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Chapter 4 The Interdependent Global Economy

Chapter 4 The Interdependent Global Economy. Introduction The Historic Atlantic Alliance The Pacific Rim Core and Periphery Relations The Role of Multinational Corporations The Changing Geography of Global Finances Global Communications and World Cities. Gottman’s Quotation.

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Chapter 4 The Interdependent Global Economy

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  1. Chapter 4The Interdependent Global Economy • Introduction • The Historic Atlantic Alliance • The Pacific Rim • Core and Periphery Relations • The Role of Multinational Corporations • The Changing Geography of Global Finances • Global Communications and World Cities

  2. Gottman’s Quotation • “Modern cities are the pillar’s of the developing global system. • It is a poetic illusion to assume that the world is shrinking • because communication improves. In reality the world of each • of us constantly expands because, as we carry on, we find it • necessary to deal with more and more people, in more places, • with a greater number and diversity of problems. This is so • for individuals and also for cities.” • Could be seen as another expression of Vance’s mercantilist • model, or of Alonso’s bell-shaped development model • Historical characterization of European colonial empires • to supply commodities needed in the industrial • revolution

  3. Evolution of Global Trade • The Historic Atlantic Alliance - Domination of Atlantic trade in global trade • Post WW-II Pacific Rim Development Japan, 4 Tigers (S. Korea, Hong Kong, Taiwan, Singapore), Indonesia, Malaysia, China, Thailand (Table 4.2) • Figure 4.1 (U.S. Exports), Figure 4.2 (Japan exports), the Changing Position of China • New big trends: Movement of Mexican Maquiladora production to China; Outsourcing to India (English), Africa (French), E. Europe (German)

  4. Core and Periphery Relations (again)with more of a geopolitical spin • Wallerstein’s core-periphery hierarchy • Figure 4.3 • World Cities as the set of core focal points • His 4 epochs: (a) transitional period 1450-1640 (b) colonial capitalism (1640-1815) (c) British hegemony (1815-1917) (d) U.S. hegemony (1917- present) Marked by: U.S. Military superiority; socialist experiments, decolonialization of the periphery, rise of multinational corporations

  5. Dependency Theory • Core growth only possible by exploitation of the periphery • High levels of competition in primary producers, w/labor willing to work for low wages, in industries with depressed product prices, and a lack of internal investment to develop other industry in the internal economy.

  6. The Brain Drain • International Perspective in the text • (Japan vs. China) • The dramatically altered landscape since 9/11 • Could make the same arguments internally in countries, like the U.S. • Regional differences in education system capacity & consequences for income earning possibilities for residents.

  7. Location Quotients: S&E Graduate Students .66 Washington State Employers Import Educated Labor to a greater extent than expected due to the small local higher ed system

  8. The Role of Multinational Corporations • The rise of large corporations and increase in concentration of power • Types of market organization • Evolution of multi-establishment corporations • The ICI example in the text

  9. Alternative Models of Competition Barriers to Entry - High Barriers to Entry - Low

  10. Attributes of Alternative Market Types “Pure” Monopoly

  11. Trends in Business Concentration “Concentration ratios” as indicators of market structure Rising concentration in manufacturing in U.S. and U.K. over time Similar trend in other sectors Most industries are not monopolies, or perfectly competitive. The tendency is towards oligopoly AND often are part of multi-establishment firms, often conglomerates

  12. Size Distribution of Business Enterprises, U.S., 1997 0.1% of Enterprises account for 61% of Receipts 0.09% of the businesses in the U.S. account for 60% of total receipts

  13. Examples of Concentration Ratios Share in 1992 of Value Added accounted for by the largest companies, United States.

  14. Examples of Concentration Ratios Share of value of shipments accounted for by the x-largest companies:

  15. Evidence of Mergers and DivestituresUnited States 1985-1999 # $

  16. Acquisitions and Divestitures, U.S., 1985-1999 #

  17. Consequences of Mergers, Acquisitions & Corporate Expansion Most industries exhibit oligopolistic tendencies Leading corporations are multiestablishment Leading corporations are conglomerates Leading corporations are multinationals Truly global corporations now dominate international business: Table 4.4 “We live in a world of oligopolies, a world in which hundreds of thousands of small firms still exist but a relatively small number of large enterprises predominate.” P. 262, Lloyd & Dicken

  18. The constant flux in global (and local) corporations Downsizing as a strategy Outsourcing “Re-engineering” AND Simultaneously development of new businesses Development of new product lines in existing businesses Restructuring production locations

  19. K2 shifts work, cuts half of staff on Vashon (Seattle Times 11/19) “K2, a maker of skis and other sporting goods, said it will lay off half the workers at its Vashon Island plant as it moves half its ski and snowboard manufacturing to China and California and has suppliers make its bike products to cut costs.” “The company expects the changes to save $4 million next year.” “K2 makes skis, snowboards, inline skates and bikes under the K2 brand, as well as Olin skis and Shakespeare fishing tackle. It will move production to plants in Corona CA and China by year’s end.” “K2 got the Corona plant as part of its recent acquisition of Preston-based snowboard-equipment maker Ride. It will house manufacturing of mid- to high-end snowboards. The rest of the company’s products will be made in China or outsourced.”

  20. The Segmented Economy Dynamics in Firm Populations Averitt’s dual economy model Center firms - large, dominant, complex in organization, powerful resources and influence Peripheral firms - small, simple structures, weak resources, and little influence

  21. David Birch’s Thundercloud Big A small cohort become global corporations A few grow huge Size Most fall back after a short period Most Firms stay small forever Many voluntary startups and cessation's each year Small Birth Rates: ~ 10-12% of Existing Population Death Rate: ~ 8-10% of Opening Stock of Businesses

  22. A Model of the Segmented Economy by Taylor and Thrift BUSINESS ORGANIZATIONS Large Firms Smaller Firms Multidivisonal Global Leaders Laggards Intermediates Supports Laggards Intermediates Leaders Satisfied Satellites Loyal Opposition Craftsman Lindahl & Beyers test in the producer services Subcontractors Franchises

  23. Beyers & Lindahl Test of Segmented Industry In Producer Services High Fliers Leaders Still Growing, Exporters Still Growing, Local Right Industry Satellites & Spin-Offs Intermediates Field Offices Stabilizing Craftsman Proprietor Laggards Satisfied Small Business Steady Cruisers Declining Strugglers

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