COLOGNE INTERNATIONAL SUMMER UNIVERSITY 2014

GEOGRAPHY OF TRANSNATIONAL PRODUCTION NETWORKS

CLASS 1
The process of global shift and the second unbundling


Aug 18, 2014
Prof. Dr. Claes G. Alvstam
University of Gothenburg,
School of Business, Economics and Law
Centre for International Business Studies/Economic Geography



General Outline
The setting: Production specialization and
fragmentation;
Various types of internationalization processes
Economic transformation models
Basic figures of production and trade
Introduction to the GVC concept



Two perspectives
Macro the country/nation/economy
-- economic size: total, per capita; nominal, PPP
-- revealed competitive advantage
-- trade policy: multilateral, regional

Micro the transnational enterprise
-- degree of internationalization
-- home base
-- position in the global value chain

UNCTAD, World Investment Report 2013, table IV1, p. 125.

Geographical description levels

GLOBAL
MACROREGIONAL/CONTINENTAL
NATIONAL/STATE
SUB-NATIONAL/REGIONAL
LOCAL/INDIVIDUAL
Basic reading
Dicken, Peter: Global Shift 6th Edition 2011;
Hill, International Business. 10th Edition 2014
--------
UNCTAD World Investment Reports 2013-2014;
WTO, World Trade Report 2011, 2013;
------
Papers by Inge Ivarsson and C.G. Alvstam


The Global Economy
some key figures

Total population: Ca 7,253 mill. inh.(Aug 2014) ca 2.500 mill. (1950)
Annual growth: Ca 1,1 % (2.1 % 1970)
Global (nominal market exchange) GDP: Ca 77,000 billion USD (2014e)
Annual growth : Ca 3,5 % (1985-2010)
- measured in PPP terms: Ca 91,000 billion USD (2014e)
World Trade (goods): Ca 18,600 billion USD (2014e)
Annual growth : Ca 6,5 % (1985-2010)
World Trade (services): Ca 4,500 billion USD (2014e)
Annual growth : Ca 3,5 % (1985-2010)
World Trade (capital):
* Foreign Direct investment (outward): Ca 1,411billion USD (2013), 1,347
mill USD (2012)
Annual growth : Ca 18 % (1990-2000); ca 8.5 % 2000-2007, 0.7% 2000-2010)
* Daily turnover in currency markets: Ca 5,300 billion USD
(Apr 2013) (1400 bn USD 1998)


latest update 140810

(2005 rs siffror)
North America
17,500 bn USD
350 mill. inh..
EU27+CH,N+IS
19,100 bn USD
515 mill.inh.
Other Europe
incl CIS
3,400 bn USD
380 mill.inh.
Pacific Asia
17,100 bn USD
2,200 mill.inh..
Latin America
incl. Caribbean
5,800 bn USD
600 mill.inh,
North Afr/M.East
3,000 bn USD
390 mill.inh.
South Asia
2,300 bn USD
1,620 mill.inh.
Oceania
1,600 bn USD
38 mill.inh
Africa south
of Sahara
1,200 bn USD
875 mill.inh.
Ca 54 % of global nominal GDP in NA/WE/Oc
Ca 24 % in Pacific Asia
Klla: World Bank, World Development Report 2007
The Global Economy measured in
nominal GDP (2011 figures)
Gross Global Product: ca 71,000 bnUSD
Source: World Bank, WDI, database August 2012
CGA 120901

(2005 rs siffror)
North America
16,600 bn USD
350 mill.inh.
EU27+CH,N+IS
17,200 bn USD
515 mill.inh.
Other Europe
incl CIS
5,300 bn USD
380 mill.inh.
Pacific Asia
21,000 bn USD
2,200 mill.inh.
Latin America
inkl. Caribbean
6,800 bn USD
600 mill.inh.
North Afr/M.East
4,200 bn USD
390 mill.inh..
South Asia
5,500 bn USD
1620 mill.inh.
Oceania
1,000 bn USD
38 mill.inh.
Africa south
of Sahara
1,900 bn USD
875 mill.inh.
Ca 44 % of global PPP in NA/WE/Oc
Ca 26 % in Pacific Asia
Klla: World Bank, World Development Report 2007
The Global Economy measured in
PPP terms (2011 figures)
Gross Global Product: ca 79,000 bnUSD
Source: World Bank, WDI database August 2012
CGA 120901
GERMANY
3571
DENMARK
333
SWEDEN
538
NOR-
WAY
486
FIN-
LAND
266
NETHERLANDS
836
BELGIUM
512
UNITED
KINGDOM
2432
IRE-
LAND
217
AUSTRIA
418
SWITZERLAND
636
ITALY
2195
FRANCE
2773
SPAIN 1491
POR
TUGAL
238
POLAND
514
CZECH
REP
215
LITHUANIA 46
LATVIA 28
ESTONIA 22
RUSSIAN
FED.
1858
BELARUS
54
UKRAINE
165
HUN
GARY
140
ROMA
NIA
180
MOLDOVA 9
BULGARIA
54
SLOVENIA
50
CROATIA
63
SERBIA-
MONT
52
BOS-HERZ 18
GREECE 299
ALBANIA 13
MACEDONIA
9
GNI IN
EUROPE
2011
(bill USD)
ICELAND
14
SLOVAKIA 96
Source:
World Bank,
WDI Database
CGA 120901
LUXEMBURG
59
GERMANY
3283
DENMARK
236
SWEDEN
400
NOR-
WAY
288
FIN-
LAND
205
NETHERLANDS
731
BELGIUM
433
UNITED
KINGDOM
2316
IRE-
LAND
149
AUSTRIA
354
SWITZERLAND
402
ITALY
1966
FRANCE
2346
SPAIN 1476
POR
TUGAL
261
POLAND
782
CZECH
REP
265
LITHUANIA 63
LATVIA 40
ESTONIA 29
RUSSIAN
FED.
2845
BELARUS
138
UKRAINE
324
HUN
GARY
203 ROMANIA
324
MOLDOVA 13
BULGARIA
105
SLOVENIA56
CROATIA
85
BOS-HERZ 35
GREECE 294
ALBANIA 29
MACEDONIA
24
GNI PPP IN
EUROPE
2011
(bill USD)
ICELAND
10
SERBIA
85
SLOVAKIA 123
Source:
World Bank,
WDI Database Aug 12
CGA 120901

LUXEMBURG
33
MONTENEGRO 13
Bruttoinlandprodukt in den Deutschen
Bundeslndern 2010
Nordrhein-
Westfalen
719
Rheinland-Pfalz
143
Hessen
298
Baden-
Wrttemberg
480
Bayern
586
Nieder-
Sachsen
284
Hamburg
117
Schleswig-Holstein 101
Berlin
126
Sachsen-
Anh.
69
Thringen
66
Bremen 37
Saar 40
Meckl.Vp 48
Branden-
burg
74

Sachsen
126
Vorh. West 88 % Vorh. Ost 12 % (ex Berlin)
Klla: Stat.Bundesamt. Stat. Jahresbuch 2011
Volkswirtschaftliche Gesamtrechnungen; www.destatis.de
Mrd. USD
1 USD = .755 EUR
CGA 120902
Focus on fragmentation of production
and cross-boundary transaction flows
R P M
Resources
Raw mtrls
Manufacturing
production
Market
Raw
material
trans-
actions
Inter-
mediate
trade

Trade with
final
consumption
goods

USA+CANADA
2844
(586)
EUROPE incl CIS
53 units
6861
(4910)
OTHER
ASIA
35 units
4988
(1975)
JAPAN
886
317
(14)
MENA
23 units
1004
(157)
SUB.SAH
AFRICA
46 units
380
(48)
LATIN
AMERICA
36 units
1180
(236)
Japan
167
Other Asia
814
155
504
393
184
165
59
27
102
US+CDN

91
116
714
537
330
126
840
98
170
391
484

Total import value 2012 = 18,500 billion US Dollars
Source: IMF DOTS Database Aug, 2013 (prel.data)
(Figures within brackets refer to intra-imports within respective bloc)
CGA 130821
32
140
incl. Japan
91
164 170 (incl
Japan)
WORLD IMPORTS BY GEOGRAPHICAL REGIONS 2012
Lat.amer.
217
Asia incl. Japan
300
MENA
174
AUS+NZ
36
15
14
9 32
16
60
LA
34
NA+LA
46
Eur

Aus+NZ
17
18
SSA
357 255 636
296
385
62
25
MENA+SSA
18
2014-04-10
Kurt Grnfors Memorial Lecture

Commodity composition of world trade
Per cent of total commodity value


1950 2000 2010
Raw materials and
simple preparations

Goods for final consumption

Intermediate goods
(semi-manufactures, parts and
components, capital goods)
50 10 5-8

35 20 15-17
15 70 75-80
_____ ______ _______
100 100 100
Internationalization (globalization)
of
Raw material supplies;
Markets;
Production systems (goods and services)
Labour
Capital
Information and communication
Culture; consumption patterns;
.
Internationalization of
raw material supplies
R P M
Country A
Internationalization of
markets
R P M
1
Country A
M
2
Internationalization of the
production system (goods)
R
M
1
Country A
P
1
P
2
P
3
P
n
M
2n
Basic manu-
facturing
Knowledge
intensive
Labour
intensive
Final
assembly
UNCTAD, World Investment Report 2013, figure IV1, p. 123.
2014-09-03
Kurt Grnfors Memorial Lecture

Example of fragmented production:
Husvarna chain saws
Source: Husqvarna, cit. by the Swedish Ministry of Foreign Affairs
Fragmentation of production
The GM case
Source: Made in Sweden? Kommerskollegium 2010, p. 11
Fragmentation of production:
The Toyota Case
Source: Hiratsuka(2010) quoted in IDE-JETRO, Trade patterns(2011), p. 16
Fragmentation of production:
The Boeing 787 Dreamliner case
Source:Meng and Miroudot, 2011,
Quoted in IDE-JETRO,
Trade patterns(2011), p. 95

Fragmentation of production:
The iPod case
Source: Made in Sweden? Kommerskollegium 2010, p. 10

Internationalization of the
production system (services)
R P M
Country A
Upstream Downstream
Services
The growth of the world economy
Annual percent change in global real GDP
1980-2015
-3
-2
-1
0
1
2
3
4
5
6
1980 1985 1990 1995 2000 2005 2010 2015
Market
exchange
rate
PPP
exchange
rate
Source: IMF, World Economic Outlook, Latest April 2014
Per cent
131027
140810
The growth of the world economy
Annual percent change in global real GDP
1980-2015; Trend 1980-2008
-3
-2
-1
0
1
2
3
4
5
6
1980 1985 1990 1995 2000 2005 2010 2015
Market
exchange
rate
PPP
exchange
rate
Source: IMF, World Economic Outlook, Latest April 2014
Per cent
131027
140810
The growth of the world economy
Annual percent change in global real GDP
1980-2015; trend 1985-2015
-3
-2
-1
0
1
2
3
4
5
6
1980 1985 1990 1995 2000 2005 2010 2015
Market
exchange
rate
PPP
exchange
rate
Source: IMF, World Economic Outlook, Latest April, 2014
Per cent
131027
140810
GDP growth in advanced and
developing/ emerging economies
1985-2015e
-6
-4
-2
0
2
4
6
8
10
1
9
8
5
1
9
8
7
1
9
8
9
1
9
9
1
1
9
9
3
1
9
9
5
1
9
9
7
1
9
9
9
2
0
0
1
2
0
0
3
2
0
0
5
2
0
0
7
2
0
0
9
2
0
1
1
2
0
1
3
2
0
1
5
Advanced econ.
Emerging econ.
Per cent
Source: IMF, World Economic Outlook Latest April 2014
090502
110818
120901
140810
Comparison of production and trade
growth 1990-2015
-15
-10
-5
0
5
10
15
1990 1993 1996 1999 2002 2005 2008 2011 2014
PRODUCTION
TRADE
Per cent
100425
120901
121020
131027
140810
Source: IMF, World Economic Outlook , October 2012
Source: IMF, World Economic Outlook, various volumes until April 2014
World Foreign Direct Investments
1990-2013 (bn USD)
0
500
1000
1500
2000
2500
1
9
9
0
1
9
9
2
1
9
9
4
1
9
9
6
1
9
9
8
2
0
0
0
2
0
0
2
2
0
0
4
2
0
0
6
2
0
0
8
2
0
1
0
2
0
1
2
2
0
1
4
Source: UNCTAD World Investment Report, latest July 2014
120821
121029
131027
140809
Bill USD
Outward
Inward
Model of Economic Transformation
Primary
Manufacturing
Services
Services
Primary
Manufacturing
Time
Share of total econ.active pop.
80
05
15
33
33
33
10
50
40
05
20
75
Model of Economic Transformation
Time
Share of total econ.active pop.



Singapore Malaysia
Thailand
Indonesia
Vietnam
Philippines
The Southeast Asian Case
Model of Economic Transformation
Time
Share of total econ.active pop.



Beijing
Shanghai
Other coastal
provinces
The China Case
Inland
provinces
Sichuan
Shandong
Dongbei
Model of Economic Transformation
Time
Share of total econ.active pop.
Bangladesh
India
Pakistan
The South Asian Case
Model of Economic Transformation
Manufacturing
Services
services
Manufacturing
Time
Share of total econ.active pop.












Singapore
Hong Kong
The Asian City-state case
(Low value added) (High value added)

(Low value added)

(High value added)

Global manufacturing output
Per cent share of value added (current prices 2000-
2025
0
5
10
15
20
25
30
35
40
1990 1995 2000 2005 2010 2015 2020 2025
Per cent
5,700 bnUSD 11,800 bnUSD 28,150 bn USD
Source: Global Insight, cit. by FT May 29 and Aug 11, 2008
081014
CHINA
USA
JAPAN
CHINA
USA

JAPAN

The role of manufacturing
Source: The Economist, November 24th, 2012
American industry in transition (1)
American industry in transition (2)
European Manufacturing
Source: Financial Times, May 27th, 2013
The service sector in the world
economy
50- 75 per cent of
economically active
population
Even higher shares
when measuring the
contribution to GDP
30-50 per cent in larger
emerging markets
0
10
20
30
40
50
60
70
80
U
S
A
C
H
I
N
A
I
N
D
I
A
S
W
E
D
E
N
Primary
Secondary
Tertiary
Source: World Bank, World Development Report 2011.
Per cent
120902
Served in China
Manufacturing and services 1994-2012
Source: The Economist, February 23rd, 2013
The Share of Service Exports in Total
Exports of Goods and Services (2010)
0
5
10
15
20
25
30
35
USA INDIA EURO16 JAPAN CHINA RUSSIA
Source: IMF, International Financial Statistics, Yearbook 2011
Per cent
120902
The Share of Service Exports in Total Exports of
Goods and Services in EU27 (2010)
0
10
20
30
40
50
60
70
80
90
CY LX GR MT IR DK UK ES PT SE AT FI EU16FR BE IT PL NL GE HU CZ
Per cent
Source: IMF, International Financial Statistics, Yearbook 2011
120902
Internationalization of markets
foreign direct investment
R P
1
M
1
Country A
M
2
P
2
FDI
Flow of manufactured goods
Flow of raw materials
Flow of capital
Internationalization of capital over
time
Technical opportunities
Lower Higher
Poli-
tical
oppor-
tunities

Higher
Lower
O
Before WW 1
O
Mid-war
period
O Post-war until
mid- 80s
O
After de-
regulations
Outward FDI Stock by leading investing
countries 1914-2013
as per cent of world total
Origin 1914 1960 1978 1990 2000 2010 2013

Developed economies 100.0 99.0 96.8 93.2 88.7 82.3 78.9

-USA 18.5 49.2 41.4 35.1 33.6 23.7 24.1
-UK 45.5 16.2 12.9 11.0 11.5 8.3 7.2
-Germany 10.5 0.8 7.3 7.3 6.8 7.1 6.5
-France 12.2 4.1 3.8 5.4 11.6 7.5 6.2
-Japan 0.1 0.7 6.8 9.6 3.5 4.1 3.8

Developing economies 0.0 1.0 3.2 6.8 11.1 15.3 19.0
-P.R. China 0.0 0.0 0.0 0.2 0.3 1.5 2.3
-Hong Kong 0.0 0.0 0.3 0.6 5.4 5.2 5.1

Transition economies --- --- --- 0.0 0.3 2.4 2.1

Sources: Knox-Agnew, 1989; UNCTAD World Investment Report, 2011, 2014
110825
140910
Inward FDI Stock by leading host countries
1914-2013
as per cent of world total
Destination 1914 1960 1978 1990 2000 2010 2013

Developed economies 37.2 67.3 69.6 75.3 75.6 65.3 63.0

-USA 10.3 13.9 11.7 26.6 37.1 18.0 19.3
-Western Europe 7.8 22.9 37.7 39.9 32.8 39.8 37.4
-Japan 0.2 0.2 0.2 0.5 0.7 1.1 0.7


Developing economies 62.8 32.2 27.8 24.7 23.6 31.1 33.3


-Latin America 32.7 15.6 14.5 5.5 6.8 9.0 10.1
-Africa 6.4 5.5 3.1 3.0 2.1 2.9 2.7
-Asia 20.9 7.5 7.0 16.8 14.8 19.2 20.4
-- China .. 0.0 0.0 1.0 2.6 3.0 3.8

Transition economies --- --- --- 0.0 0.8 3.6 3.6


Sources:Knox-Agnew, 1989; UNCTAD World Investment Report, 2011, 2014
110825
140810
Financial Times November 13, 2012
Alternative ways to measure welfare
Alternative ways to measure welfare
Alternative measures of business cycles
and welfare
Financial Times, September 17th, 2013
BloombergBusiness Week July 29, 2013
Source: Financial Times, December 31, 2012
The Value Chain
Source: WTO, quoted in IDE-JETRO, Trade patterns(2011), p. 12

Vertical integration
Source: WTO, quoted in IDE-JETRO, Trade patterns(2011), p. 13

Outsourcing and offshoring
Source: WTO, quoted in IDE-JETRO, Trade patterns(2011), p. 20

The Economist, January 19th, 2013
Complementarity and substitution
between trade and FDI
Source: WTO, quoted in IDE-JETRO, Trade patterns(2011), p. 50

EVOLUTION OF REGIONAL PRODUCTION NETWORKS IN ASIA
Source:IDE-JETRO, Trade patterns(2011), p. 75

Measuring value added and vertical specialization
through an international production chain
Source: WTO, quoted in IDE-JETRO, Trade patterns(2011), p. 97

Costs of overcoming distance
0
10
20
30
40
50
60
70
80
90
100
1
9
2
0
1
9
3
0
1
9
4
0
1
9
5
0
1
9
6
0
1
9
7
0
1
9
8
0
1
9
9
0
2
0
0
0
2
0
1
0
2
0
2
0
Sea transport
Air transport
Telephone
Satellite
Index