Chapter 14

‘Capturing Value’ within Global Production

Networks

Review

• Concepts to Review– GPNs, codified and explicit

knowledge, bargaining between TNCs and local economies; resource industries; geographical inequalities

• Key Words– Stakeholders, value, value creation,

knowledge management, labour strategies

Concept of Value• Definitions

– ‘Economic rent’– Value is surplus above cost in performing the

transformations at that stage– Raises issues beyond firm competitiveness and profitability

• GPNs and value– Value in GPN is created, enhanced and captured where its

parts are located– A place’s involvement in GPNs creates net benefits/costs– Concern over firms transferring activities out of home

countries – Defensive investment: taken to protect markets and

ensure that the firm prospers, which consequently helps the domestic firm

Value of a Particular Locality• Dimensions of a place’s involvement: capital

injection, local firm stimulus, knowledge diffusion, local employment creation

• Not all overseas ventures involve capital transfer into host economy

• Net gain to host country depends on trading practices of TNC

• Local link formation by TNCs depends on three major influences:– The TNC’s strategy and the role played by the local

operation in it– Characteristics of local economy– Time

• Criticism: many TNCs procure only low-level inputs from local sources

• Differences between dependent and developmental linkages

Value and Diffusion• Knowledge transfer and GPNs

– Knowledge transfer to local population in terms of training – Doesn’t guarantee that the benefits of this knowledge will

be diffused through the host economy– The nature of the TNC inhibits the spread of proprietary

technologies– Evidence for technology transfer to developing countries is

mixed– Knowledge transfer requires absorptive capacity on the part of

locals– Both codified and explicit knowledge required for knowledge

diffusion

• GPNs and the host state– Relative bargaining power of firms versus local economies is

crucial– Balance between creating the right conditions to attract GPNs

and tying oneself too closely to specific GPNs– Problems of dominance of local economy by foreign-based

firms —although such firms are to some degree necessary– In such cases non-national goals may become dominant

Value and Employment• Impact of GPNs on jobs

– Local interest is mainly in the effect of GPNs on local jobs• High-road versus low-road job scenarios• Direct versus indirect job creation

– Offset jobs created by the number of jobs displaced by adverse effect on local firms: NJ = DJ + IJ – JD

– GPN establishment also involves reorganization of home country operations– Impacts of offshoring include: export stimulus effect, home office effect,

supporting firm effect, production displacement effect

• TNCs and local employment– Net employment effect: NE = XE + HE + SE – DE– Quantity of jobs, quality of jobs and location of jobs– Exploitation of cheap labour is one of the major charges levelled at TNCs

• TNCs and local labour relations– Variation exists in degree of TNC HQ’s involvement in labour relations– Dispersed nature of TNCs makes it difficult for labour to organize against

them– Possible counters: global union federations, networks of workers – Contracts: firms differentiating between core and non-core workers