Study Guide for Chapter 3 of Introducing Globalization

Commodities:

Prepared by Matthew Sparke for students using

Introducing Globalization: Ties, Tensions, and Uneven Integration, Oxford: Wiley-Blackwell, 2013.

Learning objectives:

After completing this chapter, you should be able to:

1) define a commodity and commodification;

2) understand the long but uneven history of world trade;

3) diagram the stages and inputs in a conventional commodity chain;

4) distinguish between different models of commodity-chain organization;

5) describe the reasons when, where, why, and how TNCs have gone global;

6) use a TNC monitoring site to identify the places you are connected to by the commodities you purchase.

Main arguments:

Commodities appear on first impression to be extremely obvious, trivial things. But studying them more closely – where they come from, how they are made, and who they thereby connect us to as workers and consumers – helps to explain the material economic interdependencies of globalization as well as the strange ways in which Globalization discourse simultaneously obscures all the inequality and asymmetry of market interdependency by turning it into an abstract and almost theological argument about invisible hands and the efficiencies of pro-market policy. This chapter aims instead to highlight the actual real-world unevenness of economic integration by examining the organization of global commodity chains, including the ways in which “sourcing efficiencies” for some equate with “race to the bottom” tendencies for others.

Sometimes also referred to as “supply chains” and “value chains,” commodity chains are an umbrella category for all the different supply systems through which commodities are made, transported, and traded for money. By charting the uneven historical evolution of world trade, by highlighting how such trade reflects the changing geographic organization of global commodity chains, and by acknowledging the power relations as well as the business calculations that account for these temporally and spatially uneven patterns of economic integration, the chapter offers a basic political-economy of globalization. To do this, commodities are first defined, and the simple stages of a conventional commodity chain are outlined. The key thing to keep in mind in this respect is the organizing power of capitalism over contemporary commodity chains (unlike, for instance, the non-capitalist slave-based supply systems of the ancient Roman empire). Capitalism is key because it explains why businesses use money to buy labor, raw materials, and components to create goods and services to sell, and why they keep trying to both expand and speed up the process of bringing all these commodities to market. They do it, in short, to make profits, and to therefore end up with more money at the end of the commodity chain than they put in at the start. Theoretically, this is simple enough, and involves just three simple stages: production, distribution, and consumption. But, as is explained on pages 70–71 of Introducing Globalization, the processes put in motion today by production and distribution for profit have become extraordinarily complex and globally far-reaching in their impacts. In this respect, it is worth reflecting further on the diagram used on page 71, and considering all the border-crossing connections such complex commodity chains nowadays entail.

In order to understand all the border-crossing economic interdependencies of today’s commodity chains, we need in turn to come to terms with the business decisions inside TNCs that have led them to globalize their organization of commodity production, distribution, and sales. An initial schematic effort to do this is presented in Table 3.1, summing up the work of economic geographers and sociologists who have sought to distinguish a five different models of commodity-chain organization. This typology reflects scholarly efforts to track the influence of more than just economic forces on commodity chains. Institutional histories and cultural factors are all at play, too, and the five models reflect this. But the most basic and important point of the typology is that economic changes have displaced the dominance of the classic twentieth century “In-house” production model epitomized by Henry Ford’s operations in Detroit – a massive factory complex where everything from tires to engine parts to seat fabric was made “in house.” Over time, global competition, and global experiments with other models, have led to various new mixes of offshoring and outsourcing to make the four other models more common. Most notable among these other models, and most commonly associated with market-led globalization, has been the rise of the “Marketized” model made famous by Nike. This is the model where nothing is made “in house,” where in fact the TNC does not even own any factories but instead outsources everything from vendors who bid for contracts from the “big buyer” (Nike or Wal-Mart, for example) and who then either win or lose them based on market metrics of efficiency and competitiveness. Thus, while the older “in-house” model was to be characterized by “producer-driven” commodity chains, the newer “marketized” model is distinguished as the product of “buyer-driven” commodity chains. These marketized buyer-driven chains have become increasingly common in the context of increasing global free trade. They are the most “unchained” in the sense of being geographically hyper-mobile. And because the TNCs involved in organizing them are less invested in factories and community relations in particular places, they have become seen as the leading icons of globalization’s placeless “global corporations.”

As the chapter goes on to explain, more detailed examinations of TNC development trajectories reveal that in reality, no TNC is entirely placeless. Instead, the where, why, when, and how of TNC globalization are always to some extent a reflection of where it went overseas originally, where it was started, and the ways in which its business practice continue to be shaped by the laws, accounting norms, and cultural practices of the country in which its is headquartered. A typology of just five models only gets us so far with understanding all these complex contextual contingencies. Thus, another approach is to take each TNC individually and investigate the particular reasons (why?) and practices (how?) that account for it going global in a particular way and into particular places. The following two tables further break open these why? and how? questions, thereby also summarizing another key point of the chapter: in short, that while the ongoing searches for sourcing efficiency and markets remain a common denominator of TNC globalization, transnational corporations do not all become transnational in the same way.

Table 1: WHY? / Why has the TNC transnationalized?
Type or Focus of TNC / Market Access / Sourcing Efficiency
Natural-resource extracting / To sell wherever there is effective demand / To seek low cost access to raw materials
To seek sites to grow food, flowers, and fuel
To avoid environmental and labor regulations
Manufacturing / To sell wherever there is effective demand / To access cheaper labor
To benefit from economies of scale and scope
To benefit from reduced taxes and regulations
and/or
To access labor with special skills
To benefit from tax-funded infrastructure, education and business subsidies
To create global supply-chain synergies between production and sales
Banking and other business services / To open and profit from new capital markets, and sell services to other TNCs / To access strategic assets, knowledge workers, and networks
To avoid national banking rules
To hedge on and profit from variation in transnational risk and its pricing
Transportation and communications / To facilitate and profit from transnational ties
Tourism, sports, and entertainment / To profit from connecting consumers and transnationalized cultural commodities
Table 2: How? / How has the TNC transnationalized?
Type or Focus of TNC / Foreign Direct Investment
Both new “greenfield investments” and “mergers and acquisitions” (M&A) / Outsourcing
Including captive supplier, modular, relational, and fully marketized commodity chains
Natural resource extracting / Historic ties to colonial control and exploitation;
Contemporary FDI through greenfield investments and M&A / Sourcing from “captive-supplier” producers and plantations
Strategic alliances with other firms
Manufacturing / Historic MNC investment was made to make products inside foreign markets
Contemporary FDI is made more on the basis of costs and may involve building a sales support infrastructure rather than factories / Historic “joint ventures” and “captive supplier” ties that anticipate today’s market-mediated ties
“Post-Fordist” manufacturing commodity chains, including modular, relational, and marketized
Banking and other business services / Facilitating FDI and M&A activity, along with advertising, accounting, legal, and consulting support for other TNCs / Facilitating the securitization, contracts, and business organization of outsourced supply chains (including through foreign portfolio investment practices)
Transportation and communications / Building on historic political and economic ties with contemporary technology / Renting satellites, fiber optic networks, and cloud space for communications
Renting planes, trains, trucks, and ships
Tourism, sports, and entertainment / FDI through both green-field and M&A investments / Contracting with local suppliers of hotels, recreational services, and media

Key conclusions:

1) Networks of commodity trading form the heart of global economic interdependency.

2) We can examine global economic ties in terms of commodity chains, the globe-spanning links from commodity production to distribution to consumption.

3) Commodity chains are of five main types: i) in house; ii) captive supplier; iii) modular; iv) relational; v) marketized.

4) The main drivers that organize the integration of commodity chains are TNCs.

5) TNCs globalize in order either to reach new markets or to create sourcing efficiencies (including cheap inputs of components and labor) or both.

6) TNCs can either globalize their operations directly through foreign direct investment or indirectly through outsourcing.