Globalization of Major Manufacturing Sectors

• Textiles & Garments: classic case of labor-cost deviation Figure 7.8

• Steel – Movement to rapidly industrializing countries (Figure 7.10)

• Automobiles (Figure 7.13, 7.14)• Electronics (Figure 7.16, 7.17)• S-Curves – Figure 7.15 – the concept is

drawn from the industrial design literature – File on line is from MIT Opencourseware site – www.ocw.mit.edu

Changing Geography of U.S. Manufacturing

1990-2000 % Change Manufacturing Employment

Alabama -6% Kansas 12% New York -22%Alaska -13% Kentucky 12% North Carolina -8%Arizona 16% Louisiana 0% North Dakota 48%Arkansas 8% Maine -16% Ohio -2%California -7% Maryland -12% Oklahoma 8%Colorado 10% Massachusetts -16% Oregon 9%Connecticut -23% Michigan 5% Pennsylvania -9%Delaware -18% Minnesota 10% Rhode Island -26%District of Columbia -23% Mississippi -5% South Carolina -9%Florida -5% Missouri -8% South Dakota 45%Georgia 5% Montana 11% Tennessee -2%Hawaii -13% Nebraska 19% Texas 11%Idaho 22% Nevada 68% Utah 22%Illinois -4% New Hampshire 1% Vermont 5%Indiana 8% New Jersey -20% Virginia -9%Iowa 10% New Mexico 2% Washington -4%

West Virginia -7%Wisconsin 10%Wyoming 21%

U.S. Total -3%

Date of Maximum Employment in Manufacturing

Urban-Rural Manufacturing Trend 1991-2004

International Movement of U.S. Manufacturing

• Rise of F.D.I.• Shifting locations of F.D.I.

– 1945-1960 Canada & Latin America– 1950’s Western Europe– 1960’s onward – a global reach

• Cumulative employment abroad of 500 largest U.S. corporations equaled domestic employment

• Most investment in advanced economies

Global Employment of U.S. MNC’s

China?

Key Trends for U.S. Manufacturers• Large overseas markets pull U.S. manufacturers

into them• The growth of nontariff barriers are forcing

localization of production abroad• Regional trading blocs push investment

strategies and pull firms into these organizations to get benefits

• Shifting exchange rates are pushing firms to be flexible as to where they have capacity

• New manufacturing methods are reshaping the distribution of manufacturing capacity

• Large factories in low-skill labor regions are not sustainable

The Rise of Flexible Production Systems

• The historic development of manufacturing moving from fragmented small-scale facilities to vertically integrated corporations – The Fordist Paradigm

• The contemporary development of other paradigms – just-in-time; total-quality-control; flexible manufacturing systems – Fig. 7.21

• Consequences of these new developments on plant size and labor force skills

From Fordist to Flexible Production

The End of Fordism? The Flexibility Debate

• Are we not only entering a new long-wave, where IT is the driving force, but also a new long-wave in which the basic structure of productive relations is in massive shift?

• The Fordist paradigm - implicit in the oligoplistic model - but also linked to consumption and the regulation of society/consumption

• Limits to the flexibility argument – can all industry move in this direction? NO!

A new regime of accumulation?

(1) The emergence of clusters of small firms, including co-ops

(2) Flexibility related to new machines

(3) Labor’s new position

- functional flexibility (multiskilling)

- numeric flexibility

- financial flexibility

- more part-time, flex time, telecommuting

(4) Changes in market place conditions

- mass markets break down

- rise of niche (craft) markets

Fordism Post-FordismLow technological innovation Accelerated innovationFixed product lines, long runs High variety of product, short runsMass marketing Market diversification & nichingSteep hierarchy, vertical chains of command Flat hierarchy, more lateral communicationMechanistic organization Organismic organizationVertical and horizontal integration Autonomous profit centers; networkCentral planning Systems; internal markets within firm;

outsourcingbureaucracy Professionalism, entrepreneurialismMass unions, centralized wage-bargaining Localized bargaining, core and periphery;

workforce divided; no corporatismUnified class formations, dualistic politicalsystems

Pluralistic class formations; multi-partysystems

Institutionalized class compromises Fragmented political marketsStandardized forms of welfare Consumer choice in welfarePrescribed courses in education Credit transfer, modularity, self-guided

instruction, independent studyStandardized assessment (O level) Teacher-based assessment (GCSE) or self-

assessmentClass parties, nationwide Social Movements; multi-parties; regional

diversification

Emergence of Flexible Specialization

• Fragmentation of the Fordist firm - vertical disintegration (shedding non-central functions; outsourcing) and Market fragmentation (niche)• Adoption of new technologies, especially those dependent upon computers and telecommunications (CAD/CAM/FMS)• Labor force adjustments

– functional flexibility (multiskilling)– numeric flexibility (adjusting quantities by task)– financial flexibility (wage rate adjustment)– more part time, short-term, temporary work

Flexible specialization & new industrial spaces

• Piore & Sabel - The Second Industrial Divide - craft-based districts in Italy, Germany, Denmark• Clusters of high tech industry - Silicon Valley; Route 128; Austin• Wooden boats in Pt. Townsend WA; Log

homes in Bitterroot Valley MT• The movie industry

Debates over aspects of the flexibility thesis

Flexible Specialization and Regional Industrial

Agglomerations: The Case of the U.S. Motion Picture Industry

by Michael Storper & Susan Christopherson• Historically, an oligopoly of

– theaters– studio production facilities– actors/production specialists– spatially clustered in Southern California

• Vertical disintegration: 1950’s - 1970’s, with consequences in the 1980’s

Productions by Organization Type

0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%

1960 1965 1970 1975 1980

Independent

Major

Mini-major

151 190 207 243 222 Number ofproductionsper year

The Proliferation of Establishments

1966 1974 1981Production Companies 563 709 1473Rental Studios 13 24 67Properties 66 33 184Editing 4 31 113Lighting 2 16 23Recording/Sound 20 33 187Film Processing 43 76 55Film effects 10 27 42Market Research 3 5 24Artist representatives/talent agencies 242 359 344Total 966 1313 2512

Establishments in the Entertainment Industry 1968-

1997

1968 1974 1981Motion pictures except TV 666 1279 1023Motion picture & tape for TV 490 978 1420Services allied to motion picture production NA 716 1077Total 1156 2973 3520

1997

8916634315259

1997 data from U.S. County Business Patterns; in the 1987revision of the SIC code motion pictures was combined intoa single industry

The Decreasing Size Per Establishment

1969 1974 1981 1997Motion Pictures 23.2 11.2 25Television 21.2 20.8 24.1 7.4Allied Services NA 21.3 16.9 10.7

CombinedMotion Picturesand TV

California’s domination of the industry - measured by jobs

Jobs 1968 1974 1981 1997California-pictures 15449 20329 40433 31791New York-pictures 6687 4596 8625 8169Others-pictures 3713 9753 10779 25578

California-allied services NA 9663 12205 125935New York-allied services NA 3110 3135 7897Others-allied services NA 2501 2829 41089

Structural Trends – Motion Pictures & Television

• Retention of core activities: TV & Major films & channels of distribution

• Forced divestiture of theater chains• Development of generic specialists

subcontracting with specific producers for a given film & narrow scope; linked to major studios; many part-time workers; “project orientation,” FLEXIBILITY

• Product diversification: TV, Video, Film• Establishments clustered in California,

while filming locations have dispersed

The Post-Fordist System is also more efficient

Role of IT withinand between firms;logistics revolution

Business Process Reengineering

• Division of labor rationalized• Employees are empowered to a greater degree• Tasks are harmonized in other than a linear

sequence• Processed batches have multiple versions,

allowing scale economies simultaneous with custom producton

• Work is undertaken where it makes most sense geographically (recall the 787 production system)

• Internal structures are simplified / more coordinated and more decentralized

Downsizing as a consequence

• The growing angst over outsourcing

• The debate over its magnitude

• The debate over what to do for workers impacted

• The debate over public policy towards it

• The expectation that IT will fuel dramatic restructuring, accompanied by logistical sophistication: Friedman’s “flatteners”

Friedman’s Ten Flatteners:•Outsourcing•Offshoring•Open- Sourcing•Insourcing•Supply Chaining•In-forming (search engines)•The Internet•Fall of the Berlin Wall•Netscape’s Public Offering•Work Flow Software•The Steroids (Digital, Mobile, Personal and Virtual)

He argues together they have allowed unparalleled collaboration

The “New Economy”

• Rising productivity compared to recent years

• The growing importance of IT producing industries

• The growing productivity in IT using industries

• Finally, investment in IT appears to be having an economy-wide impact

Labor Productivity and IT Intensity

Source: Digital Economy 2003

Error in Legend!

All

Less ITIntensive

GDP/FTEGrowth

A Common Outcome of this Turbulence: The Product Life Cycle

DemandConditions

Very fewbuyers

Growingnumber of

buyers

Peakdemand

Decliningdemand

Steep falloffin demand

CompetitiveStructure

Very fewcompetitors

Entry of newcompetitors

Shakeout ofweakest

competitors

Stablepopulation

ofcompetitors

Exit of somecompetitors

Technology Rapidchange

Less rapidchange

Some change, but increasingly stabletechnology

SalesVolume

Initial Growth Maturity Decline Obsolescence

development

Examples of the Product Life Cycle

Fashion clothes

Automobiles

Generations of Boeing airplanes

…….but not all products follow this trajectory:

Levi 501 shrink-to-fit jeans

“Coke” & name brands that play off product stability: Tiffany; L.L Bean; Campbell’s Soup

Spatial Reorganization within Large Business Organizations

•Dynamism in firm activities: their size, number, function, and geographic configuration

•Inherent flexibility of multiplant firms - either in-situ change or locational shift

IN SITU CHANGE LOCATIONAL SHIFTS

Relocation of entire plantand equipment

Expansionof existingcapitalstock

Replacement of existingcapitalstock

Reductionof existingcapital stock -partialdivestiture

Investmentat new location(s)opening ofbranch plant(s)

Acquisitionof plant(s)owned byanotherfirm

Divestmentof existingplant(s)closure ordisposal

Healey’s adjustment framework

Product AProduct BProduct C

Operating Plant OPlant Shut Down +Transfer of Production

1 23 4

SpecializationPartial concentrationat an existing site

Complete concentrationat a new site

Mixed

1 2

3 4+

1 2

3 4

+1 +2

+3 +4

1 +2

+3

Initial Conditions

Evolution of Global Corporations

Headquarters

• Production plant

o Sales subsidiary

+ Licensing arrangement

Acquisition

Exports

Stage I Stage II

Stage III

•••

• ••

• • ••

o1

2

3

12

3

4+

+

12

3

4

5

Evolution of Global Corporations

Headquarters

• Production plant

o Sales subsidiary

+ Licensing arrangement

Acquisition

Exports

••• ••

•

•

•

•

•

••

••

•

•• •12

3

4

56 7

8 9

o

•12

3

4

56 7

8 9

Stage V

Stage IV

Summary

• Global concentrations of manufacturing, but they are not static

• Capital moves from place to place in the search for profit

• Multinational corporations and processes of FDI have reshaped the geography of manufacturing

• Today Schumpeter’s process of “creative destruction” is fueled by IT, logistics, and the rise of new production regimes built around more flexible manufacturing systems