14.2 Flashcards
factors leading to growth in Starbucks
- strong branding/brand loyalty: consistent experience, 100% ethically sourced coffee
- aggressive global expansion strategy: rapid store growth - over 38,000 worldwide and adapting to the market - e.g matcha in Japan
- innovation in technology: starbucks app/rewards program, drive-thrus and self-service kiosks
- market domination: acquisition of competitors, e.g Teavana, supply control (owns its coffee farms)
reasons for expansion of starbucks
- market saturation in US
- rise in global demand for coffee - first-mover advantage in international market
spatial and organisational structure of starbucks
Transnational Vertical integration:
- Controls multiple stages of production and distribution:
- Direct coffee bean sourcing and farming: owns coffee farms in Costa Rica/Rwanda and workers directly with farmers through its C.A.F.E practices program
- owns/operates major roasting plants worldwide and centralised distribution centres ensuring efficient logistics
- mainly operate company-owned stores but use licensing in select markets (e.g Tata in India)
Host-market production (for local adaptations):
- Regional adaptation of menu items are produced locally, e.g Masala Chai in India
- Dairy, pastries and sandwiches are often produced with countries to maintain freshness
Multi-layered spatial organisation:
- Global Headquarters (Seattle, USA)
- Regional divisions: North America, China and Asia-Pacific, Europe Middle East & Africa, Latin America and Caribbean
- National and local market adaptations: each country has national management teams
how does starbucks use new international division of labour?
- new international division of labour divides production into different skills and tasks that are spread across regions and countries rather than within a single company.
- Sourcing Raw materials:
- Sources coffee beans from countries with favourable growing conditions, such as Brazil, Colombia and Ethiopia - Processing and Manufacturing:
- Operate roasting plants in various location, such as US and the Netherlands allows Starbucks to efficiently serve different regional markets - Distribution and Retail:
- vast network of retail stores worldwide, including Europe, Asia and North America - Outsourcing and partnerships:
- Collaborate with local suppliers and partners optimising supply chain efficiency
how does starbucks use the fordist characteristics of manufacturing?
fordist manufacturing: mass production of standardized goods on a moving assembly line using dedicated machinery and semiskilled labour
- Standardisation of products: consistent offerings, meaning customers receive the same product quality/taste worldwide
- Assembly line production: in-store operations function like an assembly line: each barista performs a specific task
- Centralised Manufacturing facilities: e.g Kent Flexible Plant in Washington, handles roasting, blending and packaging of coffee and tea products
- Economies of scale: high volume production – 1.5 million pounds of coffee beans per week
- Automated equipment
impact of starbucks on host country
Positive:
- job creation: e.g almost 6,000 in the UK
- economic growth: stimulate local economies, e.g Starbucks purchase milk from local suppliers: Arla Foods in the UK
- tax revenue: (issue of tax avoidance)
- investment in infrastructure
- skills development: transferable (logistics)
Negative:
- market saturation/impact on local businesses
- european tax evasion: e.g no tax payments on £1.3 million of sales between 2010-2012 in UK
- anti-competitive behaviour: e.g cluster several locations to saturate the area
- opening without planning permission, e.g branch in Brighton
- overpricing
- exploitation of workers
- pollution
- cultural impacts
impacts of Starbucks in origin country (USA)
Positive:
- economic contribution: $681.2 million in US federal taxes in 2024
- employment: approx 211,000 individuals in 2024
- innovation/business practices: sets new standards improving customer experience
Negative:
- exploitation of workers: low wages in high cost areas
- tax avoidance
- cultural impact
- homogenisation of products as other independent shops conform to starbucks mode;
- cultural appropriation: diverse culture symbols just used for marketing?
what are the economic factors influencing the emergence/growth of NICs?
-
FDI:
- boost industrialisation
- e.g China’s Special Economic Zones (SEZs) attracted FDI -
Export-oriented growth:
- South Korea’s chaebols (Samsung, Hyundai) driving exports -
Availability of cheap labour:
- large, low-cost workforce attracts labour intensive industries - textiles
e.g Bangladesh’s garment industry benefiting from low wages. -
Infrastructure development:
- China’s high-speed rail and port development supporting trade. -
Integration into global markets:
- boost free trade = higher exports
- e.g Mexico and USMCA - higher trade with US -
Gov policies:
- tax incentives, free trade zones and pro-business policies encourage industrialisation
Evaluation: government policies most important: responsible for a lot of the other easons, e.g trading blocs, skills training etc
what are the social factors influencing the emergence/growth of NICs?
- Strong education system/skills:
- skilled workforce for high-tech industries
- e,g South Korea’s focus on STEM education boosted tech sector -
Urbanisation:
- provides workers for industrial hubs -
cultural work ethic/productivity:
r
nature of change in the Location of Economic Activity (Outsourcing & Offshoring)
-
Outsourcing: Contracting third-party firms in other countries to handle production or services.
Example: Apple manufactures iPhones in China (Foxconn) but designs them in the USA. - Offshoring: Relocating a company’s own operations (manufacturing or services) to another country.
- also can be used for tax avoidance, e.g Amazon offshoring profits to Luxembourg (paid no corporation tax in Europe in 2020)
causes of Changes in the Location of Economic Activity (Outsourcing & Offshoring)
- Lower Labour Costs: Wages are lower in NICs (e.g., textiles in Bangladesh).
- Improved Transport & Technology: Faster shipping, automation, and digital connectivity enable global business.
- Trade Liberalisation & Free Trade Agreements: Tariff reductions encourage relocation (e.g., NAFTA → USMCA).
- Growing Consumer Markets: MNCs move closer to emerging markets (e.g., car manufacturing in Mexico).
Impacts of Changes in the Location of Economic Activity (Outsourcing & Offshoring)
Host:
Pos:
- economic growth/job creation
- technology transfer/skill developemnt
Dis:
- low wages/poor working conditions
- environmental damage
- tax avoidance
Source:
Adv:
- cheaper consumer goods/increased profits for MNCs = higher wages/better quality goods if reinvested?
- shift to high skilled service industry, e.g finance
Dis:
- job losses/deindustrialisation: e.g Sheffield steel industry decline
- widening of economic inequality - job losses
what is the spatial organisation of a company?
- different divisions of an organisation often located in countries with different characteristics
- head office in HIC country of origin or low business-tax country
- R&D often in countries with** highly-skilled scientists and engineers + world-class universities***
- branch plants: manufacturing where reliable product efficiently produced without threats to long-term continuity
- assembly often occur close to major market for final product
- sales, marketing and service: close to main market
what is globalisation?
- increasing interconnectedness and interdependence of the world economically, culturally and politically
what is global shift?
- refers to the large-scale
filter-down of economic activity from
MEDCs to NICs and LEDCs - bulk investment through TNC, which are the main drivers, whereas nation states individually/collectively set the rules for the global economy
factors responsible for economic globalisation
- emergence of NIDL meant production has changed from just being mainly organised within national economies like it was pre 1950
- increasing complexity of international trade flows as this process has
developed.
-Major advances in trade liberalisation under the World Trade Organization. - emergence of free-market governments in the USA/UK around 1980 (Thatcher and Reagan) with attendant policies which were copied around the world
- emergence of an increasing number of NICs.
- Old USSR and Eastern European states become capitalist, meaning no significant group of countries outside free-market
- opening up of other economies, particularly those of China and India.
- deregulation of world financial markets.
- ‘transport and communications revolution’ allows management of complex networks of production and trade that exist today
influences on the globalisation of economic activity
- decreasing barriers to world trade: free trade
- increasing economic power of major trade blocs: EU
- increasing influence of large TNCs
- greatest ever global connectivity in transport and communication
- Rising levels of
international migration - Increasing levels of
outsourcing to lower- wage economies - emergence of an
increasing number
of NICs - Growing influence of
global brands: Mcdonaldisation - highest ever levels of
international tourism - Increasing cultural
diversity in a growing
number of countries - Capitalism now virtually
unchallenged as the
global model for
economic development - apart from Korea
advantages for economic activity working at the global scale
- Sourcing of raw materials and components on a global basis reduces costs.
- TNCs can seek out the lowest-cost locations for labour and other factors.
-
High-volume production at low cost in countries such as China helps to
reduce the rate of inflation in other countries and helps living standards to
rise. - Collaborative arrangements with international partners can increase the
efficiency of operations considerably. - Selling goods and services to a global market allows TNCs to achieve very
significant economies of scale. - Global marketing helps to establish brands with huge appeal all around the
world
what are the locational changes of a TNC as it develops
- export-led development: home country where labour/sourcing established but exports may have tariffs
- overseas location of branch plants: incentives of cheaper labour, market access and financial incentives from host govs
- shift R&D and HQ function: new locations become semi-autonomous as products carefully tailored
- Rationalisation: increasing competition, concentrating activities in best locations
how has containerisation improved transport connections
- TEU invented in 1956 - allows easy transfer between road/rail/sea
- containerships now carry 90% of global trade
- allows easier, cheaper transport of good = more efficient
- flight transport quicker but much more expensive
measurements of level of globalisation in countries
- Kearney index: four main indicators
- KOF index: 3 aspects
NIDL
- labour is now increasing outsourced to developing nations, while developed countries focus on high-skill, high-wage industries like finance and services
Factors contribution:
1. rise of TNCs
2. advancements in transport and communication: container shipping, air freight made it more cost-effective
3. neoliberal economic policies: free trade, deregulation allowed production to relocate
- from 1953 to late 1990s, industrialised economies’ share of world manufacturing output declined from 95% to 77% and developing share more than quadrupled from 5% to 23%
where are raw materials for apple sourced
30 chemical elements
Gold from peru
Copper from chile
Cobalt from congo
Apple R&D in America
- create 20000 new jobs
- already employs 84000 people in all 50 states
Where and why is the apple sales headquarters located (market, profitability)
- cork, ireland
- due to low tax rates
- and expansion into the european market
- given a 13 billion tax break by the government
Where are apple products ultimately assembled
In taiwan by Foxconn and Pegatron
- because of increased manufacturing that one manufacturing unit cannot handle
what are the motives for FDI?
-
market-seeking motives:
- gain access to new market/opportunities
- follow key customers
- compete with key rivals in their own market -
resource/asset-seeking motives:
- access raw materials
- gain access to knowledge/other assets
- access to technological/managerial know-how in key market -
efficiency-seeking motives:
- reduce sourcing/production costs
- locate production near customers
- gov incentives
- avoid trade barriers: e.g NAFTA increased FDI between US, Canada and Mexico to $452 billion in 2012
- higher profits
example of FDI
Toyota FDI:
- in georgetown kentucky, invest $8 billion into its largest manufacturing plant in the world
- gives jobs to over 9,000 employees
pros/cons of FDI
Pros:
- creates jobs
- recipient country benefits from improved knowledge/expertise of TNC
- investment could lead to higher wages/improved working conditions especially if TNC worried about public image
Cons:
- TNCs get controlling rights within foreign companies: could perhaps influence local politics - get favourable laws
- convenient way to bypass local environmental laws - developing countries may be tempted to compete on reducing environmental regulation to attract FDI
- wealth may not be distributed within recipient country
- TNCs criticised for poor working conditions (e.g Apple)
Special Economic zone
- often exempt from federal laws regarding taxes, quotas, labour laws etc
Example: Chinese SEZs
- by 2020, number of SEZs in China reached 45
- 1980 it created the Shenzhen Special Economic Zone.
- Exports soared from $2 billion in 1980 to $200 billion in 2000
- In many Chinese SEZs wages are now high by global standards and countries like Vietnam are more competitive
de-industrialisation in HICS
causes
concerns
positive vs negative
Causes:
- technological change allows manufacturing to be more capital intensive and mobile
- consequence of a global shift of manufacturing to NICs filtering down from HICs
- growth of tertiary sector in HICs
Concerns:
- spatial concentration of secondary jobs from industrial revolution period means concentration of negative impacts (job losses) when industries have closed, e.g manchester
- negative multiplier effects severe as associated industries/services hit
- rapid pace pf decline made adjustment (creation of alternative employment) tough
- no smooth decline, manufacturing decline concentrated during recessions
- defence concerns if strategic industries disappear, e.g aerospace, steel etc
- service jobs are less reliable so more risk, e.g from COVID
Positive: share of employment in manufacturing falls due to rapid productivity growth but displaced labour absorbed in non-manufacturing sector, economy nearly at full employment and GDP per capita is rising
Negative: decline in share of manufacturing due to slow growth/decline in demand and displaced labour = unemployment
