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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
Instructors will find considerable discussion of how automation and the globalization of
production are impacting workers in various ways in developed and developing countries. There
is a short discussion of the rise of sovereign wealth funds and the importance of state-owned
TNCs. This chapter gives students greater context to understand the growing backlash against
globalization and the recent turn to more protectionism in a number of countries (as covered
especially in Chapters 1, 7, and 12).
Key Terms
•
foreign direct investment (FDI)
•
transnational corporations (TNCs)
•
intermediate goods
•
outsourcing
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•
tax havens
•
transfer pricing
•
tax inversion
•
base erosion and profit shifting (BEPS)
•
precariat
•
guaranteed basic income
•
sovereign wealth funds (SWFs)
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
characteristics of TNCs along with some of the controversial issues surrounding their role in
the global economy. This could be a good place to discuss different ways to measure the size
and value of TNCS (using Tables 6.2 and 6.3), as well as the degree to which TNCs are
transnational.
• 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:
o The Washington Post’s 2017 multimedia series “Mobile Power, Human Toll,” which
looks at cobalt, graphite, and lithium used to produce batteries for electric cars and
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o Planet Money’s T-shirt Project. A series of reports on the global garment industry.
2013. At https://www.npr.org/series/248799434/planet-moneys-t-shirt-project
• 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
moving from one source country to a consuming country rather than the whole world. In the
whole product cycle, what seems fair or unfair? What political struggles are there over it?
Some examples of questions you might focus on at each stage:
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
how? Is there some kind of international institution or global rules that are supposed to
regulate its production and trade in the world (like fair trade, free trade, a cartel, or a
bilateral agreement)?
Sample Essay Questions
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1. What benefits do economic liberals think result from the shift of a greater proportion of
global manufacturing from developed to developing countries?
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
4. Explain what is right and what is wrong with the following statement: “Most TNCs invest in
5. How would an international agreement on governance of foreign direct investment benefit
TNCs? How would such an agreement benefit states? What prevents such an agreement from
being realized?
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?
10. Are TNCs held accountable enough for their misdeeds? Should they be subject to much more
stringent regulations? If so, through what political, economic, or social institutions or
mechanisms? Why might voluntary corporate social responsibility codes be insufficient
instruments to attain important social goals?
11. How are automation and the globalization of production affecting workers in developed and
developing countries?
12. What kinds of rules and regulations would you like to see states agree to apply to GVCs,
SWFs, and TNCs? Why?
Sample Multiple-Choice Questions
1) Which of the following is most accurate?
a) TNCs are not subject to nation-state regulation.
2) Which of the following is not one of the fifteen largest nonfinancial TNCs (based on foreign
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assets owned?
a) General Electric
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?
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?
8) Outsourcing by TNCs can result in:
a) increased employee insecurity among workers in the home countries of the TNCs.
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9) Which of the following is a likely reason why TNCs invest in production overseas?
a) to overcome trade barriers
10) The process in which a TNC contracts with other companies overseas to provide it goods and
d) scaling.
d) All of the above.
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?
d) The OECD has for years tried to tackle base erosion and profit shifting (BEPS).
14) Which of these corporate scandals involved manipulation of a benchmark rate in financial
markets?
a) The LuxLeaks scandal
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15) In developed countries, the globalization of production is connected with
a) the growth of the precariat.
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.
Mazzucato, Mariana. The Value of Everything: Making and Taking in the Global Economy. New
York: PublicAffairs, 2018.
Mikler, John. The Political Power of Global Corporations. Medford, MA: Polity Press, 2018.
Munck, Ronaldo. “Globalisation, Labour and the ‘Precariat’: Old Wine in New Bottles?” In
Politics of Precarity: Migrant Conditions, Struggles and Experiences, 78-98.(Leiden, The
Netherlands: Brill, 2017.
Obermeyer, Bastian, and Frederik Obermeier. The Panama Papers: Breaking the Story of How
the Rich and Powerful Hide Their Money. London: Oneworld Publications, 2017.
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Stopford, John, and Susan Strange. Rival States, Rival Firms: Competition for World Market
Shares. Cambridge: Cambridge University Press, 1991.
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
Rana Plaza building collapse in Bangladesh and conditions in the garment industry.
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
working conditions in Indian clothing factories. Labels were quick to distance themselves
from the tragedy. Following the events, a team of lawyers at French NGO Sherpa, supporters
of victims of economic crime, are working to expose the continuing hypocrisy of major high
street brands and see that they’re held liable for violations against international standards”
(Journeyman Pictures website).
Luxemburg Leaks (English version). Panorama-die Reporter (NDR/ARD), 2014. “International
corporations, big names like IKEA, E.ON, Deutsche Bank, Amazon and others, were able to
minimize their tax burden down to almost nothing – at the expense of the public” (ARD
Mediathek website). At https://www.ardmediathek.de/tv/Panorama-die-Reporter/Luxemburg-
Leaks-English-version/NDR-Fernsehen/Video?bcastId=14049192&documentId=25017904.
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Pulp Friction. Ron Harpelle, dir. ShebaFilms, 2014. Examines how workers in the pulp industry
in Canada, Finland, and Uruguay are connected.
Who’s Behind the Chinese Takeover of World’s Biggest Pork Producer? PBS Newshour,
September 12, 2014. An interesting report on a Chinese company’s purchase of U.S. pork
producer Smithfield Farms. https://www.pbs.org/newshour/show/whos-behind-chinese-
takeover-worlds-biggest-pork-producer