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NLR29806 Peter Nolan Et Al Global competition after the financial crisis

NLR29806 Peter Nolan Et Al Global competition after the financial crisis

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Published by: Luis Alfredo Garrido Soto on Oct 22, 2010
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10/22/2010

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new left review 64
 
july aug 2010
 
97
peter nolan & jin zhang
GLOBAL COMPETITIONAFTER THE FINANCIAL CRISIS
W
hile the economies
of the
us
, Europe and Japan arestill struggling to emerge from their post-2008 reces-sions, to date China has continued on its path of upwardgrowth, apparently undaunted by the global financialcrisis. In 2009 the
prc
overtook Germany to become the world’s larg-est exporter of goods, with 34 firms in the Fortune 500. The marketcapitalization of Chinese firms in the
ft
500 was second only to thatof American firms, while in the banking sector, the top three positionswere occupied by Chinese institutions. Indeed, it has been suggestedthat the
prc
has used the financial crisis to embark on a buying spreeof western companies. In the autumn of 2009,
Fortune
ran a cover storyunder the banner, ‘China Buys the World’, with the sub-heading: ‘TheChinese have $2 trillion and are going shopping. Is your company—andyour country—on their list?’
1
 In fact, Chinese companies face enormous competitive challenges inoperating on the international stage. Contrary to the belief of mainstreameconomists that opening up developing economies would provide oppor-tunities for indigenous firms to catch up with those of high-incomecountries—a perspective epitomized by Thomas Friedman’s 2005
TheWorld is Flat
—the three decades of globalization in the run-up to the2008 financial crisis witnessed an unprecedented degree of internationalconsolidation and industrial concentration.
2
This process took place inalmost every sector, including high-tech products, branded consumergoods and financial services. Alongside a huge increase in global output,the number of leading firms in most industrial sectors shrank.
 
98
 
nlr 64
This is not inconsistent, of course, with the existence of numerousfirms that employ a large number of people, yet produce a relativelysmall share of global output, for sale mainly to poor and lower-middleincome consumers. In the mining industry, for example, a handful of firms employing highly skilled labour and large-scale complex equip-ment accounts for the lion’s share of internationally traded coal, ironore and other mining products. These companies have a total of a fewhundred thousand employees and sell mainly to multinational cus-tomers in the advanced-industrial sector. In addition, there are tens of thousands of small-scale mines around the world that employ manymillions of workers, typically in dangerous conditions, using simpleextraction methods; they sell mainly to small-scale local customers inthe informal sector, who, in turn, sell their low-quality products to poorpeople. But the ‘commanding heights’ of the world economy are almostentirely occupied by firms from high-income countries, whose princi-pal customers are the global middle class. In many sectors, two or threefirms account for more than half of total sales revenue (see Table 1).In this context, well-known firms with superior technologies andpowerful brands have emerged as ‘systems integrators’, at the apex of extended value chains. In the process of consolidating their lead, thesegiant companies exert intense pressure upon their suppliers, furtherincreasing concentration as components’ firms struggle to meet theirrequirements. This ‘cascade effect’ has profound implications for thenature of competition and technical progress. It also means that the chal-lenge facing firms from developing countries is far greater than at firstsight appears. Not only do they face immense difficulties in catching upwith the leading systems integrators, the visible part of the ‘iceberg’ of industrial structure. They also have to compete with the powerful firmsthat now dominate almost every segment of global supply chains, theinvisible part of the ‘iceberg’ that lies beneath the water (see Table 2).Thus, just two firms produce 75 per cent of the world supply of brakingsystems for large commercial aircraft; three firms produce 75 per centof constant-velocity joints for automobiles. Companies from developing
1
 
Fortune
, 2 November 2009.
2
The process was more accurately captured by non-mainstream economists: seeJoseph Schumpeter,
Capitalism, Socialism and Democracy
, London 1943; AlfredChandler,
Scale and Scope: The Dynamics of Industrial Capitalism
, Cambridge,
ma
 1990; and Edith Penrose,
The Theory of the Growth of the Firm
, Oxford 1995.
 
nolan & zhang:
 
World Economy
 
99
Source:
Financial
 
Times
and
 
company
 
annual
 
reports; estimates of market share. * Excluding China.
Number of firmsGlobal market share
Large commercial aircraft2100Automobiles1077Fixed-line telecoms infrastructure583Mobile telecoms infrastructure377
pc
s455Mobile handsets365Pharmaceuticals1069Construction equipment444Agricultural equipment369Cigarettes4 75
*
Table 1.
Industrial concentration among system-integrator firms, 2006–09
Source:
Financial
 
Times
and
 
company
 
annual
 
reports. * Including
ge
’s joint venture with Snecma.
Table 2.
Industrial consolidation within global value chains, 2006–08
Number of rmsGlobal market shareLarge commercial aircraft
Engines 3
*
100Braking systems275Tires3100
Automobiles
Auto glass375Constant velocity joints375Tires355
Information Technology
Micro-processors for
pc
s2100
pc
operating systems190Glass for
lcd
screens278

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