Gary Gereffi divides commodity chains into two distinct categories: those that
are buyer-driven and those that are producer driven. Producer-driven commodity chains
are typically high-technology industries where the producer decides what the consumer
buys. They rely on economies of scale to prevent other companies from entering, are
vertically integrated and invest heavily in research and development. Traditional
examples include computers, aircraft and automobiles. Buyer-driven commodity chains,
on the other hand, are typically low-technology industries where the buyer of the
commodity decides what the producer makes. They rely on economies of scope to
prevent other companies from entering, are horizontally integrated and invest heavily in
design and marketing. Traditional examples include apparel, footwear and toys. Charles
Fine divides industries into those that are vertically integrated and those that are
horizontally integrated. The classic industry examples that Gereffi gives correspond to
Fine’s vertical and horizontal integration industries: those that are producer-driven are
vertically integrated, and those that are buyer-driven are horizontally integrated.
However, as we have seen more and more in this post-internet world, these correlations
no longer hold.
As witnessed in both the automobile and aircraft industry websites, although only
a few major manufactures exist in each (The Big three in automobiles, Boeing and Airbus
in aircraft), more and more of the components of aircraft and automobiles are being
subcontracted or outsourced out of the manufacturer. Previously, automobile companies
such as Ford would make everything from the basic part to the finished automobile.
However, now, Ford is only in charge of designing and building the finished product.
They maintain the power to control what the consumer buys (through their design and
technology development) but most of the supply chain no longer belongs to them.
Conversely, the make-up industry, traditionally a buyer-driven commodity, has
become more and more vertically integrated. The large companies such as L’Oreal and
Revlon have bought up many of the smaller brand names such as Tommy Hilfiger,
Maybelline and Ralph Lauren. However, the industry remains buyer-driven since
branding is the most crucial product differentiator. With few disruptive technologies, and
a very mature industry, make-up is unlikely to turn into a producer-driven commodity but
will continue to vertically integrate.
Another trend that is noticeable throughout most of the industry websites is the
US’s continuing struggle to export goods. In the aircraft, automobile, make-up, and
pharmaceuticals, the US has loss market share in world exports between 1985 and 2000.
A number of theories can be used to explain this trend. Porter offers the best explanation:
that US companies have moved their operations overseas, thus producing exports for the
overseas country instead of the US. Evidence of this is found in make-up, where Proctor
and Gamble bought a number of French companies to produce toiletries. Similarly,
automobile outsourcing, and the building of plants in overseas nations to avoid tariffs has
dropped the US automobile export ranking since 1985. Heavy gains from Japan and
Germany also contribute to this trend. Pharmaceutical losses may be attributed primarily
to the FDA approval process. While Germany can produce drugs in a matter of months,
the US companies must wait nearly a year for FDA approval before they can begin
selling their drug. Often times, US companies will not export them until they reap some
of the reward from domestic sales. Finally, the trade deficit is not limited to just these
industries. US trade experts have worried about this issue for years, and one explanation
offers some insight into this trend. While many of the world’s exporting countries,
especially developing ones, have worked to compete on the world market during the 80’s
and early 90’s, the US laid complacent and dormant. When the need had arisen, the US
was already behind and could not compete, mainly with those countries’ biggest asset:
cheap labor. However, the US has compensated by turning into a more and more service
oriented economy. While the US may not be selling as much of the world’s share of
airplanes as we used to, we are now providing better service for those that are sold and
charging for this premium service. GE, for example, illustrates this point well as they
have spent millions revamping their customer service departments and internal efficiency
while developing e-business solutions all in an attempt to provide convenience and
premium service to the customer.