Industrial Organization and Space Economy

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Industrial Organization and Space Economy

• Industrial Geography Week 4

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Industrial Organization and Space
Technological Changes Restructuring/Reorganization
External networks
Spatial Organization
Industrial Organization
Historical Specificitiesy of Space Site
Characteristics Situation Characteristics
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• Stages of Expansion

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Types of Industrial Organization
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Three sets of Relationships

• Networks of internal apparatus (activities)
  within TNCs (transnational corporations)
• Different organizational units of a TNCs
  (transnational corporations) have different
  locational needs
• These needs can be satisfied in various types of
  geographical location
• Networks of externalized relationships between
  independent and quasi-independent firms
• The connections between the organizational and
  geographical dimensions of TNC networks

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Internal Networks within TNCs 1

• Three most important functions of the TNC
• Corporate and regional headquarters
• Research and development facilities
• Production units

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Internal Networks within TNCs 2

• Corporate headquarters
• The locus of control of the entire TNC
• Strategic decision makings
• Finance allocation of corporate budget
• Processing and transferring information
• Regional headquarters
• Integrate activities within a region
• Intermediaries between the headquarters and its
  affiliates (e.g. manufacturing and sales units)
  within its particular region
• Strategic windows on regional development and
  opportunities

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Internal Networks within TNCs 3

• Locational requirements for headquarters
• Strategic location on the global transportation
  and communications network due to need for
  contact to geographically dispersed units of
  organization
• Access to high-quality external services and high
  skilled labor skilled in information processing
• Agglomeration of high-level organizations face
  to face contacts
• Global Cities control points of the global
  economy

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Major Global Cities
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Internal Networks within TNCs 4

• Three Phases of RD
• Applied scientific and marketing research
• Access to the basic sources of science and
  marketing information
• Product design and development
• Access to a large supply of highly qualified
  scientists, engineers and technicians
• Adaptation of the new product to local
  circumstances
• Quick two way contact with the users of the
  innovation the production or marketing units
  themselves

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Three Phases in the RD process
Small Number of High Quality Basic Research
Scientists
Large Number of Product Development Scientists
Intensive Interaction bet. Market and
Laboratory
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Internal Networks within TNCs 5
Focus on Domestic Market
Enough Foreign Sales to Justify the RD Cost
Research Activities across Scales
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Geographical Trends in RD Investment

• Still Staying Home
• More than 70 per cent of the sample performed
  less than 10 per cent of RD activity abroad
• The overseas RD activity of US, Japan, Germany,
  France and Italy is concentrated within the
  global triad
• Increasing geographical dispersal
• US firms investment in overseas RD increased
  three times faster than their domestic RD
  investment
• Most increase in overseas RD came about through
  merger and acquisition
• Within a country, TNCs RD activity
  variesusually concentrated in key metropolitan
  areas

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Internal Networks within TNCs 6

• Models of Organizing Production units
• Globally concentrated production
• Globally concentrated production a single
  geographical location and export to world markets
  through the TNCs marketing and sales networks
• many Japanese companies in the 1970s
• Host-market production
• Production-specialization for a global or
  regional market
• Transnational vertical integration

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Internal Networks within TNCs 7

• Models of Organizing Production units
• Globally concentrated production
• a single geographical location and export to
  world markets through the TNCs marketing and
  sales networks (ex. Japanese companies in the
  1970s)
• Host-market production
• production is located in, and oriented towards, a
  specific host market
• sensitive to variations in customer demands,
  tastes, and preferences, or provision of
  after-sales service
• the existence of tariff and non-tariff barriers
  to trade

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Internal Networks within TNCs 8

• Product specialization for a global or regional
  market
• to serve a global or a large regional market
  (e.g. European Union or the NAFTA)
• trade-off between economies of large-scale
  production, and additional transportation costs
  involved in both assembly and shipping to markets
• Transnational vertically integrated production
• technological developments in communication and
  transportation, and standardization permit
  fragmentation and specialization in production
  processes
• international intra-firm sourcing the more
  mobile factors, such as technology, management
  and equipment, are moved to the site of the least
  mobile

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Types of Spatial Organization of Production
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Geographies of Restructuring Reorganization1

• Forces underlying reorganization and
  restructuring
• External conditions demand, competition, input
  cost or availability, labor union, government
  policy
• Internal pressures changes in leadership (new
  broom factor), relative performance of
  individual parts in firms (e.g. sales, production
  cost)

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Geographies of Restructuring Reorganization2

• Two geographies of reorganization
• In situ adjustment changes in the capacity of
  existing plants
• Locational shift abrupt change in the number and
  location of plants
• Barriers to exits
• sunk costs huge capital investments in existing
  facilities
• political pressures

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Forms of Corporate Restructuring
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Types of Reorganization
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External Networks of TNCs 1

• TNC - a dense network at the center of a web of
  relationships
• blurred boundaries hard to define the inside and
  the outside of the firms
• geographically nested relationships from local to
  global scales
• Firms obtain inputs, intermediate products and
  services through a long-term relationships with
  suppliers ?network model of production (however
  still power relations within networks are
  important)

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External Networks of TNCs 2

• The nature of the subcontracting relationship
  (principal firm vs. subcontractor)
• Commercial subcontracting manufacture a finished
  product by a subcontractor to the principals
  specification
• Industrial subcontracting manufacture components
  or provide services to principal firms

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Costs and benefits of subcontracting

• Benefits for principal firms
• avoid investment in new or expanded facilities
• a degree of flexibility
• control over subcontractor
• externalizing the risks
• Benefits for subcontractors
• access is gained to particular markets
• continuity of orders is assured
• access to new technology
• Costs for subcontractors
• bearing of risks shock absorber for large
  principals
• limited freedom to develop new products or new
  markets

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External Networks of TNCs 3

• Geographical dimension of subcontracting
• industrial districts functionally tied and
  transaction-based, geographical agglomerations of
  linked economic activities
• decline of industrial districts in Europe and the
  rise of Japanese industrial districts during the
  period of 1960s and 1980s
• international subcontracting tiered suppliers
  system

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International Subcontracting Types
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External Networks of TNCs 4

• International strategic alliances
• Characteristics of current strategic alliances
• Become central to corporate strategies
• Between competitors-- Coopetition
• alliance based competition
• Between 1989 and 1999
• 1000 in 1989 7000 in 1999
• 68 percent of all strategic alliances are
  international

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External Networks of TNCs 5

• Geographies of strategic alliances
• North American firms were involved in two-thirds
  of the international strategic alliances
• Regionalization of strategic alliances
• Advantages of strategic alliances
• access to markets
• entry into new /unfamiliar product markets
• cost sharing
• access to technologies
• economies of synergy

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New Mode of Competition
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Types of Inter-Firm Collaboration
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Strategic Alliances by Sector
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Flexible business networks
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Synthesis Connecting the organizational
geographical dimensions (1)

• How are these diverse organizational forms
  expressed on the ground? And what would be the
  implications for geographical development
  patterns at the national and international
  scales?

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Synthesis Connecting the organizational
geographical dimensions (2)

• Hymers question
• Does the internal division of labor within the
  TNC correspond to an international division of
  labor?
• Hymers answer
• Such an organizational-geographical
  correspondence did exist.
• High-level decision making occupations in a few
  key cities in the advanced countries

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Synthesis Connecting the organizational
geographical dimensions (3)

• Regionalization of transnational production
  networks
• the limits of potential economies of scale at the
  global level
• faster delivery, greater customization and
  smaller inventories more efficient than global
  organization
• better exploitation of subsidiary strengths

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Synthesis Connecting the organizational
geographical dimensions (4)

• The economic landscape as networks
• the global economy is made up of intricately
  interconnected localized clusters of activity
  that are embedded in various ways into different
  forms of corporate network which vary greatly in
  their geographical extent
• roles of firms in the networks and their
  implications for the communities

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Synthesis Connecting the organizational
geographical dimensions (5)

• Four relationships among firms and places
• intra-firm relationships
• inter-firm relationships
• firm-place relationships
• place-place relationships
• the importance of embeddedness of these
  relationships within and across national/state
  political and regulatory systems