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Lecture 2

Geographies of production &


consumption

Dr Karen Lai

Geographies of production & consumption


Key question:
How are everyday practices of what we buy/consume
connected with global issues of development?

Learning objectives:
Understand how production happens on a global scale
Examine transnational corporations (TNCs) as powerful economic
actors
Consider the impacts of our consumption decisions on producers and
environments
Evaluate alternative and ethical forms of consumption

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Outline
1.
2.
3.
4.
5.

What are transnational corporations (TNCs)?


Geographies of global production
Consumption and commodity chains
Ethical consumption
Conclusion

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1. What are TNCs?


More than any other single institution it is the
transnational corporation which has come to be
regarded as the primary shaper of the global
economy (Dicken, 1998: 177)
A TNC is a firm that has the power to
coordinate and control operations in more than
one country, even if it does not own them
(Dicken, 2003)
A spider web of collaborative relationships
Direct ownership (subsidiaries, branches)
But also subcontracting, strategic alliances, joint
ventures
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Difference between MNC and TNC?

Internationalisation vs globalisation (Dicken)


Internationalisation: simple extension of economic activities across
national borders (e.g. growth in trade)

Globalisation: extension and functional integration of economic


activity across national borders (e.g. deepening of global production
networks)

Enabled by logistics and ICT innovations


Production chains increasingly integrate production across

borders
Organised on a global scale

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Source: Dicken (2011: 57) Global Shift


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a) Intra-firm networks:
Seagates Global Hard Disk Manufacturing

(Source: http://www.seagate.com/sg/en/about/jobs/)

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b) Inter-firm networks
International subcontracting and outsourcing
TNCs such as Apple, Nike do not own any
factories themselves!
Original Equipment Manufacturing (OEM):
specifications set by client companies
E.g. Quanta Computer for Apple and HP, Alienware, Lenovo,
RIM, Fujitsu, Siemens, Sharp, Sony, Toshiba
E.g. Nike 96% of all manufacturers in Vietnam, Cambodia,
China and Indonesia

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Costs and benefits of subcontracting


Benefits:
Cost-saving in new production line
Degree of flexibility
Subcontractor as shock absorbers

Costs:
Limited control over operations
Scandals regarding sweatshop labour, product
quality issues
E.g. Nike in the 1990s, Apple iPhones/iPads recently
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3. Consumption and commodity chains


Global commodity chains
Power and governance: rise of big firms who control production
networks
The role of distant strangers: who are the
producers/consumers?
The role of commodity and supplier networks: connecting
production and consumption
E.g. Chocolate, coffee, clothing, smartphones
Issues:
Cost of raw materials and production versus selling price
Sweatshop labour
Child labour
Environmental impacts
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a) Coffee
The coffee commodity chain
(Source: Ponte, 2002)
Largely controlled by
wholesalers (E.g. Olam) and
brands (e.g. Starbucks,
Nestle)

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b) Apparel
Clothing industry largely driven by mass consumption in
department stores, chain stores.
Consumer demand for cheaper and newer products
Ever shorter cycles of fashion consumption
Basic raw materials from primary producers
Very fragmented and large numbers of manufacturers
Small numbers of purchasing companies supplying to
retailers

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(Source: http://www.colorado.edu/ibs/PEC/gadconf/papers/gereffi.html)
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4. Ethical Consumption
Do consumers have a responsibility for the working conditions
and livelihoods of workers in distant places?

Living wage
Sustainable farming practices
Community development (education, health, housing etc.)
Labour practices (health and safety, child labour)

What is Fairtrade?
Pricing
Investing in local communities
Changing power relations within production chains

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Beyond primary producers


Labour protection (sweatshops, child labour)
Militia funding (blood diamonds/minerals)
Environmental impact (sustainability, carbon
footprint)
Food source (Sharks fin, blue fin tuna,
organic/free range products)

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5. Conclusion
TNCs as powerful actors in the global economy
The production process as global
Intra-firm and inter-firm networks
But distinctive geographies

Developmental outcomes for countries and regions


Different economic value captured along a commodity chain
The power of consumers to affect the lives of distant
producers
Ethical consumption
Different forms
Whose ethical standards?
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