Dynamic Patterns of the Space Economy

1. Dynamic Patterns of the Space Economy

2. agriculture boserup thesis collective farm commercial economy economic geography extensive commercial agriculture extensive subsistence agriculture extractive industry gathering industries Green Revolution intensive commercial agriculture intensive subsistence agriculture maximum sustainable yield natural resource nomadic herding nonrenewable resource planned economy plantation primary activity quaternary activity quinary activity renewable resource Key Words • secondary activity • shifting cultivation • State farm • subsistence economy • technology • tertiary activity • tragedy of the commons • truck farm • usable reserves • von Thunen rings

3. Economic Geography The branch of systematic geography concerned with how people support themselves, with the spatial patterns of production, distribution, and consumption of goods and services, and with the areal variation of economic activities over the surface of the earth.

4. Economic Geography A study of: • How people earn their living, • How livelihood systems vary by area, and • How economic activities are spatially interrelated and linked. • It applies geography’s general concern with the study of spatial variation to the special circumstances of the production, exchange, and consumption of goods and services.

5. Classification of Economic activity and economies • The complex environmental and cultural realities controlling the economic activities of humans. • Many production patterns are rooted in the spatially variable circumstances of the physical environment. • Unequal distribution of useful mineral deposits gives some regions and countries economic prospects and employment opportunities.

6. Classification of Economic activity and economies (cont.) • Technological development will affect its recognition of resources or ability to exploit them. • Political decisions may encourage or discourage economic activity– through subsidies, protective tariffs, or production restrictions. • Production is controlled by economic factors of demand, whether that demand is expressed through a free market mechanism, government instruction, or the consumption requirements.

7. Technology The integrated system of knowledge, skills, tools, and methods developed within or used by a culture to successfully carry out purposeful and productive tasks.

8. Categories of Activity

9. The main sectors of the economy do not stand alone. They are connected and intergrated by transportation and communication services and facilities not assigned to any single sector but not common to all

10. Those parts of the economy involved in making natural resources available for use or further processing. They are mining, agriculture, forestry, fishing and hunting, and grazing… Primary Activity

11. Primary Activity

12. Economy involved in the processing of raw materials and altering or combining materials to enhance utilities and value. They are: handicraft production, Woodenware, Copper smelting… Textile and chemical industries, Manufacturing and processing industries Construction industry, and power production… Secondary Activity

13. This part fulfill the exchange function, provide market availability of commodities, and bring together consumers and providers of services. It includes wholesale, and retail trade, associated transportation and governmental services, and personal and professional services of all kinds. Tertiary Activity

14. The part of the economy concerned with research, with the gathering and dissemination of information, and with administration. It includes administration of the other economic activity levels, often considered only as a specialized subdivision of tertiary activities. They are ‘white collar’ professionals working in education, government, management, information processing, and research. Quaternary Activity

15. A sometimes separately recognized subsection of tertiary activity management functions involving highest-level decision making in all types of large organization. Also the most advanced form of the quaternary sub-sector. Quinary Activity

16. Types of Economic Systems • Subsistence economy • Commercial economy • Planned economy

17. Figure 8.4: Patterns of access and isolation. Accessibility is a key measure of economic development and of the degree to which a world region can participate in interconnected market activities. Isolated areas of countries with advanced economies suffer a price disadvantage because of high transportation costs. Lack of accessibility in subsistence economic areas shows their mordernization and hinders their participation in the world market.

18. An economic system of relatively simple technology in which people produce most or all of the goods to satisfy their own and their family’s needs; Little or no exchange occurs outside of the immediate or extended family. Subsistence Economy

19. A system of production of goods and services for exchange in comparative markets where price and availability are determined by supply and demand forces In which, supply and demand determine price and quantity, and market competition is the primary force shaping production decisions and distributions. Commercial Economy

20. A system of production of goods and services usually consumed or distributed by a governmental agency, in quantities, at prices, and in locations determined by a governmental program. Were rigidly programmed by central planning department without benefit of the cost or demand information a free market economy regularly supplies. Planned Economy

21. Global shift: reshaping the global economic map in the 21st century

22. The significance of the TNC • That is seen to pose the major threat to the autonomy of nation – state • There has not only been a massive growth of foreign direct investment (FDI), but also the sources and destinations of that investment have become increasingly diverse

23. A transnational corporation is a firm that has the power to coordinate and control operations in more than one country, even if it does not own them.

24. Its ability to coordinate and control various processes and transactions within production networks, both within and between different countries • Its is potential ability to take advantage of geographical differences in the distribution of factors of production • Its is potential geographical flexibility – an ability to switch and to re-switch its resources and operations between locations on an international, or even a global, scale.

25. The chapter is organized into three parts: • We outline some of the broad theoretical explanations of why firms should attempt to transnationalize their activities beyond exporting their products foreign market. • We addressthe question of how firms transnationalize their activities in an organizational sense • We confront the commonly held view that TNCs are becoming “placeless”

26. Why (not) transnationalize? Some general explanations • Expressed in the simplest terms, profit (P) is the difference between the revenue (R) which s firm receives from selling its products and the cost (C) of producing and distributing the firm’s goods and services: P = R - C.

27. A macro-level approach: internationalization of the circuits of capital • “the money at the end of the process is greater than that at the beginning and the value of the commodity produced if greater than the value of the commodities used as inputs”.

28. A macro-level approach: internationalization of the circuits of capital Three circuits of the capital has become progressively internationalized: • The circuit of commodity capital was the first of the three circuits to become internationalized, in the form of world trade. • The circuit of money capital was the second to become internationalized, in the form of the flow of portfolio investment capital into overseas ventures. • The circuit of productive capital was the most recent to become internationalized, in the form of the massive growth of transnational corporations and of international production.

29. A dynamic capitalist market system • Individual agents

30. Micro-level approach: the search for an integrative framework • Stephen Hymer: the undisputed pioneer • Give such domestic-firm advantage, a foreign firm-specific asset that would offset the advantage held by domestic firms. • Such assets are primarily those of firm size and economies of scale, market power and marketing skills, technological expertise, or access to cheaper sources of finance. On these bases, then, a foreign firm would be able to out-compete domestic firms in their own home territory.

31. Micro-level approach: the search for an integrative framework • Raymond Vernon and the product life cycle • The high average-income level and high labor costs tended to encourage the development of new products that catered to high-income consumers and were labor-saving (both consumer and producer goods). • US firms would eventually set up production facilities in the overseas market either because they saw an opportunity to reduce production and distribution costs or because of a threat to their market position. • Even within strongly innovative TNCs, the initial source of the innovation and of its production may be from any point in the firm’s global network.

32. Micro-level approach: the search for an integrative framework • John Dunning’s “eclectic paradigm • A firm must possess certain ownership-specific advantages not possessed by completing firms of other nationalities. • Such advantages must be most suitably exploited by the firm itself rather than by selling or leasing them to other firms. In other words, the firm will internalize the use of its ownership-specific advantage. • There must be location-specific factors that make it more profitable for the firm to exploit its assets in foreign, rather than in domestic, locations.

33. John Dunning’s “eclectic paradigm • Ownership-specific advantage are assets internal to a firm • relate to size and market power. • A better credit • Technology • Markets are imperfect: • Vertical integration. • To ensure a satisfactory return on such investment, and to protect against predators, firms have a strong incentive to retain the technology for use within their own organizational boundaries. Rather than sell or lease the technology to another firm abroad the firm sets up its own production facilities and exploits its technological advantage directly.

34. John Dunning’s “eclectic paradigm • Location – specific factors • Markets • Resources • Production cost • Political condition (including degrees of political risk) • Cultural/ linguistic affinities

35. Serve domestic market only Export to overseas market(s) through independent channels License foreign manufacturer to produce for overseas market(s) Establish sale outlet in overseas market(s) a) By acquiring local firm b) by setting up new facility Establish production facility overseas a) By acquiring local firm b) by setting up new facility TNC development as a sequential process Figure. A sequential model of TNC development

36. Types of transnational production • Market-oriented production • The largest geographical markets in terms of incomes, although not in terms of population, are obviously the US and Western Europe. Such variations in per capita GNP provide a crude indication of how the level of demand will vary from place across the world. • In the economist’s terminology, different products have different income elasticities of demand. We would expect populations in countries with low income levels to spend a larger proportion of their income on primary products (basic necessities) and, conversely, countries with high income levels to spend a higher proportion of their income on ‘higher-order’ manufactured good and services.

37. Types of transnational production • Asset-oriented production • Firms in the natural resource industries must, of necessity, locate at the sources of supply. • The relative importance of the various production factors tends to vary according to the stage in the product’s life cycle and, especially, with the maturity of the technology. • Geographical variations in labor knowledge and skill. • Geographical variations in wage costs. • Labor is strongly place-bound, although the strength of the tie varies a great deal between different types of labor. On average, male workers are more mobile professional white-collar workers are more mobile than blue-collar workers.

38. A diversity of organizational architectures: how transnational operations are coordinated • Coping with complexity: a diversity of organizational structures • Headquarter – subsidiary relationships • Strategic tensions: global integration – local responsiveness

39. The myth of the “placeless” TNC • Before national identity, before local affiliation… before any of this comes the commitment to a single, unified mission … Country of origin does not matter. Location of headquarters does not matter. The products for which you are responsible and the company you serve become denationalized. • “placeless” and “boundary-less”

40. In which nation or nations is the bulk of the corporation’s assets and people located? • By whom are the local subsidiaries owned and controlled, and in which nation is the parent company owned and controlled? • What is the nationality of the senior positions at the parent company, and what is the nationality of the most important decision – markers at the subsidiaries in host nations?

41. What is the legal nationality of the parent company? • To whom would the group as a whole turn for diplomatic protection and political support in case of need? • Which is the nation where the tax authorities can, if they choose to do so, tax the group on its worldwide earnings rather than merely its local earnings?

42. The geographical embeddedness of transnational corporations • A comparison between US, German and Japanese companies • East Asian business organizations • The Japanese keiretsu • A comparison of Korean and Taiwanese business groups • The Overseas Chinese family business network • Continuity and change?

43. The Overseas Chinese family business network • Control of the firm must be retained in the long-term interest of family prosperity. • Family assets must be protected by hedging of risks. • Key decision-making should be confined to an inner circle. • Dependence on outsiders (‘non-belongers’) for key resources must be limited. • Inter-firm transactions should be based on “networks of interpersonal obligation. Personalizing trust-bonds substitutes for a system of legal contracts so normal in Western contexts”.