Chapter 14

2. Chapter 14 ‘Capturing Value’ within Global Production Networks

3. Review • Concepts to Review • GPNs, codified and explicit knowledge, bargaining between TNCs and local economies; resource industries; geographical inequalities • Key Words • Stakeholders, value, value creation, knowledge management, labour strategies

4. Concept of Value • Definitions • ‘Economic rent’ • Value is surplus above cost in performing the transformations at that stage • Raises issues beyond firm competitiveness and profitability • GPNs and value • Value in GPN is created, enhanced and captured where its parts are located • A place’s involvement in GPNs creates net benefits/costs • Concern over firms transferring activities out of home countries • Defensive investment: taken to protect markets and ensure that the firm prospers, which consequently helps the domestic firm

5. Value of a Particular Locality • Dimensions of a place’s involvement: capital injection, local firm stimulus, knowledge diffusion, local employment creation • Not all overseas ventures involve capital transfer into host economy • Net gain to host country depends on trading practices of TNC • Local link formation by TNCs depends on three major influences: • The TNC’s strategy and the role played by the local operation in it • Characteristics of local economy • Time • Criticism: many TNCs procure only low-level inputs from local sources • Differences between dependent and developmental linkages

6. Value and Diffusion • Knowledge transfer and GPNs • Knowledge transfer to local population in terms of training • Doesn’t guarantee that the benefits of this knowledge will be diffused through the host economy • The nature of the TNC inhibits the spread of proprietary technologies • Evidence for technology transfer to developing countries is mixed • Knowledge transfer requires absorptive capacity on the part of locals • Both codified and explicit knowledge required for knowledge diffusion • GPNs and the host state • Relative bargaining power of firms versus local economies is crucial • Balance between creating the right conditions to attract GPNs and tying oneself too closely to specific GPNs • Problems of dominance of local economy by foreign-based firms —although such firms are to some degree necessary • In such cases non-national goals may become dominant

7. Value and Employment • Impact of GPNs on jobs • Local interest is mainly in the effect of GPNs on local jobs • High-road versus low-road job scenarios • Direct versus indirect job creation • Offset jobs created by the number of jobs displaced by adverse effect on local firms: NJ = DJ + IJ – JD • GPN establishment also involves reorganization of home country operations • Impacts of offshoring include: export stimulus effect, home office effect, supporting firm effect, production displacement effect • TNCs and local employment • Net employment effect: NE = XE + HE + SE – DE • Quantity of jobs, quality of jobs and location of jobs • Exploitation of cheap labour is one of the major charges levelled at TNCs • TNCs and local labour relations • Variation exists in degree of TNC HQ’s involvement in labour relations • Dispersed nature of TNCs makes it difficult for labour to organize against them • Possible counters: global union federations, networks of workers • Contracts: firms differentiating between core and non-core workers