Session 3: Globalization (II) Flashcards
Opening case: Columbia Sportswear and Global Production
- American company (established 1938 in Oregon)
- Revenues: US$3.4 billion (2022)
- Employees: 9,450 (2022)
- CEO: Timothy Boyle
- Distribution: 72 countries, 13,000 retailers
- ~45% of Columbia’s business come from abroad
Columbia Sportswear had concentrated a large part of its
manufacturing operations in China for many years before facing difficulties in exporting products from the region. Difficulties began to emerge as of 2018. What those difficulties could have been?
In 2018, then-President Donald Trump implemented new
reforms that introduced additional tariffs and restricted
importing products manufactured in China. This trade war continued to escalate and trade relations between the United States and China remain tense.
What options were available to Columbia to confront such difficulties?
In 2019, Columbia Sportswear responded to these challenges by building new relationships with manufacturing companies in Vietnam and Bangladesh
What else could go wrong?
- Many U.S. companies in the apparel sector had already shift to suppliers in Vietnam and Bangladesh, contributing to growing congestion within the shipping ports (2019)
- Coronavirus pandemic (2020):
- Many Asian companies were not able to manufacture clothing products during lockdowns.
- Manufacturing delays gave way to shipping disruptions, compounded by post-pandemic increases in the cost of shipping cargo.
What advantages could Columbia encounter to establish production in Central America?
- Reduced shipping costs and time. Can reduce inventory in warehouses and implement “just-in- time” production.
- Increased capacity to anticipate consumer trends by taking advantage of shorter delivery times.
- Reduced length of the company’s supply chain, improving sustainability.
- Policy alignment:
✓ “Call to Action for Northern Central America” initiative by the US government.
✓ Central America Free Trade Agreement: U.S.
companies supply duty-free fabric to apparel factories in Central America that then export to the U.S.
What challenges could Columbia encounter to establish production in Central America?
- Columbia had few suppliers in the region already, must scale up their operations and seek new ones.
- Ensuring suppliers will increase their output while adhering to the quality standards of Asian suppliers
- Labor costs are 5–10% higher in Central America than they are in Asia
Columbia strategy:
Navigating risks and opportunities of globally dispersed production.
THE FATHER OF GLOBAL VALUE CHAINS
Professor Gary Gereffi
Duke University
* Cross-disciplinary research: Political economy, management, international business, and international development
* Impact beyond research
- Historical Roots of Today’s World Economy
- 1450 – 1700: Expansion of long-range trade
- 1640 – 1930: Industrialization and division of labor
- 1940s – 1971: Bretton Woods
1450 – 1700: Expansion of long-range trade
- Colonialism and trade empires
- How was this different from today’s globalized economy?
→ The dominant goal was exchange, not production
1640 – 1930: Industrialization and division of labor
- Division of labor. What is that? How does it connect to globalization?
→ Geographical dimension of the division of labor - Geographical areas specialize in particular economic
activities - E.g.: Industrialized countries: Specialize in manufacturing; non-industrialized countries: Supply of raw materials and agricultural products
1940s – 1971: Bretton Woods
- IMF, GATT (WTO), World Bank (see Session 2)
- US the only ‘credit’ nation in the aftermath of WWII
- Fixed exchange USD – Gold
1960s – 2000s: Novelty - or the Past Repeating Itself?
- Integration in the 1980s-2000s: Comparable to levels of
integration achieved before 1913 … or not? - Shallow vs Deep integration
- Trade between international companies vs cross-border organization of production
Flows of foreign direct investments
Core to global integration; unprecedented size and influence of the phenomenon due to new financial technologies and MNEs
MNEs (TNCs)
Dominating the production process and the economy as never before
- The “Global Manufacturing System”
- Surge of manufactured exports from labor-intensive countries
- New international division of labor (far more complex than the one we witnessed with the industrial revolution)
- “Newly industrializing countries”
- Fragmentation of production processes
- Geographical relocation of slices of the production processes
“Global Outsourcing”, “Global Factory”
What’s a common trend for companies in industrializing countries where global outsourcing drove an export boom?
Firms began to progressively engage with more sophisticated kinds of manufacturing
How did globalization change the transnational corporation (TNC)?
Vertical integration –> Outsourcing (subcontracting)
Implications for the TNC (MNE)
- New options: How and where to ‘slice’ production processes
- New strategy: Standardization paired with outsourcing (makes it easier to move production from, e.g., China to Vietnam to Guatemala)
- New role: Increased influence/overlap between MNCs’ power and national governments’ role
How did the possibility to ‘slice-up’
the value chain change int. trade?
- Rise of intra-industry trade and intra-product trade in intermediate inputs
- Emergence of a global production network
Integration of trade –> disintegration of production
- Industrial Upgrading
Given the features of global production networks, what should be the goal of economic actors?
Moving from low-value to relatively high-value activities, which is, to technologically more complex and financially more rewarding activities.
Value-added stages in Apparel GVC
- R&D
- Design
- Purchaing
- Production
- Districution
- Marketing
- Services
Upgrading in GVCs
- Moving from competing on the basis of low-cost labor to competing on the basis of quality and innovation
- Higher skill content
- Higher value added
What’s the Globalization Paradox that Gereffi mentions in connection to global outsourcing?
“The dramatic expansion of production capabilities reflected in global outsourcing […] does not necessarily increase levels of development or reduce poverty in exporting nations” (p.164)
