections of multiple global production networks across industries, we can begin by identifying a nodal firm that performs multiple roles in these industries—it may be a lead firm in one industry and a specialized supplier or a customer in another industry. Three such inter-industry intersections can be identified in Figure 2.3(c). First, a lead firm in one global production network serves as a customer in another network and influences the strategic partnership relations in the latter network (C1). For example, Singapore Airlines is a global lead firm in the passenger air transport industry, coordinating its global production network of transport services. But it is also a key customer of Boeing, a global lead firm in the aerospace industry. In this manufacturing industry, Boeing partners with leading specialized engine suppliers such as Rolls-Royce, GE Aviation, and Pratt & Whitney to produce cutting-edge transport equipment for passenger service providers. By working with a specific engine supplier, Rolls-Royce, Singapore Airlines can effectively shape the strategic partnership between Boeing and its engine-makers. In both industries, we identify the global lead firms (that is, Singapore Airlines and Boeing) and examine their interrelationships (with strategic partners) that in turn influence the dynamic configuration of their respective global production networks across different industries.

Second, an inter-industry intersection can occur when a lead firm in one global production network serves as a specialized supplier to multiple lead firms in several industries. In C2, this intersection is particularly prevalent in the context of service lead firms serving as a specialized supplier to multiple partners and/or customers in different industries. Good examples are logistics, finance, and retailing. In each of these service industries, a global lead firm can coordinate and control its own global production network and, yet, each network can connect to multiple customers that are lead firms in diverse industries (shown in different shadings). A logistics global lead firm such as DHL can serve the organizational needs of a great variety of manufacturing and service industries. As a specialized service supplier, it can connect the flow of goods and services among various global production networks in these industries. In retail, giants such as Wal-Mart and Tesco are clearly lead firms in their own right, exerting huge control over their myriad supply networks. But in functional terms, their primary role is to distribute the products and services of other lead firms, ranging from food to non-food products such as health and electronics.³²

Third, common ownership of multiple lead firms or strategic partners can lead to inter-industry intersections (as in C3). This is particularly evident in the case of business groups or conglomerates in which the ultimate holding company may control several firms that serve as lead firms, strategic partners, or specialized suppliers in multiple industries.³³ Some of the world’s largest business groups tend to control several lead firms that straddle diverse industries and sectors. Japan’s Sony, for example, controls major lead firms in two industries—electronics, and media and entertainment. Until its split in 2013, the former News Corp controlled lead firms (Fox and News Corp) in media, entertainment, publishing, and so on. Hong Kong’s Cheung Kong Holding, a leading property developer in Asia, controls Hutchison Whampoa, a global lead firm in operating ports and telecommunications. Through common ownership, the governance of many of these lead firms and therefore their global production networks in multiple industries can be better understood as a form of inter-industry intersection. Taken together, this actor-specific approach to defining global production networks offers a more explicit unpacking of these actors and their interrelationships, which constitute the evolutionary dynamics of global industries. It also helps illuminate the complex power relations of these inter-firm and extra-firm relations.

In our conception of value activities coordinated by multiple actors, the complex interrelationships between the lead firm and other firms and extra-firm actors are both structural and relational in nature. As detailed in Chapter 1, a relational view of global production networks requires us to go beyond a structural analysis of the global economy that tends to adopt a zero-sum approach to asymmetric power distribution and network governance. In the organizational contexts of Figures 2.2 and 2.3, the structural approach tends to assume a unidirectional flow of power relation, usually from the lead firm to its partners and suppliers. This zero-sum approach often fails to account for the complex and recursive power relations among diverse actors in these networks. Instead, our relational analysis of global production networks focuses on the existence of differential power relations and authority systems within a network and their emergent effects on various actors.³⁴ A global production network reflects relational processes and uneven structures in which, and through which, corporate power is distributed, exercised, and governed. As noted by Coe et al. (2008b: 272; emphasis in original), production networks ‘reflect the fundamental structural and relational nature of how production, distribution and consumption of goods and services are—indeed always have been—organized. Although they have undoubtedly become far more complex organizationally, as well as far more extensive geographically, production networks are a generic form of economic organization’.

Powerful lead firms are those that drive global production networks and make things happen. Their ability to do so depends on their asymmetric control and internalization of key resources (physical, political, economic, social, and technological). The network literature in economic sociology and strategic management has commonly suggested that power in a network is a structural function of a firm’s positionality within the network (for example, centrality) or strength of association (for example, density).³⁵ This structural view of power and authority in a network, however, tells us little about the dynamic and qualitative nature of its constitutive relationships, such as supplier selection and control, degree of mutual trust, commitment and reciprocity in partnership, and durability and endurance under pressure, which is far more important than structural durability per se. It also suffers from an ex ante conception of clear role definitions among actors in a network by assuming a stable and identifiable set of power relations that are measurable and substitutable in quantitative terms.

Given the inherent dynamics and uncertainties associated with the constitution of global production networks, we view power and governance in both structural and relational terms. While we conceive these networks as having certain structural properties (for example, the differential roles of actors in Figure 2.2), we do not automatically assign and distribute certain power balances to each network of actors (for example, OEM lead firms have power ‘over’ their strategic partners). The fluidity of roles and functions among these actors in a network often destabilizes any a priori assumed form of power relations in network governance. As such, we define power as the capacity of an actor to exercise and achieve control over a particular strategic outcome in its own interests that can be realized only through the process of exercising. Power is as much a structural property as a contingent and contextually defined practice among interconnected actors in a network. This practice of power cannot take place in an organizational vacuum, but instead requires the concomitant presence of other actors in an evolving set of social relations. The control of resources, therefore, does not inadvertently imply that an actor is powerful until power is exercised in relation to other actors in the same network—such control is only a necessary, but not sufficient, condition for the allocation of power to any actor. In other words, power should be conceived as a relational practice embedded in the structural position within a network.

To understand further this constitution and practice of power relations in governing global production networks, it is useful to reconceptualize how network embeddedness serves as the main conduit through which firms and extra-firm actors become articulated into global production networks. Through their embedding in global production networks, economic actors from a particular economy are connected with other network members, irrespective of their origin or local anchoring in particular places. As argued in Henderson et al. (2002: 453), ‘it is most notably the “architecture”, durability and stability of these relations, both formal and informal, which determines the agents’ individual network embeddedness (actor–network embeddedness) as well as the structure and evolution of the GPN as a whole’. Economic actors and their embedded relations with other actors in the same network are crucial in determining their collective power and the precise configuration and coordination of global production networks. In this dynamic configuration, actors draw upon divergent forms of power in order to take on an advantageous position in global production networks that favours their value creation, retention, and capture. Those economic actors occupying a leading role in their global production networks tend to benefit disproportionately from the value processes associated with the market success of their products and services. Other partners incorporated into the same network can also gain from enhanced opportunities to upgrade their operations and to improve on their collective surpluses. This relational positioning for greater value extraction becomes the raison d’être for actors to articulate into diverse global production networks.

By according a significant degree of relative autonomy to these economic actors, our approach acknowledges the contingent implications of actor-specific choices for the developmental outcomes of global production networks. While this theoretical framework offers useful analytical dimensions for understanding the causal mechanisms of economic development, it does not force a particular structural logic of network organization or power distribution onto geographically specific development outcomes. As the ultimate dependent variable, development cannot be ‘read off’ from a mono-causal chain of analytical logic, but should rather be understood as a contested and relational outcome of diverse configurations of global production networks in which actors and institutions in various territories and locations vie for a dominant position vis-à-vis each other in coordinating and controlling such networks and realizing their goal of value extraction. These contingent outcomes are reflected in the feedback mechanisms in Figure 1.3. In sum, actors in global production networks contest and play significant roles in shaping the configuration and governance of these networks. Their collective structural and relation interactions ensure the effective functioning of intricate production networks spanning national contexts, territorial ensembles, and regulatory authorities; they weave together these networks to make them truly global in nature and reach. But what does ‘truly global’ really mean in our understanding of these networks? We now turn to the final and, as yet, underdeveloped, question for this chapter—the territoriality of global production networks.

As with the earlier iteration, GPN 2.0 takes territoriality seriously because the ‘where’ question is extremely important in understanding how value creation, enhancement, and retention through global production networks matter for economic development in an interconnected world economy. It also constitutes an essential part of our language for describing the spatial dynamics of actors and value activity in these networks. We are interested in both the organizational configurations of global production networks and their geographical reach. Geography, however, is not just the physical surface on which these value activities are organized and performed.³⁶ Rather, geography can be an active space that shapes the territorial constitution and configuration of these network activities. While useful in analyzing national economic development in the global economy, the existing literature remains rather limited in its conception of territoriality, focusing primarily on the global–national scale.³⁷ Thus, while the global value chain concept has the potential to bring multiple geographical scales to the forefront of its analysis, the territoriality of these commodity/value chains remains weakly developed and under-theorized, reflecting, in part, the framework’s origin in world-systems thinking.³⁸ Territoriality is highly aggregated in the existing GCC/GVC framework, which tends to identify the territorial units of analysis as either core/developed countries or periphery/developing countries. This is where GPN analysis can make a stronger claim, because it deals with how actors in various global production networks are anchored in different places and regions,³⁹ and yet operate at multiple scales—from the local and the regional to the national and the global.⁴⁰ While we concur with Lane and Probert’s view (2009: 12) that ‘GPNs do not exist in an anonymous global space but remain territorially embedded, albeit in multiple locations’, we seek to venture further by explicitly reconceptualizing the territoriality of global production networks.

In GPN 2.0, territoriality refers to the spatial organization of global production network relations and development outcomes along two important dimensions: the vertical dimension of global–local scales and the horizontal territorial interface. In Figure 2.4, we illustrate this intersection of actor roles (the vertical dimension) with space (the horizontal dimension). On the vertical dimension in Figure 2.4(a), territoriality can be understood as multiple geographical scales along the global–local continuum—the global being the highest scale and the local the lowest. This spatial scope of actors, from the global to the local, is highly specific to the organizational configuration of each global production network. Some corporate functions are globally organized and implemented (for example, strategic planning and product mandates in headquarters), whereas other value activities can be reproduced in several supra-national regions (for example, manufacturing, sales, and servicing). Value activities in global production networks can also be highly local because crucial inputs and/or knowhow are grounded in particular localities. This localization of global production networks is particularly prevalent in the initial phase of producing goods and/or services. We can think of food production (for example, terroir and physical conditions) and high fashion (for example, designers and local buzz), for example. Despite the global presence of final consumers in these contrasting industries, their production networks can be highly localized in specific places (for example, Bordeaux wines and Mount Kenya coffee) and cities (for example, London, Milan, Paris, and New York).⁴¹ In other industries, these value activities can be ‘up-scaled’ to specific regions within national economies when production takes place in evolving industrial districts and regional complexes that offer significant agglomeration economies. In many globalizing industries (for example, apparel, automobiles, electronics, and machinery), the territorially specific advantages of cluster economies have been widely recognized as the key pillar for development in regional economies.⁴² Both local and regional scales are also the critical terrains on which development outcomes of these value activities (for example, employment change, technological upgrading, and livelihoods) are played out. As will be developed fully in Chapter 5, the territoriality of global production networks and associated value capture trajectories and development outcomes hinge crucially on the different modes and types of strategic coupling between territorialized actors and their counterparts in these networks.

In the existing GCC/GVC analyses, at the national scale—the most common spatial unit used—the world economy is typically divided into developed and developing countries, both of which are respectively vying for sustained industrial dominance and industrial upgrading. In reality, however, the national scale in these studies represents merely a territorial ‘container’ of value chain activities. The analytical importance of this container conception of the national scale is concerned primarily with the institutional regulation of production, distribution, and retailing in global production networks because this regulatory function is often performed by the nation state.⁴³ Through its industrial and competition policy—often politically motivated—the state can directly shape the competitive dynamics of both producers and consumers in these networks. But, as argued in the earlier section on intermediaries, this primary role of national governments in regulating competition and in setting and implementing standards in global production networks varies significantly across national economies with diverse institutional capacities and political legitimacies. It can also be bypassed through regulatory activity championed by international organizations and cross-national industry associations ‘from above’ (international scale), or even private providers ‘from below’ (local and regional scale). Hence, while the national scale is perhaps the most visible and easily identifiable one in any GCC/GVC analysis, we believe it has less efficacy in explaining developmental outcomes than has hitherto been argued in the literature. Instead, the lower scales (local and regional) and higher scales (macro-regional and international) are as, and in some cases more, significant in understanding both the organizational dynamics and development outcomes of global production networks.

If we take this multi-scalar view of territoriality seriously, the ‘global’ in global production networks is really a metaphorical device to bring together all of the above scales—local, regional, national, macro-regional, and international—in our conceptualization of the spatial organization and geographical reach of these networks. Very few production networks are truly global in their organizational integration of constituent value activities, with the exception perhaps of final distribution (for example, retailing) and consumption. Even in automobiles, presumably one of the most sophisticated consumer goods with a global appeal and market, most lead firms (assemblers) continue to rely on main parts and components produced by their suppliers within the same home country (national scale) or home continent (macro-regional scale). Owing to such strategic considerations as just-in-time production and firm-specific tacit knowledge, these assemblers have developed intricate production networks that are highly integrated in both organizational and territorial terms. Most assemblers in Germany, Japan, and South Korea, for example, rely on first-tiered suppliers located in close proximity to their plants. Even when these assemblers internationalize their full production to new locations (for example, China, Thailand, Mexico, and Canada), they continue to source from their main suppliers, who follow their clients to these new locations. Macro-regional institutional arrangements such as the North American Free Trade Agreement (NAFTA) and the common market of the European Union have also encouraged this macro-regional clustering of automobile producers and their supplier networks. Virtually none of today’s lead firms in the automobile industry can claim to be a truly global producer deploying modules and components from all over the world and engaging in sequential production of an automobile using facilities located in all major continents. They are at best ‘world producers’ with a geographically extensive production presence in different continents and production networks concentrating in each of these macro-regions.⁴⁴

In electronics, an equally globalizing industry in terms of markets and final consumption, production networks are hardly global either. While the production of modern electronics products is quite globalized, it tends to be highly concentrated in macro-regions such as East and South-East Asia, Western Europe, and North America. Extensive knowledge and supplier networks are present in these regions to facilitate R&D and market control by lead firms, high-speed and volume manufacturing by their strategic partners, and cost-competitive component supply from different firms worldwide. Still, the global production networks of most electronics products remain tightly organized around only a limited number of major firms and regions within nation states.⁴⁵ The production of an iPhone 4, for example, is heavily dependent on major inputs from Apple (USA), Samsung (South Korea), and Infineon (Germany).⁴⁶ The total value added of US$120.76 by these three firms alone accounts for 62 per cent of the US$194.04 factory gate price of the finished iPhone 4. In most electronics products sold in global markets, very few components are sourced from some of the largest and most populated regions of the world—Africa, South Asia, Latin America, and the Middle East.

The idea of a global production network, then, should be understood territorially as a spatial ensemble of different local and regionally centred value activities. While the final goods and services are global in their consumption, their production is far less integrated globally than the literature has suggested. Instead, the globality of these networks should be reconceptualized along the global–local continuum as a dynamic scalar configuration of value activities across diverse localities, urban and regional economies, nation states, and macro-regional formations. In Figure 2.4(a), the functional activities within a lead firm and across other actors in the same production network can be organized in various territorial configurations; some are highly localized (for example, R&D) while others are regional and global in nature (for example, headquarters functions and production activity). This multi-scalar vertical conception of the territoriality of global production networks allows for a more nuanced understanding of their configuration and development implications.

As illustrated in Figure 2.4(b), this vertical dimension of organizing global production networks intersects with horizontal territorial interfaces, which are defined as the lateral incorporation of space—from localities (L) within regions (R) to regions within a national space-economy (N). This intersection refers to the spatial form of grounding value activity known as territorial embeddedness. In other words, value activity must always be located somewhere. Here, we can think of the territorial configurations of value activity by actors within the nation state—the most obvious territorial container of different regions and localities. But our conception does not end with the national scale. Instead, we conceive the vertical organization and flow of value activity in multiple scales from the local to the global, and yet, each of these organizational scales can be horizontally embedded within any national territorial formation, aggregating from localities to regional ensembles and from these regions to the national economy. In short, our conception incorporates both organizational scales (vertical dimension) of network actors and their territorial embedding (horizontal interfaces). The two are necessarily interconnected because, irrespective of their vertical scales of organization, actors in global production networks must eventually ‘touch down’ in specific territorial ensembles—be they local, regional, or national. Once this touching-down occurs, value activity tends to spread across different localities and regions along horizontal interfaces. Such processes can include geographical spillover in technological innovation, the spatial diffusion of management and marketing practices, and the spatial integration of production activity.

Let us explain with further examples. Within a specific locality, Figure 2.4(c) shows a lead firm and the location of its global headquarters function (for example, Hewlett-Packard). In fact, many of today’s global lead firms operate their headquarters functions out of only a few localities, such as global cities or their founders’ places of origin. Meanwhile, another locality within the same country hosts the local R&D activity of this particular global production network (for example, component design services for its manufacturing plant nearby). Thinking territorially, we can also envisage the diffusion and spillover of value activity to adjacent localities and clusters. This lateral expansion of value activity within the same scale can serve as an important possibility for local upgrading. This is where territoriality matters most, because, even though their developmental outcomes may be disproportional and contested, different localities can be gradually articulated into global production networks, and possibilities for value capture can be enhanced.

At the regional scale, we often witness inter-regional competition in value activity associated with the horizontal integration and expansion of global production networks. This inter-regional intersection is illustrated in Figure 2.4(c) when production activity within a particular global production network is located in high-growth regions of national economies in two contrasting continents—one performed by the lead firm’s own manufacturing facility (for example, in California, USA) and another by its strategic partner (for example, in China’s Shenzhen). As described vividly in Lüthje et al.’s From Silicon Valley to Shenzhen (2013), both regional economies are drawn into an intricate set of competitive and cooperative relations—competitive between these manufacturing plants and cooperative between the lead firm and its strategic partner (for example, Singapore’s Venture Corp). These inter-regional dynamics can also be found in two regions of the same national economy. The relocation of labour-intensive assembly work from coastal localities to inland regions of China, for example, represents a significant challenge for relatively more developed regional economies in Shenzhen, Guangdong, Fujian, and Zhejiang.⁴⁷

This inter-regional rivalry, nevertheless, is not unique to developing countries. Intense inter-regional competition drives technological innovation and employment shifts within advanced economies. In the United States, for example, different regions and states compete against each other for high value added jobs and activities (for example, Silicon Valley, Research Triangle, and Route 128).⁴⁸ At the same time, lead firms in these regions of California, North Carolina, and Massachusetts are facing severe competitive pressures in the vertical dimension from other leading national firms and their production networks in Western Europe (for example, the UK and Germany) and East Asia (for example, Japan and South Korea). This juxtaposition of inter-regional competition within the USA and international competition among American, European, and Asian firms represents the most intriguing territoriality of global production networks.

Though rather complex, this intersection of organizational and territorial configurations is precisely the reality of today’s global production networks. Understanding this vertical–horizontal interface in the territoriality of value activity is critical to how we can resolve the analytical dilemma of production networks operating on a global scale and, yet, producing very local and regional impacts. As argued by Breznitz (2007: 23):

There has been no study that systematically examines how product fragmentation shapes the development of emerging industrial countries. Such an account would need to explain why some activities occur in specific locations, as well as clarify whether particular development strategies resonate better with specific stages in the global product networks. What the literature offers are only suggestions for research frameworks on the governance and power relations in different types of product chains, or case studies about particular industries in specific locations.

In GPN thinking, we argue that the territoriality of production networks should not be construed exclusively at one spatial scale. A value chain analysis fetishizing the global scale for assessing value capture and industrial upgrading tells us little about how the reconfiguration and changing governance of value activity can impact differentially on localities and regions with diverse resource endowments, institutional settings, and growth trajectories. Equally, a value chain analysis specific to the local scale may be too myopic because it tends to take for grant powerful extra-local processes and forces that operate at wider scales. By explicitly incorporating the interfaces of these vertical–horizontal dimensions into our conception of territoriality in GPN 2.0, we can develop a better understanding of how and why development can occur in particular localities and regions at the same time as national development strategies may fail to ‘resonate better’, in Breznitz’s terms (2007), with the competitive dynamics of global production networks.

The historical antecedents of our conception of global production networks are complex and variegated. This chapter has offered a geographical political economy take that starts to integrate these different, and yet disparate, strands of conceptualization into the basic building blocks of a coherent theory in order to analyze the evolutionary dynamics in the global space-economy and their consequences for economic development. By carefully delimiting and drawing diverse actors (for example, firms), extra-firm institutions (for example, states, civil society organizations, and intermediaries), and territories (for example, local and regional economies) into a common conceptual framework, this chapter has provided the initial elements of a comprehensive conceptual apparatus sensitive to processes that operate at multiple geographical scales and are driven by differentiated power relations among actors and institutions in global production networks. By directing its analytical attention onto dynamic intra-firm capabilities, complex inter-firm networks, and institutionalized extra-firm relations, this conceptual effort towards GPN 2.0 differentiates it from the earlier iteration (GPN 1.0) by reframing our conception of value activity, providing a clearer methodological approach to defining global production networks and their intra- and inter-industry intersections, and developing further the territoriality of these networks. It offers a more comprehensive and flexible analytical structure, and allows for a wider range of development pathways and outcomes in an era of accelerated global competition. Global production networks serve as the primary organizational device for firms and extra-firm actors to engage more effectively with the possibilities and perils of an interconnected world. Developing the differentiated agency of actors and networks across geographical scales, this approach enables us to understand multiple development possibilities in diverse territorial formations. Importantly, it goes beyond the persistent tendency in existing studies of economic development to focus exclusively on self-contained national political economies.

As will be developed more fully in the next three chapters, GPN theory focuses on the key organizational mechanisms connecting both the economic actors and political forces internal to regional and national economies and trans-national flows spearheaded by lead firms in global production networks. As such, economic development is viewed as a trans-local dynamic process of growth and change whereby multiple actors operate at a variety of geographical scales. The dynamic articulation of these actors into different global production networks constitutes the central nexus of economic development, as these networks bring together geographically dispersed assets and capabilities in a recursive and cumulative process of inducing and stimulating growth and development. The coordination and configuration of global production networks by these actors have important consequences for value creation, retention, and capture in multiple localities and economies. Industrial transformation and developmental outcomes are not just dreamt up in official state plans or corporate boardrooms, but rather are the contingent effects of diverse actors creating and responding strategically to different competitive dynamics in global production networks. In the next two chapters, we will elaborate in depth these competitive dynamics and the strategies pursued by actors in global production networks.