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Global production and local jobs:
new perspectives on enterprise networks, employment and local development policy | International Workshop (Geneva 9-10 March 1998) |
Global production, local jobs
Through the processes of globalization, economic activities performed in a variety of regions and countries are becoming increasingly integrated into cross-national systems of production. In industries such as automobiles, electronics and garments, the chain of value-adding activities leading to a final product is organized in global networks creating new interdependencies between firms, industries and labour markets. Although these networks are transnational in scope, they comprise specialized clusters of activities that remain strongly embedded in local industries and communities. Local embeddedness is particularly pronounced with regards to labour resources, which are much less mobile than capital, products and information within the global economy.
The interactions between the global dynamics of production networks and the local operation of labour markets and labour market institutions are at the heart of the forthcoming workshop. They generate new growth opportunities, as local firms can access new markets and resources by connecting to global networks. Global linkages also provide a means to acquire new skills and capabilities, enhancing the value content of local activities and their potential for sustainable growth. Both the quantity and quality of local jobs can potentially be increased in that process. At the same time, global connections might provide an unstable basis for growth and development. Locational advantage and the competitiveness of local firms have to be constantly realigned to the restructuring of global production networks. Moreover, becoming integrated into global networks can divide and fragment local industries and societies, marginalizing those economic actors that fail to develop strong global linkages.
These combined potentials for greater growth, greater instability and inequalities raise new challenges for policy makers. One is to foster sustainable growth and job creation by supporting firms and workers in their efforts to take advantage of the opportunities opened up by global production networks. Another is to promote actions aimed at spreading the benefits of integration throughout local communities and reducing the social and geographical imbalances that might be generated by the development of global production networks. To explore ways in which policy-makers, businesses, social partners and other intermediary organisations can co-operate to respond to these challenges is a main objective of the workshop.
Structure and dynamics of enterprise networks
To examine the implications of global production networks for local jobs in industrial clusters, the workshop will build on complementarities between a number of approaches developed at two levels of analysis: the global and the local. At the global level, the global commodity chain (GCC) framework offers key insights on the structure and dynamics of international production networks. A global commodity chain can be broadly defined as a set of networks clustered around one final product or service and linking firms, industries and communities to one another across the world economy. Adopting such a framework involves three important shifts in our conceptualization of production: (1) from industries as homogeneous groups of activities to value chains cutting across and within industries; (2) from firms as self-contained units to networks spanning across organizations; and (3) from national frames of reference to complex interactions between local and global perspectives.
Industries are traditionally defined with reference to an homogeneous group of products, with the assumption that firms involved in the production of such products perform fairly similar activities. By contrast, a value chain is formed by a set of complementary activities that may belong to different industries - for example, the apparel chain involves textile producers, apparel manufacturers and retailers - or be differentiated within one industry - apparel firms might be specialized in product design or product manufacturing. Adopting such a chain perspective helps to understand the new forms and logic of competition. In today's fast-changing competitive environment, firms are placing greater emphasis on integrating complementary activities within a flexible and responsive network aimed at reducing cycle times, improving quality and cost control, and facilitating the diffusion of innovation within the network.
These networks increasingly cut across firms' boundaries. As shown by evidence from a number of industries such as automobiles, garments and electronics, their emergence is being driven by the strategies of large lead firms that are reacting to intensified competitive pressures by developing new relationships based on a mix of cooperation and market links with a variety of satellite firms across the globe. Such relationships can be seen as forming strategic networks, in which lead firms are constantly engaged in attracting and selecting members, in sustaining network relationships by managing conflicts and learning, and in building the structure and culture of the network.
Lead firms tend to retain direct control over strategic, high value-added and human capital intensive activities such as product design and development, complex manufacturing, marketing and logistics, that constitute a superior source of competitive advantage in today's environment. However, as they strive to achieve greater coordination across the value chain, they are liable to develop cooperative linkages based on trust, stability, and joint competencies development with selected satellite firms, thus encouraging or allowing a diffusion of power and strategic capabilities within the network. Of central importance in this process are the learning dynamics by which satellite firms can increase the value content of their activities, achieve sustainable economic performance and reach a stronger position in strategic networks. Where learning dynamics fail to develop, satellite firms might get "stuck" in marginal network positions associated with high instability and limited performance achievements.
Local learning, industrial upgrading and employment
At the local level, globalization is embodied in a distinctive set of relationships linking local firms to foreign customers, suppliers or competitors. Such relationships evolve over time as the role of local industries changes within global networks. Starting from low-cost assembly, for instance, local producers can build on global connections to upgrade their activities, e.g. move to the manufacture of finished goods or more complex component parts along the development path followed by the East-Asian NIEs. The capabilities developed through learning dynamics in strategic networks can be leveraged off to acquire new know-how, develop new products and enter new industries, thus opening new growth perspectives for local firms.
The extent to which local industrial communities can take advantage of global connections by engaging in a process of learning and upgrading largely depends on the social and institutional context of local economic activities. As emphasized by a number of approaches to local industrial development, the success of a local production system is based on inter-relationships between the social, political and economic spheres, and the functioning of one is shaped by the functioning and organization of the others. The highly publicized cases of the Third Italy and Silicon Valley show that regional industries that succeed in the global economy have developed a culture of learning and innovation supported by local institutions such as governments, community-based and trade associations. These institutions have developed formal and informal relations with local firms and workers that sustain a dynamic of continuous improvement and reinforce social ties within the local community.
Learning dynamics in global production networks have important implications for employment. Upgrading strategies at the local level are likely to involve the adoption of new work systems and human resource management practices based on employee skills development, employee involvement, and the retention of skilled workers through higher wages and improved working conditions. However, as some firms improve their network position, others might take over lower value-added activities, which are more vulnerable to competitive pressures and less conducive to innovative employment practices. The quality of employment might thus become increasingly differentiated according to firms' position within production networks. In this context, some analysts point to a growing polarization between a shrinking core and an expanding periphery. These new patterns of segmentation might develop within or between locations, depending on the specific characteristics of local industries and labour markets, and on their place and role in global networks.
Innovative policies at the local level
The development of global production networks is placing new demands on policy-makers, who need to redefine their role in relation to changes in the forms and logic of competition. At the local level, policies aimed at supporting industries and generating employment are increasingly geared to influence a broad range of horizontal, location-specific factors that play an important role in economic growth and the international competitiveness of firms. There is growing awareness that restructuring and adjustment are part of a continuous process, and that policy interventions must be systemic, flexible and adjustable. Emphasis is being placed on strengthening collective intangible assets such as R&D, human resources, awareness of industry standards and trust relations among local firms. Labour market institutions in particular are seen as capable of playing an important role in developing workers' skills, raising standards and contributing to build up intangible assets. Because skills and capabilities are essential sources of competitive advantage, industrial and labour policies appear as increasingly interlinked, reinforcing the need for a systemic approach to policy.
Particularly important for the purposes of this workshop is the growing recognition that while its focus remains primarily national or local, policy must be articulated within a global perspective. A vision of how global production networks are structured and how firms are vertically integrated within them, will therefore provide a useful set of benchmarks for policy formulation. Local institutions can help firms - SMEs in particular - to successfully integrate into global networks, by identifying opportunities and threats in the global environment and supporting the establishment of connections to foreign markets and competencies. By such means, they may provide a necessary bridge between the global and the local.
An equally important shift concerns the relationships between the actors involved in policy-making. As emphasized by the growing literature on economic governance, neither the state nor the market can satisfactorily do it alone. Just as enterprises are transforming their modes of operation in order to build sustainable competitive advantage, state and non-state institutions - including employers' and workers' organizations - are striving to find new, flexible ways of interacting between themselves, and with businesses, in order to support industrial competitiveness and foster social cohesion. In particular, the promotion of effective integration of local firms within global production networks seems to rely increasingly on networking strategies between local institutions, supporting agencies, and enterprises. In this regard, firms are seen less as pure recipients of support and more as potential partners. Enterprises themselves are exploring new possibilities to team up with other actors for social action, for instance as they react to mounting global and local pressures for ethical sourcing and more socially responsible behaviour. Such innovative policy initiatives, "policy networks" and "tactical alliances" are particularly evident at the local level, in specialized industrial clusters where globalization pays more, or hits harder, and where consensus about collective interests is easier to achieve.
In summary
By building on complementarities between a global and a local perspective on enterprise networks, employment and policy initiatives, this workshop aims to:
- define the global context in which local industries operate, by characterizing the configuration of global commodity chains as well as major changes in these configurations;
- compare experiences of local restructuring among industries operating at various stages of integration in global commodity chains and in different institutional contexts.
Such an approach will contribute to a better understanding of the organizational processes underlying globalization and their impact on local firms, workers and communities in particular industries. It will also contribute to innovative policy formulation by identifying new strategies for business, state and non-state institutions to enhance economic performance and social cohesion.
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