TMJC 2025 J1H2 C1 Lecture 3 Global Production Network

1 WHAT IS THE GLOBAL PRODUCTION NETWORK (GPN)? ***GPNs refer to the extensive webs of intra-, inter- and extra-firm connections through which commodities are produced, distributed, sold and consumed. These networks are geographically extensive and functionally integrated across national boundaries. GPNs are usually network system coordinated and controlled by a globally significant TNCs. These TNCs are lead firms that are key shapers of the global economy; they are market leaders in terms of their brand names, technology, product/services, and marketing capabilities.’ The production of products used to be viewed simply via a global value/ production chain (Fig. 2). However, in a GPN, the complexity of the production of goods and services are captured through the production circuit whereby processes of inputs, transformation, distribution, consumption are involved An example of a GPN e.g. Simplified Nike version Hence GPNs provide an analytical framework focusing on the roles of economic actors in the establishment of contractual and technological linkages between global brand name products/ service providers and their strategic partners/ suppliers in order to reveal the uneven distribution of value capture and retention between the countries of production and consumption. Higher 2 (9173) Cluster 1: Development, Economy and Environment TMJC Cluster 1 Lecture 3 Global Production Networks 2025

2 HOW DOES A GPN WORK? There are intra-firm networks, inter-firm and extra-firm networks within a GPN. Intra-firm networks refer to processes in the functioning of a TNC which is controlled by the TNC itself. Such vertical integration involves internal division of labour within a TNC, usually in the control and coordination of different business functions. It involves mainly the corporate and regional HQ functions (financial role and processor and transmitters of information), as well as, R&D facilities (who play a critical role in the survival of firms) of a TNC. The spatial organisation of intra-firm networks are as follows: • Concentrated in the home countries • Location criteria: access to skilled labour; sources of scientific development and appropriate infrastructure • Recent trend towards internationalization of R&D - a strategy to gain new market - internationalization of labour market for R&D Inter-firm networks refer to processes in the functioning of a TNC which is controlled by other TNCs. Such horizontal integration usually involves subcontracting, outsourcing, suppliers and also formation of strategic partners. Inter-firms networks are important for the TNCs as: 1. They are a means to rationalise the production of goods and services for profit maximisation. 2. They also allow the TNCs to better focus on its core function of coordination and control of its business, as well as, R&D whereby innovation of its products and services are required to constantly cater to the needs of its consumers. 3. Risks of the production and innovation are shared. Extra-firm networks Extra-firm networks are those that work with TNCs but they are not companies. They include, states, Non-Governmental Organisations, International organisations and consumers. TNCs engage in extra-firm networks and negotiate or cooperate with them to enhance value and maximise profits. For examples, TNCs may choose to work with states which are willing to give them tax incentives, for example, Samsung enjoys the highest tax incentives out of all other corporations in Vietnam of a corporate income tax rate of 10%. TNCs may work with NGO like fairtrade or forest stewardship council to market their product as more environmentally sustainable and to improve their reputation. For example, Ikea aims to get all their furniture made only from FSC certified sources

3 WHAT ARE THE FACTORS INFLUENCING THE SPATIAL ORGANISATION OF GPNs? Lead firms search for spatial, organizational, and technological ‘fixes’ to challenges of global competition. The decision and choice of where its different functions are found are based primarily on NGSMTC: (1) Comparative advantage of a firm/ place to support the function of the TNC at minimal cost (2) Market availability and potential (3) Government policies and infrastructural development and support of place to support the required function of the TNC (4) Supranational Organisations/Multilateral Institutions – trade agreements or financial policies that favour production (5) Non-Governmental Organisation (NGOs) through addressing labour, environmental issues and therefore changing production processes Technology is seen as the enabler of the functions of the TNC (NOT the determining factor). HOW DOES THE GPN of TNCs connect places within the global economy through flows of materials and capital 1. Sourcing of inputs from different places Inputs can be both inter-firm or intra-firm networks in a GPN. For example, Kentucky Fried Chicken (part of the TNC YUM! Brands) sources its chicken from other companies such as Tyson Food, Kock Foods, Pilgrims pride from the USA. KFC in Malaysia get their chickens from DBE Gurney Resources Bhd. Other forms of input may be for parts such as Iphone (where its camera is from Sony, it’s battery is from China’s Amperex Technology and the OLED display for Iphone 14 is from Samsung. For other TNCs they may have their own suppliers and produce their own raw-material making it an intra-firm network instead. E.g. TNCs that extract oil to refine and sell such as Shell. Think: what is the purpose of having inputs (suppliers) being inter or intra firm network? 2. Transformation of inputs into products at different places After the raw materials are obtained, the second part of the TNC process often have the production and transformation phase where the raw material is converted into a product. It can be at the KFC outlet where the raw chicken is made with 11 herbs and spices or it could be at the car factory of Toyota where it is being assembled, or at Foxconn where the different components of an iphone are being assembled into an Iphone as well. Capital thus flow to such places with suitable labour condition. Toyota offshore (intra-firm) it’s factory to Thailand to produce cars due to cheaper labour and Apple outsource (inter-firm) its assembly of Iphones to Foxconn in China

4 3. Distribution of products to different places The finished product being able to be sold would also require other intra or inter firm relationships such as logistics firms like DHL, Maersk, Fedex. It is these logistics TNCs that enable trade between countries. Another very important point of distribution and consumption that we need to consider which could be inter-firm or intra-firm could be retail. Think of where you get your Iphone? Is it at the Apple Store or at the Singtel/Starhub/M1? Which is intra-firm network, which is inter-firm network Methods of distribution into retail can also be in the form of inter-firm networks such as franchising where e.g. franchise opportunity is brought from TNCs such as Mcdonalds, Subway, 7-11 to expand the TNCs GPN into different countries. 4. Consumption of products in different places Depending on the type of TNCs, sometimes distribution and consumption happen concurrently, sometimes we can differentiate it as a distribution network then a consumption network. Consumption may also come in the form of obtaining the service in the intra-firm network of the TNC. For example TNCs like Sands group, originating from USA – open up integrated resorts like MBS in Singapore. There is no distribution but as consumers book a hotel room or visit the casino in MBS, they are consuming the product and generating profits for Sands Group. Or think of TNCs like airline companies, when you fly Singapore Airlines from Singapore to Japan and back to Singapore. You’re consuming the product in Changi Airport and Narita Airport. Then if consumer buy a product through retail, they are essentially also