Low-wage manufacturing and global commodity chains: a model in the unequal exchange tradition

Abstract

The institutional setting of subcontracted manufacturing has a profound impact on how the benefits of trade are distributed. This paper develops a model that combines insights from unequal exchange theorists and global commodity chain analysis to clarify the distributive dynamics of production networks in which subcontracting and branding are defining features. In this framework, t he ability of productivity growth to increase income from exports is constrained and depends on how the benefits of productivity improvements are captured-as lower consumer prices or higher rents for brand-name multinationals. Increasing consumption in affluent consumer markets raises export earnings. However, developing countries, acting alone, are constrained in their ability to impact the demand-side of global commodity chains. Instead, supply-side policies to support industrial upgrading represent a more viable option for raising incomes.

Global models of networked organization, the positional power of nations and economic development

“…And, consistent with empirical literature on the industry and resource dependence theory, this disproportionate value capture is a function of the scarcity of the requisite resources to buying -'the lavish advertising budgets and promotional campaigns required to create and sustain global brands' -and the ability of big buyers to use their bargaining power to induce competition among potential suppliers and thereby reduce the unit price of manufactured inputs (Gereffi, 2002: 4;Heintz, 2006). If powerful firms in the garment industry are recognizable by their buying behaviour and have more bargaining power when they inculcate dependent producers, then the countries in which they reside occupy favourable bargaining positions in buyer-driven networks when they import from a diverse set suppliers, particularly when suppliers are dependent on them for export outlets.…”

Production Networks and Varieties of Institutional Change: The Inequality Upswing in Post-Socialism Revisited

“…This occurs through a process whereby leading firms extract economic concessions from their suppliers by benchmarking them against cheaper competitors in alternative locations (e.g. Heintz 2006;Kaplinsky 2005;Mahutga 2014;Schrank 2004). Supplier firms make these concessions in part by reducing wages, which therefore exacerbates wage inequality between firms in the "GPN sector" and those in other sectors.…”

Global Production Networks and International Inequality: Making a Case for a Meso-Level Turn in Macro-Comparative Sociology

“…At the other extreme, some argue instead that leading firms in GPNs use their powerful positions to extract gains from other firms, and that the high returns to leading firms are a function of the concessions made by weaker firms (Heintz 2006). For example, dominant firms require captive manufacturers to regularly reduce the cost of the goods they supply leading firms, but simultaneously improve quality (Kaplinsky 2005;Schrank 2004;Humphrey 2000;Maxton and Wormald 2004).…”