As the Number and Scale of Multinational Enterprises (MNEs) Grew in the 1980s: International Political Economy Assignment, NTU, Singapore

Details:

The world of international business is complex and contested. It is also changing rapidly. These changes apply to international business as a whole, the frameworks and structures of businesses themselves, and the way we understand them.

The task of this assignment is to select one of the four international business theories that we have looked at in weeks 5 and 6 of this course – global value chains, global production networks, the global factory, or the platform economy – and apply it to a specific industry of your choosing. Once you have chosen your theory and industry, the essay should be written in response to the following question:

“Does the [your selected theory] theory accurately reflect the current nature of the [your selected industry] industry?”

Some examples:

• Does the global factory theory accurately reflect the current nature of the clothing industry?
• Does the global value chain theory accurately reflect the current nature of the consumer electronics industry?
• Does the platform economy theory accurately reflect the current nature of the transport industry?
• Does the global production network theory accurately reflect the current nature of the food industry?

Theories

The following is a primer of the four theories available to you to aide your selection. For further information see the lectures for weeks 5 and 6 and the reading list for each theory below.

1. Global Factory/Factory-less Production

As the number and scale of multinational enterprises (MNEs) grew in the 1980s and 1990s, there was increasing recognition that international businesses were no longer an exception, but now becoming the standard. One institutional form that theorists of international business examined is the “global factory”. The global factory can be viewed as an organizational network, where the firm deals with intangible public goods, such as knowledge (Buckley. 2014). The boundaries of the firm are said to be porous and attention is placed on strategic decisions about arrangements within and between firms. A version of the global factory is the factory-less factory, especially evident in electrical machinery and equipment, machine and mechanical appliances and computers, pharmaceuticals, and apparel.

2. Global Value Chains (GVC)

We started seeing the unbundling of the MNC as a single coherent and discrete entity with clear boundaries. The global value chain (GVC) literature developed a concept of value chains that was first floated by Michael Porter in his competitive advantage work.

The GVC approach was developed around a question about whether an unequal relationship existed between where the value was being created and where it was captured. In value chains, there may be places where the exchange is unequal where, for instance, a grower of coffee may get less than the value created when selling to a merchant, or paying debts from a finance company.

Given that GVC began with a special focus on industries in developing countries, it is perhaps no surprise that the approach is associated with the Institute of Development Studies (IDS) at Sussex University, and has been picked up by international policy institutions like the International Labour Organisation.

GVC decentres the analysis of IB on companies and what companies do themselves. GVC is instead interested in relations of power and controls up and down industries. These relations are recast not in terms of ownership but in terms of governance, and there are several forms of governance developed here.

GVC also offers policy action and especially through notions of economic and social upgrading.

3. Global Production Networks (GPN)

The other main network/chain approach is global production networks, developed by economic geographers, notably out of the University of Manchester. Just like the GVC approach the conceptual focus of GPN is on the spatial and institutional relationships between production, exchange, distribution, and consumption. It recognizes that the way global production is being organized and reorganized is extending across all sorts of countries, producing lots of small components and organized in complex ways.

It is also based on an explicit recognition of the fluidity and changeability of those relationships. As Coe, Dicken and Hess note:

“Production networks are inherently dynamic; they are always, by definition, in a process of flux—in the process of becoming—both organizationally and geographically. The spatiotemporally of production networks, therefore, is highly variable and contingent. As Hudson (2004, p. 462) points out, ‘[…] economic processes must be conceptualized in terms of a complex circuitry with a multiplicity of linkages and feedback loops rather than just “simple” circuits or, even worse, linear flows’.

Some networks are long-lived, others are more ephemeral; some are geographically extensive, others are more geographically localized. None remain completely unchanged for very long.” (‘GPN – realizing the potential’, Journal of Economic Geography, p 271, 2008) The claim for GPN then is that like GVC it recognizes the increasing fluidity and extended nature of global production. It also claims it is more expansive and comprehensive than GVC, because it opens up non-linear, multi-level relations and transactions.

4. The Platform Economy

The final and most recent approach to IB is the Platform Economy concept. It is probably too early to identify a theoretical discourse built around the concept (it’s still a concept in search of a theory). That’s not to say that there is not theoretical development occurring, and in the second installment of the lectures on international production, we noted work in sociology and social theory – Castells, Beck, Hardt and Negri, and others.

But within IB, there is the recognition that platforms represent a frontier form of business and that this form is disrupting earlier forms. For instance, a recent Harvard Business Review article has framed the increasing presence of platforms as a frontier business model this way:

“Products produce a single revenue stream, while platforms—which we define as intermediaries that connect two or more distinct groups of users and enable their direct interaction—can generate many. Indeed, a large number of the world’s most valuable companies by market capitalization in 2015 were platform companies, including five of the top 10 (Apple, Microsoft, Google, Amazon, and Facebook).

Although some of those companies started with platforms, many started with products:

Amazon launched as a retailer in 1994 and six years later introduced Amazon Marketplace; Google began with a search engine in the mid-1990s and then introduced search advertising in 2000, and Apple created the iPod in 2001 but didn’t move toward a platform until it developed the iTunes Store in 2003 and the App Store in 2008.” Zhu and Furr ‘Products to Platforms: Making the Leap’ HBR 2016) So, we have many of the leading global firms, especially those that produce intangible products or services either based on or transitioning to more platform-type business models.

The question here is whether this is generalizable to lots of other businesses or specific to a few spectacularly successful firms? But as an expression of intangible capital and the frontiers of IB, this is an exciting and important development; one worth thinking about and taking seriously.