Transformation in the world economy

Assignment #１
IDPM60341
Transformations in the World Economy (The Global Production Network (GPN) and Global Value Chain (GVC) frameworks have been put forward as frameworks for analyzing the global economy and its impacts on development. Using one or more examples, examine the extent to which analysis using one of these frameworks lends insight into changes in the world economy and how this may impact prospects for development.)

IDPM

9574201

(3507 words)
8 Jan, 2015

1. Introduction
The globalized production process has lead to the landmark alteration for developing countries especially, generating new working opportunities and challenges for their companies and workers. These changes have regarded as an emergence of new forms of business transactions in developing countries in the past few decades. Global production networks (GPNs) are defined by transnational companies in order to outsource their products to very cheap labors in developing countries, while obtaining high value added product, non-physical practices are the mainstream of their strategies. Those activities of GPNs have brought out two types of implications, which are economic and social perspectives of development in developing countries.

With respect to the economic perspective, GPNs in the developing countries can lead to significant development in regard to strategy, technology, innovation, and knowledge transfer as well as expanding business transactions in developing countries with higher returns. However, it can also enforce the competitiveness between countries and exploit turnovers by the location-specific advantages such as low production costs and huge number of workforce. At the same time, from a social point of view, the effects of the GPNs are highly obvious but not definitive (Rossi, 2010). One the one hand, GPNs have accrued the opportunities of employment in developing countries and provided the increased options of employment patterns, which characterized women and immigrants increasingly as casual and cheap labors. Additionally, Robertson et al (2009) generally said that the labor costs of plants, which are conducting GPNs, are higher than the domestic factories. On the other hand, the quality of employment provided by GPNs often results in negative perspective, with high degree of flexible working opportunities, uncertain elements of organization structure, as well as exploitation and discrimination.

The past literatures on GPNs are either particularized economic outcomes of analytical installation of GPNs or to what extent that the impacts of participating GPNs have led to social upgrading, which is one of the current main arguments of GPNs (Barrientos et al., 2011). However, since these two classifications of the argument are the mainstream frameworks of analyzing the impacts on development in developing countries, the past studies of those frameworks should be initially focused when it comes to analyzing global transformations in the world economy. Therefore, the contents of this essay have initially defined development into two predominant perspectives: economic upgrading and social upgrading. Additionally, from next section, this essay reviews the past analytical frameworks until GPNs, including the framework of Global Value Chain (GVC) and finally, this essay addresses how these frameworks, mainly GPNs, have both positively and negatively impacted on development or economic/social upgrading and also leads to demonstrate to what extent these analytical frameworks revealed the impact on development. A case study of garment industry is introduced in this essay to discuss the issues in depth and provide the concluding remarks of how the GPN framework functioned in terms of development.

2. Literature Reviews of GVCs and GPNs
Before the rise of the analytical framework of “GPNs”, GVC was the first framework to analyze the dynamics in different segments of global economies. Since the increase of outsourcing of multinational companies have ranged from factories through headquarter to many subcontractor (upstream to downstream) factories, global production in developing countries has been accounted as a transformation from import-oriented industrialization to export-oriented industrialization (Gereffi, 1994). These altered structures of nations’ business transactions, productions, and forms of employment have started to define in different ways, which led the analysis of GVC.

GVC analysis firstly conceptualized on the dynamics of business transaction between different segments of the production chain. The influential classification was categorized between producer and buyer driven commodity chains (Gereffi, 1994). In terms of producer driven chains, the process of production was aggregated by multinational companies, which mainly produced capital and technology intensive industries such as car and electronic manufacturing. On the other hand, buyer driven chains have appeared as multinational companies of developed countries, which engaged in labor intensive industries such as large retailers or global apparel brands. Those major multinational companies do not possesses their own factories, but encourage the suppliers to achieve the standards of their products such as set prices, qualities, and delivery schedules in their supply chains (Dolan and Humphery, 2004). Additionally, the expansion of GVCs has included service sectors such as logistics, tourism, and finance in a global scale, as well as industrialization of manufacturing and agricultural sectors (Gereffi, 2005).

With these increases of complexity in the global business transactions such as trade and production process, GVC analysis has made a significant role of creation and differentiation of values in an integrated process of production, distribution and retail (Gereffi, 2005). Collaterally, the literatures of GPNs have mainly focused on the institutional and social involvement of integrated operations of multinational companies (Henderson et al., 2002). In addition to that, GPN analysis has placed more emphasis not only the relation between multinational companies and contracted suppliers, but also the actors that involved in a whole scale of production network and shape the production network, such as international trade unions and non-governmental organizations (NGOs) (Hess and Yeung, 2006,). Figure 1 demonstrates those major different actors, which create the GPNs of the world economy. GPN analysis also demonstrates the power balances between all actors as well as social and institutional embeddedness of production (Barrientos et al., 2011).

Figure 1: Major actor-centered networks in the global economy Source: Dicken (2011, p.60)
When it comes to analyzing the labors in GPNs’ framework, there are some limitations especially in the academic studies (Barrientos et al., 2011). The early literatures of GVC and GPN approach were majorly focused on supply sides, whose labors are categorized as an endogenous factor of production. For instance, major studies are the case studies of addressing the conditions of employment, labors’ rights, and protections of labors by classified into different category, skill or sex (Barrientos et al., 2011). Consequently, when we consider to what extent participation in GPNs supports the social upgrading of labors, the main argument should be focused on a perspective that regards labors as socially embedded actors, who are highly categorized as a human beings with capabilities and entitlements (Sen, 1999).

Labors have rights under domestic and global legislation and especially paid labors have highly affected by those and depended on access to rights that help them to be a well-being, and those aspects reflect both negatively and positively when participating in GPNs. Also, those reflections are caused by formal and informal social protection networks and policies conducted by the governments, international communities and organizations (Barrientos et al., 2011).

To sum up, while the analytical framework of GPNs brings the concept of labors as participants of commercial dimension who are taken an advantage in the value chain of production process, there are some additional aspect of labors, which is classified as socially embedded actors who can shape the GPNs and upgrade them as an entitled actor in the globalized world. Also, from the suppliers’ point of view, GPN approach has revealed the insights of the production networks, which are increasingly becoming complex and worldwide.

3. What is social/economic upgrading?
Upgrading itself has been regarded as an alteration into value added activities in order to make improvement of productivity and technology, to increase profits and advantages, which led by participations in GPNs (Gereffi, 2005). The past researches of GVC are mainly focused on labor-intensive manufacturing, which means that the upgrading is for the industrialization process (Gereffi, 1999). According to Milburg and Winkler (2010), there are four classifications of economic upgrading, each has different segmentations like the type of jobs and skills.

Product upgrading: it involves changes in the production process with the objective of making it more efficient; this can be achieved by substituting capital for labor - i.e. higher productivity through automation – and thereby reducing skilled and unskilled work.
Product upgrading: it occurs where more advanced product types are introduced, which often requires more skilled jobs to make an item with enhanced features.
Functional upgrading: it occurs where companies change the mix of activities they perform towards higher value added tasks. In the garment industry, for example, the inclusion of finishing, packaging, logistics, and transport can be done in at least two different ways: through vertical integration, which adds novel capabilities to a company or economic cluster; or through specialization, which substitutes one set of activities for another. This involves new workforce skill sets linked to expanded firm capabilities.
Chain upgrading; For example, shifting to a more technologically advanced production chain involves moving into new industries or product markets, which often utilize different marketing channels and manufacturing technologies. This shift may also require a different workforce or innovations that allow existing manufacturers to enter new industries as end markets – i.e. the shift from traditional fabrics to specifically nanofibers or strong lightweight minerals in medical or aircraft industries.
Each aspects of economic upgrading involve both capital and labor perspectives. The capital element refers to employment of recent advanced machinery and technology. The labor element touches on skill development or productivity on labors. In this sense, labors are regarded as a productive factor, which leads to determine the quantity and the type of employment. However, in terms of GPNs, this framework is basically beyond labor-intensive manufacturing to comprehend other related actors, which are not directly coincided with just only the economic-upgrading transformation.

Social upgrading, by contrast, is the process of improvement, which leads the rights and entitlements of labors as social actors to enrich their working conditions (Sen, 1999). Not only this social upgrading increases accessibility for labors in order to obtain better jobs, but also provides better working conditions and protections by entitlement. The fundamental concepts of social upgrading have been created by ILO’s Decent Work Agenda, which includes employment, standards and rights to work, social protection and social dialogue (Barrientos et al., 2011). This agenda encourages work conducted in the environment of freedom, equity, security and human dignity with proper payment and protection of their rights (ILO, 1999). This package is hard for Economists to encompass in their theories because their measures of social upgrading are defined by the labor productivity and skills.

According to Barrientos and Smith (2007), social upgrading can be classified into two perspectives, which are measureable standards and enable rights. In terms of measurable standards, they are basically the aspects of classification, which made labors easily classify, such as regular or irregular employment, wage level, social protection, and working hours. These can also include the data of sex and unionization rate in the workforce. However, these measurements can also be regarded as a result of collective bargaining, which is the part of enable rights. Therefore, the important factor of considering social upgrading of labors is to understand the difficulties of shaping labors’ social upgrading because such collective bargaining, which is basically invisible from the research, is hard to quantify as a measurement of social upgrading.

4. The pros and cons of garment industry by GPNs framework
It is often said that garment GPNs are the obvious case studies to provide the scopes on dramatic alternations in global production patterns in developing countries. (Barrientos et al., 2011, Banerjee and Dufflo, 2011) These GPNs are regarded as a buyer driven production chain (Gereffi, 1999), where labor-intensive products are provided by the strategies of multinational companies. Figure 2 shows the map of the garment GPNs with link to textile industry, which explains the network linkage, raw material suppliers, manufacturers, subcontractors and headquarters. In this context, other social actors such as international buyers, social partners, government and civil society are also included to analyze the social upgrading of labors in GPNs.

Figure 2: The GPNs of textile and garment industry

Source: Gereffi (1994)
Garment industry especially in developing countries interacts with many types of social organization such as international buyers and subcontracted suppliers. Figure 3 demonstrates the process of manufacturing to a finished product. At the first level, a piece of garment is developed and designed. A sample of garment is produced and sent to suppliers for acquiring the needed raw materials. When the fabric arrives, the supplier factories have started cutting to specific shape, which is designed by lead firms and brought to the production line of sewing machine workers. These sections are basically membered by female workers, who are trained in relatively high degree of skill. The brand logo and the price tags are also attached at this section. Additionally, when it comes to elaborate and delicate garments, labors are required particular techniques in their establishments, patchwork and applications. Multi-skilled workers are also hired at the end of the manufacturing process to control and finish the garment. Once the garment has finally produced, it is brought to the packaging section and this part of production chain is relatively composed of low-skilled or younger workers, who mainly have casual contracts without inventory. With regards to latest fashion garment GPN, the more number of casual labors have engaged as a seasonal or irregular labor in the production network. Suppliers always consider the demand of their products in order not to have a lot of stocks on their factory. Due to this strategy, irregular labors related to logistics and packaging are not able to work constantly and under pressure of their monthly wages because the amount of work depends on the demand and the needs for the specialized product.
Figure 3: Segments of activities of garment GPN

Source: Gereffi (1994)
In general, GPN framework obviously has revealed the global economic development, which is economic upgrading on this essay. One of the apparent developments is, with the accumulation of the temporal aspects for upgrading process in each tier, the process upgrading successfully prevails in different sectors of production networks such as productivity and efficiency upgrading (Dicken, 2011). Moreover, another advantage of utilizing GPN framework for garment industry is that it shows the interconnectedness of each tier trough various geographic scales and territorial boundaries. Also, GPNs not only connect between companies (factories), but also integrate the relationship between nations and local economies. For instance in garment industry, the major production network is between developing countries (suppliers) and developed countries (retailers) because the buyer and supplier of the product are totally different people..

This GPN framework is obviously able to differentiate the implications for the economic development in each particular part of garment industry and lead to the insights that those specific characters, in each segment, have highly depended on the location-specific advantage such as low-cost labors and geographical aspects. Rossi’s (2011) case study of garment industry in Morocco demonstrated the structural characteristics of garment factories, which are the formation of two different categories of workers: regular and irregular labors. Regular labors are senior and experienced labors, therefore they are guaranteeing high skills with good quality. They are employed on permanent contracts in general and they are paid over the minimum wage with insurance support. Whereas, irregular labors are employed in the unskilled segments of the production chain, which is basically the place with sensitiveness of time, such as packaging and loading products to the logistics. This analysis of employment pattern is obviously led by the GPN framework, which can be regarded as one of the positive elements of analyzing economic upgrading in garment industry in Morocco.

However, there are some negative elements in terms of social upgrading on garment industry. One of the negative aspects of these labors is that, because most of the labors are working in the subcontracted factories, which have distance from the major brand-name retailers in the industry, they are hardly visible. Those invisible workers are mostly working in the subcontracted factories, which are consisted by a large number of irregular labors. They are usually young women and internal migrants, who are discriminated with frequency and not covered with proper working contract with social protection as well as below the minimum wage (Barrientos, 2011). Those gaps between labors in garment industry provide different security levels of employment. In other words, the grater of security of employment, the more participation in trade unions or international organizations, which are comprehensively included in the GPN framework, accelerates (Rossi, 2011).

Moreover, the leading firms make profits by this hierarchical structure, while labors are forced to make a piece of garment in poor conditions with low payments and insecure working hours. In the past few decades, foe example, there are some serious problems of working conditions; invisible labors in subcontracted factories with NIKE are employed below the minimum wage with poor working conditions (Mather, 2004)

The other serious problem is the lack of accessibility in terms of organizing themselves at the workplaces as well as lacking opportunity of reshaping the structure of industry at the global level (Hale and Wills, 2005). In addition to that, labor contracting can involve multiple sort of relationships between leading firm and contracted factory, contractors move the group of labors in order to make adjustment with demand and season. This leads to the increase of irregular labors, which are firmly reckoned as vulnerable labors in the garment industry.

However, there has been also an extensive resistance by labors, endorsed by other networks of organizations, which are significant in order to put in the social actors in terms of GPNs. These widespread organizations have developed to upgrade the social levels of labors especially in developing countries so as to overcome the struggles they faced when they work. For instance, since the majority of labors engaged in garment industry are female labors, there is an exemplar of NGO called Women Working Worldwide (WWW), which was established in UK to build up networks with labors who are engaged in garment industry. The major purpose of WWW is to entitle female labors and clarify the disadvantages and raise the attention of serious working conditions of irregular labors in garment industry (Hale and Will, 2005). This organization enabled labors to conduct collective campaign on issues of mutual concerns in a globalized scale. The network of this organization has currently expanded through ten organizations all over the world and this expansion made each local organization set up their research project in order to address the most serious labor issues, which is reckoned as activities from ‘invisible’ to ‘visible’. (Hale and Will, 2005).

Therefore, since the emergence of these organizations, which help upgrading the social conditions of labors have prevailed over the world, there is an aspect that to some extent the framework of GPNs has revealed the negative concerns of production process not only from economic upgrading but also from social upgrading. Labors in garment industry used to be thought relatively as insecure, low-paid, and irregular labors. However, these organizations are playing an important role of social upgrading, which is a part of development in the globalized world.

5. Concluding Remarks
To sum up, this essay has initially demonstrated the transformation of conceptual frameworks, which are from GVCs to GPNs. GVC framework had been basically utilized for the analysis of the supply-side actors, which is of course able to classify the mainstream of world’s manufacturing process including labor as an endogenous factor. However, GPN framework additionally included other social actors to analyze the global production process with emphasis on various linkages among globalized world and supported the social upgrading of labors. The major argument is focused on a perspective that regards labors as socially embedded actors, who are highly categorized as human beings with capabilities and entitlements..

The case study of garment industry by GPN framework provided various transformations in different dimensions. For instance, it showed the interconnectedness of each tier trough various geographic scales and territorial boundaries. Also, it characterized that GPNs of garment industry are not only connected between companies, but also integrated with nations and local economies, which could be an aspect of generating the argument from different perspectives. Moreover, GPN framework described the significance of development not only from the economic point of view, but also from the social point of view. The labors in garment industry by GPN approach were good exemplars of encouraging the new aspects of global shift, which are two types, regular and irregular, of labors. The latter labors are lacking accessibly to generate the concerns into public so that NGOs such as WWW can play an important role in order to draw an attention of issues in globalized manufacturing process.

Therefore, the current transformation from GVC to GPN is drawing the insights of world development, including economic and social upgrading when it comes to analyzing global production process. The world is now altering to a complex world so that analytical framework such GPN could be significant means of demonstrating the transformation in the world economy.

6. References
Banerjee, A. and Dufflo, E. (2011). Poor Economics. Penguin Books
.
Barrientos, S., Gereffi, G., Rossi, A., (2011). Economic and social upgrading in global production networks: A new paradigm for a changing world, International Labour Review, Vol.150, no.3-4
Barrientos, S., Smith, S., (2007). “Do workers benefit from ethical trade? Assessing codes of labour prac- tice in global production systems”, in Third World Quarterly, Vol. 28, No. 4, pp. 713–729.
Dicken, P., (2011) Global Shift, Mapping the Changing Contours of the World Economy, Sage Publications. (6th edition).

Dolan, Catherine S.; Humphrey, John. (2004). “Changing governance patterns in the trade in fresh vegetables between Africa and the United Kingdom”, in Environment and Plan- ning A, Vol. 36, No. 3, pp. 491–509.
Gereffi, G. (1994) ‘The organization of buyer-driven global commodity chains: how US retailers shape overseas production networks’, in Gereffi, G. and Korzeniewicz, M. edition, Commodity Chains and Global Development. Westport Praeger, 95-122

Gereffi,G. (2005). “The global economy: Organization, governance and development”, in Neil J. Smelser and Richard Swedberg (eds): Handbook of Economic Sociology. Second edition. Princeton, NJ, Princeton University Press/Russell Sage Foundation, pp. 160–182.
Hale, A., Wills, J., (eds). (2005). Threads of labour. Oxford, Blackwell.
Henderson, J., Dicken, P., Hess, M., Coe, N. and Yeung, H. W. (2002) Global production networks and the analysis of economic development, Review of International Political Economy. 9:3 August 2002: 436-464

ILO. (1999). Decent Work. Report of the Director-General to the 89th Session of the Inter- national Labour Conference. Geneva. Revisited ' World Development, Vol. 27, No. 3: pp. 583- 602.
Mather, C., (2004), Garment industry supply chains; a resource for worker education and solidarity, Women Working Worldwide.

Robertson, R., Drusilla, B., Gaëlle, P., and Sanchez, M. L.,- Puerta, eds. (2009). Globalization, Wages, and the Quality of Jobs --- Five Countries Studies. Washinton DC: World Bank
Rossi, A., (2011). Economic and social upgrading in global production networks: The case study of garment industry in Morocco. Dphil dissertation, Brighton, Institute of Development Studies, University of Sussex.

Sen, A., (1999). Development as freedom. Oxford, Oxford University Press.

Sen, A., (1999). “International trade and industrial upgrading in the apparel commodity chain”, in Journal of International Economics, Vol. 48, No. 1, pp. 37–70.

References: Banerjee, A. and Dufflo, E. (2011). Poor Economics. Penguin Books . Barrientos, S., Gereffi, G., Rossi, A., (2011). Economic and social upgrading in global production networks: A new paradigm for a changing world, International Labour Review, Vol.150, no.3-4 Barrientos, S., Smith, S., (2007) Dicken, P., (2011) Global Shift, Mapping the Changing Contours of the World Economy, Sage Publications. (6th edition). Dolan, Catherine S.; Humphrey, John. (2004). “Changing governance patterns in the trade in fresh vegetables between Africa and the United Kingdom”, in Environment and Plan- ning A, Vol. 36, No. 3, pp. 491–509. Gereffi, G Henderson, J., Dicken, P., Hess, M., Coe, N. and Yeung, H. W. (2002) Global production networks and the analysis of economic development, Review of International Political Economy. 9:3 August 2002: 436-464 ILO Mather, C., (2004), Garment industry supply chains; a resource for worker education and solidarity, Women Working Worldwide. Robertson, R., Drusilla, B., Gaëlle, P., and Sanchez, M Rossi, A., (2011). Economic and social upgrading in global production networks: The case study of garment industry in Morocco. Dphil dissertation, Brighton, Institute of Development Studies, University of Sussex. Sen, A., (1999). Development as freedom. Oxford, Oxford University Press. Sen, A., (1999). “International trade and industrial upgrading in the apparel commodity chain”, in Journal of International Economics, Vol. 48, No. 1, pp. 37–70.