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CHAPTER 6
THE GLOBAL PRODUCTION STRUCTURE
Overview
This is the first edition of this text to devote a chapter to the global production structure. We
stress that middle-income developing countries are accounting for an increasing proportion of the
world’s manufacturing. We explain the role of transnational corporations as drivers of this shift
through foreign direct investment, offshoring, and outsourcing. We also focus on how global
production is organized through global value chains and how TNCs interact with states.
TNCs compete in regional and global markets and provide foreign direct investment (FDI) that is
much sought after by national governments keen to create jobs, gain access to technology, and
grow their economies. We explain the changes in the magnitude of FDI and patterns of its
geographical distribution. There is also coverage of some of the primary factors that influence
FDI flows. TNCs have always been controversial because of the power they seem to possess and
because their global reach makes them difficult for nation-states to regulate or control.
Key Terms
•
foreign direct investment (FDI)
•
transnational corporations (TNCs)
•
intermediate goods
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•
tax havens
•
transfer pricing
•
tax inversion
Teaching Tips
• The first part of the chapter defines TNCs and discusses some of the major issues associated
with them such as their size, why they have become so important, the pattern of their
operations, and why and where they invest. Spend some time going over these basic
• An interesting topic for many students is the connection between TNCs and political power.
• Spend some time with students explaining the issue of governing TNCs. This connects TNCs
to other actors such as international organizations and nongovernmental organizations.
• Divide the class and have them debate in favor of/against an international agreement on
governance of foreign direct investment. Who stands to benefit from such agreement?
• Have students do homework or assignments drawing on data from UNCTAD’s most recent
World Investment Report.
• Instructors can assign newspaper articles to show students concrete examples of global
commodity chains linking producers, GVC lead firms, wholesalers, retailers, and consumers.
Excellent articles include:
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• A specific kind of research paper that we have found helps students think in IPE terms and see
connections between economic actors and countries is the following:
In a product-tracing paper, examine the production and circulation of a commodity or product
in the global economy. Trace the product from the point of production to the point of
consumption, telling an IPE story about it as it moves along. You can think of the product as
going through stages: 1) mined, grown, or caught; 2) processed or refined; 3) exported and
o What political and economic factors determine where and how it is produced? How is it
mined or grown, and what is the effect on the environment? What are work conditions
like and how do workers fare? Is there any pressure from outside countries or NGOs to
change the conditions of its production?
o Is the commodity processed/refined in the country it comes from?
o Where is the product exported to? Is it controlled by a multinational company or a cartel
or a government? Do any political or economic factors affect who it’s exported to and
1. What benefits do economic liberals think result from the shift of a greater proportion of
global manufacturing from developed to developing countries?
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2. What are mercantilists’ main worries about the changing global production structure?
3. Why do TNCs engage in foreign direct investment (FDI)? Assess several factors that
contribute to the decision by TNCs to establish operations abroad.
6. Explain the different perspectives of liberals, mercantilists and structuralists on TNCs.
7. What kinds of assistance do states give to TNCs? Do you agree with the claim that states are
losing control over TNCs? Why or why not?
8. Why haven’t states done more to crack down on corporate tax avoidance? Why is it hard for
governments to reduce tax avoidance and tax evasion by TNCs?
Sample Multiple-Choice Questions
1) Which of the following is most accurate?
2) Which of the following is not one of the fifteen largest nonfinancial TNCs (based on foreign
assets owned?
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d) BP
3) As of early 2017, which four TNCs had the largest market capitalization, i.e., the highest
total value of outstanding stock?
d) General Electric, AT&T, Samsung
4) Which of the following statements is incorrect?
a) In 2016 developed countries were hosts to 59 percent of all inward FDI.
5) Since 1990, which of the following countries or regions has usually had the highest annual
net inflows of FDI?
a) The United States
6) The United States and China have the world’s two largest economies, as measured by the
size of their GDP. Which country has the 3rd largest economy?
a) India
7) What does a mercantilist think will be a consequence for the United States of outsourcing
and offshoring?
a) It will raise the price of imported consumer goods.
8) Outsourcing by TNCs can result in:
a) increased employee insecurity among workers in the home countries of the TNCs.
9) Which of the following is a likely reason why TNCs invest in production overseas?
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a) to overcome trade barriers
10) The process in which a TNC contracts with other companies overseas to provide it goods and
services is called
d) scaling.
11) Which statement accurately characterizes Global Value Chains?
a) They are governed by the Multilateral Agreement on Investment.
12) Given the expanding importance of TNCs in global markets, the role of the state seems to
d) have stayed the same; the state’s role has always been to encourage its businesses.
13) Which of these statements is incorrect?
a) U.S corporations are exempt from taxes on profits they repatriate back to the United
14) Which of these corporate scandals involved manipulation of a benchmark rate in financial
markets?
a) The LuxLeaks scandal
15) In developed countries, the globalization of production is connected with
a) the growth of the precariat.
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16) Which of the following statements about sovereign wealth funds (SWFs) is correct?
d) SWFs are usually accountable to regulators and voters.
Suggested Readings and Links
Baldwin, Richard. The Great Convergence: Information Technology and the New Globalization.
Cambridge, MA: Belknap Press, 2016.
Hamilton, Gary, Misha Petrovic, and Benjamin Senauer, eds. The Market Makers: How Retailers
Are Reshaping the Global Economy. New York: Oxford University Press, 2011.
Korten, David. C. When Corporations Rule the World. 3rd ed. (20th anniversary ed.) Oakland,
CA: Berrett-Koehler Publishers, 2015.
Mazzucato, Mariana. The Value of Everything: Making and Taking in the Global Economy. New
York: PublicAffairs, 2018.
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World Investment Report. United Nations Conference on Trade and Development. These annual
Audiovisual Resources
Black Gold. Nick Francis and Marc Francis, dirs. Fulcrum Productions and Speakit Films, 2006.
Shows how multinational coffee companies affect poor coffee farmers in Ethiopia.
Clothes to Die For. Zara Hayes, dir. Quicksilver Media production for BBC, 2014. Examines the
Dying for Fashion. Inge Altemeier, Reinhard Hornung, and Steffen Weber, dirs. Altemeier and
Hornung Filmproduktion, 2016. “The collapse of the Rana Plaza factory building in April
2013 killed 1,127 people, injured 2,000 and exposed the western world to the diabolical
Harvest of Greed: How Bayer and Monsanto Could Reshape Agriculture. A report by Ingolf
Gritschneder and Michael Heussen. WDR, 2018. Broadcast by Deutsche Welle. Examines
how the merger of Bayer and Monsanto might affect consumers and farmers around the
world.
Outsourced. John Jeffcoat, dir. ShadowCatcher Entertainment, 2006. A romantic comedy. “Todd
Anderson (Josh Hamilton) spends his days managing a customer call center in Seattle until
his job, along with those of the entire office, are outsourced to India. Adding insult to injury,
Todd must travel to India to train his new replacement. As he navigates through the chaos of
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