Political Economy Of International Business

Antras and Ripple (2014) explain that the recent decades of globalization have seen a marvellous increase and integration of trade throughout the world. However, the rising trade integration has brought a disintegration in the production process, still, activities or services provided abroad are compared and analysed for quality assurance with the manufacturing and services at the home of the international firm as companies find it more profitable and easy to produce domestically where the selling has to be done through outsourcing, which can take place domestically or outside the country. This has brought out a breakdown of the Fordist kind of production which is an integrated production process with a central monitoring authority, it can be seen very clearly in the automobile and the electronic gadget industry (Turcan & Saygilli, 2018).

Fordism is a system of mass production which was named after Henry Ford which is the basis of modern economic production system for standardised mass production and consumption. It reflects an American ideology of advanced capitalism with a central idea of the American socioeconomic system after 1945 (Antras & Ripple, 2014). It is described a system of mass production in which standardised, low-cost goods are produced, an economic expansion model which is based on mass production, which facilitates enough workers’ wages and low cost to the level that those wages low workers to buy those goods, in other words manufacturing in large amount using special-purpose machinery with low-cost labour. The global production network is a concept which describes the system of interconnected functions, productions and management of distribution (Urata & Baek, 2019). This network spans across countries and thus integrates countries in the process of production and distribution. It is based on various systems of capitalism, global value chain network and actor-network theory.

Globalization started in the 2nd decade of 1900 which was discouraged by the world wars and the great depression of 1925-30 but revived and took pace through the decade of 1960s (Coe et al, 2008). It went on to integrate the whole world which had facilitated the optimum production as well as the optimum distribution of goods and services. This phase of globalisation has led to the industrial disintegration of companies as the main body of authority. A well-known example is of Nike Inc. which was employing around 75000 people in Asia in the production of shoes and apparel, but only a few hundred were the employees of the company, others being contractual. This indirect workforce of Nike in Asia, the worldwide sales of Nike made profits of 4$ 360 million in the year 1993 (Coe at al., 2008). Therefore, this disintegration of the production process was different from other shoe purchases by an American in the sense that Nike does the designing and marketing in America itself. The outsourcing activities of Nike are a part of the value chain which includes all the activities from conception to the distribution of the final products.

The main complex situation arises with multinational firms is that they have to establish subsidiaries and need to adapt to the political, social and cultural conditions with the host country, they are sometimes so diverse that the main coordinating body or the headquarters find it difficult to keep the administration of that subsidiary in their hand and that they have to manage the geographical conditions to operate smoothly. With increasing problems, companies face this challenge of transfer of management control to that distant subsidiary. A multinational organization is characterised by geographically distant units and this complex adjustment has led to the decisions of local headquarters and decision making bodies for that particular country (Sageder & Dustmueller, 2019). This problem is also faced by a diversified decentralized domestic company with diverse cultures and different administrations within the provinces like India. So it can be answered in yes that the globalization process has led to the disintegration of the multinational firms as the main coordinating unit for all of the international production. For example, the training of the employees of an automobile company will be different as soon as the company starts to manufacture the cars locally which could be due to the low cost for the company. Thus one factor induces the other one and gradually the companies find it relevant to transfer the management control to the host country for smooth and cost-effective running of the business.

2. In the studies of development economics, global value chain (GVC) refers to the production, of goods and services and their supply, distribution and after-sales activities by employees which are coordinated across borders of countries (Urata & Baes, 2019). A global value chain is identical to the industry value chain but it spans through international borders. The concept has been developed to fully exploit the potential of activities which are required to bring conception of a product or services to its delivery and post-sales services across borders. The concept gained importance among economists in the 1990s prominent being Porter, which combined sequential and interconnected activities carrying business (Ley & Paulpaucer, 2017). It focuses on business activity but not on the corporate politics or institutional concept. Thus in 1994, the concept of global commodity chains (GCC) was introduced (Ley & Paulpaucer, 2017). Global value chains studies require a trade theory which can entertain input trade. However, the main trade theorists have only concentrated them on final production.

The global production network is the network of interconnected nodes and linkages extending internationally and integrates national territory in doing so. It provides for interconnection of all the concerned departments and factors of production to distribution and after-sales through the analysis of global value chain analysis, actor-network theory and capitalism. Thus a framework that encompasses all the relevant activities and its doers in the production system. It also came into focus in the 1990s, the global production network has evolved into a well-developed theory providing vibrant, heterogeneous research which is primarily relating to the economic geopolitics, and a part of the wider research community that also linked with global commodity chain and global value chain. Recently, this field of re3serach and development has started to work closely with international trade and international businesses, politics and innovation (Turcan & Seygilli, 2018). Much work and research has indeed been conducted on the international trade in this field, the remaining three are yet to analyse the dual nature of the global production network. The scope of this study has been accompanied by many sectors like automatics, medicines, apparel, manufacturing, food etc.

The global value chain framework, which is the most important part of the global production networks, is being applauded by government and development agencies for creating and capturing value locally with the help of technology and branding and development of integrated as GVC work on the frameworks of corporate competitiveness and non-symmetric market structure with international scenario levelling up the local regions with that of the large firms. However, it was reported that these development strategies were flawed in that they provided opportunities only for the first level suppliers to have higher margins and that the profitability of this framework only benefit a small group of local elites.

The Corporation as a Political Actor in Contested GPNs

Even as one understands how corporations are extending their reach, GPNs remain a contested terrain in which different companies and other actors strive to shape the competitive and governance landscape. The GPN is far from a unified hierarchy with centralized coordination, and GPNs vary in the balance of power among different actors. Bair (this volume) notes that electronics firms such as Samsung face much stronger suppliers than garment firms such as Nike or general retailers like Wal-Mart. The price, however, of being a top tier supplier offering 'full Discussion and Conclusion. The Corporation as a GPNs connect global economic regimes with local nodes of activity and struggles over value appropriation reverberate across the spatial terrain. Freensta (1998) illustrates the phase-out of the protectionist textile agreement, the Multi-Fiber Agreement (MFA) was driven by a coalition of western states and major retailers, with support from China. The end of the MFA greatly intensified competition as China, the lowest cost producer, rapidly gained market share. In Pakistan, subcontractors responded by "modernizing" the production systems, shifting from a piece rate system with mostly male workers to a factory based salaried female workforce, who were preferred as employees due to their very low wages and subservience in the local cultural context.

As corporations are extending their reach, GPN is a competitive platform where companies and other actors compete to shape the corporate governance landscape and policies. The GPN is not a unified and systematic hierarchy and it varies in a power game with different actors. For example, electronic firms such as Samsung compete with stronger suppliers as compared to the garment or general retailers like Wal-Mart or Nike. An intersection of business strategy and political manipulation can be seen by corporates like Nike, Samsung, Volkswagen to protect and gain market power (Freensta, 1998). Companies form groups and alliances with NGOs, agencies of government and thus maneuverer their market positions through political and economic positioning. Thus despite growing support and trend of GPN and GVC, large firms and corporations still portray themselves as separate entity with clearly defined boundaries through ownership. This is dominant not in internat5ioanl terrain but also among the policymaking areas.

3. Multisided platform is a concept to connect two or more independent users thorough Intermediation or matchmaking processes. MSP platforms have been around in the world for many centuries, they came into focus as studies in economics especially with the onset and popularisation of internet and digital communications which have provided a vast and platform for the MSP platforms (Abdelkaffi et al., 2019). It can be understood now that MSPs are closely related to electronic market and add value to the economic chains with least resource utilisation. An MSP thus as characterised as the business which includes all forms of networked business on which multiple suppliers and customers interact for the business of economic purposes on one or multiple levels I the economic value chain.

General and scholarly interests in MSP are growing due to two factors which are- Platforms minimize the costs of business not only for the company but also for the stakeholders associated throughout the economy. MSP are said to be the most powerful and resilient business models in the age of digitization which makes them adaptable and have the ability to handle complexity, value capturing and scaling up on a faster pace. AIRBnb, Google, Ebay, Amazon, apple are the most prominent examples of MSPs (George, 2019). Converting to such business has also demonstrated high success ratio and high financial valuations. Today, almost all the TV channels are converting themselves into an MSP platform where all the episodes are telecasted with some being even free. But till date, only a few companies have been successful in this business model as it has its own constraints and challenges which must be addressed (Sartas et al., 2018). Thus the success of an MSP depends on several factors which are technological and economic, proportion of the value offered to each side, the ease of using the platform, and its fundamental services are critical to the success of such MSP as it is not a technical challenge as it seems but an economic and business challenge. The challenges that companies face in converting to MSPs are-

  • Determination of finance for the transition- Abdelkaffi et al. (2019) describe that the service providers not only tackle the rapid technological changes but also they reflect the transformation of the business into MSP assessing what should be and what should not be done. For example Caroline IT has transformed itself form selling equipment to offering cloud services, the process is marked as an evolving experience. Thus it requires large amounts of investments on an early stage but keep the company in a position of business fast and early revenues can be generated. Also heavy investments in time and efforts from the engineering side are important. A challenge is to keep up-to-date the changes of the technology and to stay ahead in the competition through these changes because the time and place constraints on MSP are replaced by attractiveness of the services and ease of operation.
  • Preparing for the challenges- George (2019) says that changed consumer behaviour and their expectations levels is the another challenge for a company seeking transformation into an MSP as the old experiences of the consumer behaviour and expectations will be changed here by structure and patterns. Consumers are well aware of the cloud systems and solutions, thus this knowledge has changed their purchasing attitude which has resulted in an analysis-paralysis, a situation of paradox where over analysis leads to late purchasing behaviour. Thus managers will have to innovate and think of changed ideas as old avenues are less likely to work.
  • Sector commoditization- Commoditization is a major problem for many existing MSPs, leave alone the company which wants to transform. Managing the increasingly crowded cloud marketplace where every company offers tools and technologies that are not much different is a difficult task to manage and the company has to feature multiple services at decreasing prices. Such a situation demands for the market stabilization, in this scenario selling is difficult because similar expertise and technologies make customer go with the familiar brand, thus standing out in an MSP technology is a difficult task.
  • Quality services without automation- One of the biggest challenges of MSPs is on time, budgeted quality services to the consumer while maintain a strong relationship with them. The MSP platform need to manage multiple number of internal systems to serve their users whether or not users are using at a particular time, this results in a communication and interoperability complication problem. • Management of high amount of accounts and billing- Another major challenge which can prove to be disastrous for an MSP is management of multiple accounts and billing on cloud, however adoption of multicolour services and solutions and their management is quite a challenge, different customers’ account with different tastes and updating those accounts with their preferred choices and suggestions, deployment of the account and customer coordination are only a few herculean tasks counted on an MSP platform (Abdelkaffi et al., 2019).

4. The transformation of the businesses into MSP with the revolution of internet and digitization has yielded new technological opportunities with better and innovative ways but these platforms are operated with comparatively lesser capital and more of the technological investments (Anthony et al., 2019). The disruption in job due to companies’ transformation into MSP is visible by the following facts-

World’s highest valued retailer has no inventory which is Alibaba. The largest provider of accommodations and residences has no property, that is AIRbnb, the biggest movie franchise in the world holds no cinemas or theatres which is Netflix, the banks which have the highest growth today have no money with them, the crypto currency; world’s most famous social media channel has no content of its own, which are YouTube and Facebook, the largest cab company of the world, Uber, owns no taxi of its own (Hein et al., 2019).

This scenario has clearly made visible the possible disruption which has been started by the start of companies transforming into MSPs that the manual jobs have been decreased in these companies (at least on their MSPs branch) drastically and that the need of cloud and digital technologies have taken the place of the job workers (Ardolino et al., 2019). When there will be no inventory, no content creation or non which is owned or created by the company, the workers needed for the company falls drastically. The main problem behind these MSP platforms is that they don’t create any goods or service but facilitates one from another providing a platform which is not as much costly to maintain as a business entity. As it is said that robots use do not create disruption in the job market as use of robots increase overall economic expansion which creates job for those who are left jobless because of robotic uses, similarly if such value addition of a higher degree into economy is not created by the MSP platforms, countries will be bound to ban such platforms and start again the physical goods or service providing business entity providing adequate jobs as two factors help to thrive a company economically and politically-

  • The new industry is employing lesser people but is adding value to the economy to create overall positive job count likes the robots in the industries.
  • The new industry employs more job works as compared to its peers irrespective of the fact that it is not adding any positive value to the economy (Anthony et al., 2019).

The major transformation in the world of trade and economics has been the sharp emergence of these digital platforms or the MSPs. This new sector has disrupted the employment and the wage model with disrupting existing business models in a linear fashion. There are inherent risks regarding the stasis of employment with such firms. The research of ILO along with other institutions like INWORK carried out surveys in 2015 and 2017 on five major MSP platforms (ILO, 2018). It was found that the digital platforms have chosen to classify their workers as self-employed, depriving them of the company’s obligations of the workers’ insurance and other welfare expenses. ILO (2018) further explains this new trend that hiring workers on a contractual basis and self-employed tag decreased the cost of many firms including the MSPs but have made the workers future vulnerable economically and from job security point of view. The governments are expected to frame new rules and policies for such MSPs and micro work platforms so that they can be included into the streamlined framework of health and wealth of the workers.

References for Global Production and Trade Networks

Abdelkaffi, N., Raasch, C., Roth, A. & Srinivasan, R. (2019) Multi-sided platforms. Electronic Markets, 29, 553–559.

Antras, P. & Yipple, S. (2014) Multinational firms and the structure of international trade. Handbook of International Economics, 4, 55-130.

 Ardolino, M., Saccani, N., Adrodegari, f. & Perona, M. (2019) A business model framework to characterize digital multisided platforms. Journal of Open Innovations, 26(1), 10.

Coe, N., Diken, P. & Hess, M. (2008) Introduction: global production networks--debates and challenges. Journal of Economic Geography, 8(3), 1-10.

Freensta, R. (1998) Integration of trade and disintegration of production in the global economy. Journal of Economic Perspectives, 12(4). DOI: 10.1257/jep.12.4.31

George, M. (2019). Digital disruption of the managed services. Retrieved from https://www.channele2e.com/influencers/the-digital-disruption-of-managed-services/

Hein, A. Schreieck, M., Wiesche, M., Bohm, M. & Krcmar, M. (2019). The emergence of native multi-sided platforms and their influence on incumbents. Electronic Markets 29, 631–647.

ILO.org (2018) Digital labour platforms and the future of work. Retrieved from https://www.ilo.org/wcmsp5/groups/public/---dgreports/---dcomm/---publ/documents/publication/wcms_645337.pdf

Ley, D. & Paulpaucer, F. (2017) . Global production networks and the changing corporation. 336-345. DOI: 10.1017/9781139681025.022

Sageder, M & Dustmueller, B. (2019) Management control in multinational companies: A systematic literature review. Review of Managerial Science, 13, 875–918.

Sartas, M., Schut, M., Hermans, f., Astan, P. & Leeuwis, C. (2018) Effects of multi-stakeholder platforms on multi-stakeholder innovation networks: Implications for research for development interventions targeting innovations at scale. Plos One, 13(6), e0197993. DOI: https://doi.org/10.1371/journal.pone.0197993

Turcan, K. & Saygili, H. (2018) Global production chains and export survival. Eastern European Economics, 57(2), 103-129.

Urata, S. & Baek, Y. (2019). Does participation in global value chains increase productivity? an analysis of trade in value added data. Retrieved from https://www.eria.org/publications/does-participation-in-global-value-chains-increase-productivity-an-analysis-of-trade-in-value-added-data/

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