Industrial Organization and Location

							Industrial Organization and
           Space Economy

     Industrial Geography Week 4
Industrial Organization and Space
Technological Changes
Restructuring/Reorganization
External networks



      Industrial                       Spatial
     Organization                    Organization


                           Historical Specificitiesy of Space
                           Site Characteristics
                           Situation Characteristics
Stages of Expansion
Types of Industrial Organization
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
Internal Networks within TNCs 1
Three most important functions of the TNC
  Corporate and regional headquarters
  Research and development facilities
  Production units
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
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
Major Global Cities
Internal Networks within TNCs 4

Three Phases of R&D
  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
  Three Phases in the R&D process
Small Number
 of High Quality
Basic Research
   Scientists


Large Number
  of Product
Development
  Scientists


   Intensive
Interaction bet.
  Market and
   Laboratory
    Internal Networks within TNCs 5

   Focus on
   Domestic
    Market


Enough Foreign
Sales to Justify
 the R&D Cost



   Research
   Activities
 across Scales
Geographical Trends in R&D Investment

 Still Staying Home
      More than 70 per cent of the sample performed less than
       10 per cent of R&D activity abroad
      The overseas R&D activity of US, Japan, Germany,
       France and Italy is concentrated within the global triad
 Increasing geographical dispersal
      US firms’ investment in overseas R&D increased three
       times faster than their domestic R&D investment
      Most increase in overseas R&D came about through
       merger and acquisition
      Within a country, TNC’s R&D activity varies—usually
       concentrated in key metropolitan areas
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 TNC’s marketing and sales networks
        • many Japanese companies in the 1970s
  Host-market production
  Production-specialization for a global or regional
   market
  Transnational vertical integration
Internal Networks within TNCs 7

Models of Organizing Production units
  Globally concentrated production
    a single geographical location and export to world
     markets through the TNC’s 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
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
Types of Spatial Organization of Production
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)
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
Forms of Corporate Restructuring
Types of Reorganization
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)
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
     principal’s specification
   Industrial subcontracting: manufacture
     components or provide services to principal
     firms
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
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
International Subcontracting Types
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
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
New Mode of Competition
Types of Inter-Firm Collaboration
Strategic Alliances by Sector
Flexible business networks
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?
Synthesis: Connecting the organizational
geographical dimensions (2)

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