(4) emergence of TNCs and NIDL Flashcards
(32 cards)
what are the benefits of strategic alliances?
- access to new/unfamiliar markets
- sharing increasing costs, uncertainties and risks of RandD
- achieving economies of synergy
what are the challenges of strategic alliances?
- loss of key technologies and expertise by one or other of the partners
- difficult to manage and coordinate than single ventures -> potential of misunderstanding and disagreement is great
what is intra-firm trade?
it is trade that occurs within the same firm, occurs between parent company and its branches/subsidaries/affiliates
what is inter-firm trade?
it is trade that occurs between different forms -> involves international subcontracting or sourcing of intermediate inputs or component parts from other firms overseas
what is subcontracting?
relocate different stages of production to firms overseas, involves firms buying inputs that have been made, under contract, to meet TNCs own specific requirements
what are the benefits of subcontracting?
- greater flexibility in their production and management of goods
- promote competition between suppliers, and benefit from geographical differences in production costs
- cut down risks borne by large companies as they rely on their suppliers to employ staff, meet production deadlines, and manage logistics of getting the products to the market on time
what is a strategic alliance?
a specific type of inter-firm collaboration
what are joint ventures?
two or more firms decide to establish a separate corporate entity for a specific purpose
what are the benefits of joint ventures?
- access to new markets and distribution networks
- increased capacity
- sharing of risks and costs with a partner
- access to greater resources
hence, help business grow faster, increase productivity and generate greater profits
what are the risks of joint ventures?
- different objectives
- different levels of expertise, investment or assets
- poor integration and cooperation due to different cultures and management styles
- partners don’t provide sufficient leadership and support in early stages
what is franchising?
franchising refers to an organisation from in which the TNC owner of a registered trademark or intellectual property rights agrees to let a franchisee (often outside of home country) use that trademark or rights provided that the franchisee follows the guidelines and requirements laid down by the TNC
what are the benefits of franchising?
- can reduce costs/obtain sufficient capital to expand markets
- not exposed to risks arising from unfamiliarity with local cultures, social relations and the practices of local customers
what are the challenges of franchising?
- insufficient capital -> cost of creating franchisee system and cost of supporting new franchisees usually exceed royalty revenues and franchisee fees in the beginning
- unstable infrastructure -> systems, procedures, support are not always at the top of the priority list for new franchisors
- bringing right franchisees on board -> long term success of franchise is dependent on quality of franchisees
what are the challenges of subcontracting/outsourcing?
- suppliers fail to deliver standards
- lack of control over quality
what is a producer-driven network?
production system is controlled by large industrial corporations -> exerts control over ‘backward’ linkages to raw material and component suppliers, and ‘forward’ linkages with distributors and retailers
high level of profits are earned through the scale and volume of production in combination with the ability to drive technological developments within the production system
what is a buyer-driven network?
production is undertaken using tiered networks of subcontractors that supply finished goods subject to the specifications of retailers and brand-name merchandisers -> these buyers in turn extract substantial profits from bringing together their design, sales, marketing and financial expertise with strong brand names and access to large consumer markets in developed countries
what are the three challenges to the producer and buyer driven networks?
- there may be other types of governance such as relational forms of governance that develop in a more even footing. it can take the form of trading firms, or intermediaries that drive the network
- governance relations are extremely complicated and varied significantly within the same industry
- governance regimes are dynamic. nature of production network may change over time, firms and/or particular regions may seek to improve their position within global production nature through upgrading strategies
what is a global production network?
it is defined as a network system that is coordinated and controlled by a globally significant TNC and involves a vast network of overseas affiliates, strategic partners, key customers and non-firm institutions
what is the new international division of labour (NDIL)?
it refers to the changes to the way labour is arranged spatially across international borders due to the increased speed and scope of globalisation –> linked with labour cost and comparative advantages
how did the (1)rise of TNCs lead to the emergence of NIDL?
- footlose and fragmented production (major agents of NDIL)
- HQ, administrative and RandD sections of TNCs located in core economies while manufacturing plants (production units or assembly lines) located in LDCs and NIEs –> such a structure drives international division of labour
-TNCs seek locations that can offer them low cost of labour and high level of skill of labour force –> low cost production, TNCs vertically disintegrate/frahment their production chain and outsource respective parts to various overseas locations that can provide appropriate skills for the lowest labour cost
how did (2)increased (job and economic) specialisation based on comparative advantage of each location/country lead to the emergence of NIDL?
- countries used to export products in their area of specialisation, and import products that that have the least comparative advantages in order to attain maximum economic efficiency
- but, they can no longer locate their entire production process in one country because of the increasingly specialised labour force that spans the globe
- firms therefore have to vertically disintegrate production chain and outsource it to various locations in order to engage the required labour force with the appropriate skills for each part of the production chain –> results in an international division of labour
what are the four trends that resulted in a newer international division of labour?
- international subcontracting
- rise of services
- outward investments by NIEs
- cross investment by core economies
how does (1)international subcontracting lead to the newer international division of labour?
- firms from DCs concentrate on higher value-added elements of design, marketing and RandD
- as for the actual physical production, they engage subcontractors internationally, usually from LDCs that have comparative advantages in lower value-added physical production
- these subcontracting relationships allows TNCs to be flexible (can pull out operations from one country and move to another that can offer lower costs anytime) and more lean (reduce expenditures on overheard, physical capital, wages and benefits)
-international subcontracting has widened and deepened the international division of labour, creating a ‘newer’ international division of labour
how does (2)rise of services lead to the newer international division of labour?
- higher-order services, which traditionally operated in DCs, are now being outsourced and subcontracted to LDCs and NIEs because of the availability of a large pool of inexpensive labour and the flexibility that these countries offer (i.e. TNCs can pull out operations to move to another lower-cost location anytime)
- firms have been moving back office functions, such as data entry, call centers, software development and computer programming to LDCs such as India, the Philippines, etc.
-thus, operations in the service sector are becoming increasingly fragmented and the labour in the service sector is also being internationally divided
