Coe hess global networks.pdf

‘Globalizing’ regional development: a

global production networks perspective

Blackwell Publishing, Ltd.

Neil M Coe*, Martin Hess*, Henry Wai-chung Yeung†,

Peter Dicken* and Jeffrey Henderson‡

Recent literature concerning regional development has placed significant emphasis on

local institutional structures and their capacity to ‘hold down’ the global. Conversely,

work on inter-firm networks – such as the global commodity chain approach – has

highlighted the significance of the organizational structures of global firms’ production

systems and their relation to industrial upgrading. In this paper, drawing upon a

global production networks perspective, we conceptualize the connections between

‘globalizing’ processes, as embodied in the production networks of transnational

corporations, and regional development in specific territorial formations. We delimit

the ‘strategic coupling’ of the global production networks of firms and regional

economies which ultimately drives regional development through the processes of

value creation, enhancement and capture. In doing so, we stress the multi-scalarity of

the forces and processes underlying regional development, and thus do not privilege

one particular geographical scale. By way of illustration, we introduce an example

drawn from recent research into global production networks in East Asia and Europe.

The example profiles the investments of car manufacturer BMW in Eastern Bavaria,

Germany and Rayong, Thailand, and considers their implications for regional

development.

key words

globalization

global production networks

regional development

Asia

Europe

*School of Environment and Development, University of Manchester, Oxford Road, Manchester M13 9PL

email: neil.coe@manchester.ac.uk

†Department of Geography, National University of Singapore

‡Manchester Business School, and the School of Environment and Development, University of Manchester

revised manuscript received 10 May 2004

emphasis on endogenous institutional structures

and their capacity to ‘hold down’ global networks

(for overviews see MacLeod 2001a; Scott 1998;

Storper 1997). The other strand, focusing specifically

on inter-firm networks and global commodity/value

chains (GCCs/GVCs), considers the organizational

structures of global firms’ production systems and

explores how particular regions ‘slot into’ these

networks with varying impacts on industrial

upgrading (see Gereffi and Kaplinsky 2001; Gereffi

1994 1996).

In their early formulations, both of these literatures

could be criticized for their failure to effectively

conceptualize regional economic development in

Introduction and theoretical context

One of the many paradoxes of the processes of

‘globalization’ is the continued significance of

‘regions’, in the sense of sub-national spaces as foci

of economic activity. Systemic processes of rapid

technological change, enhanced capital mobility

and neoliberally inspired inter-regional competition

for investment have focused attention on the need

for regional-level interventions among a broad

community of academics and policymakers. Two

recent strands of work attempt to tackle the links

between globalization dynamics and notions of

‘regional development’. One strand places particular

Trans Inst Br Geogr

NS 29 468– 484 2004

ISSN 0020 -2754 © Royal Geographical Society (with The Institute of British Geographers) 2004

‘Globalizing’ regional development

469

an era of globalization. The new regionalism liter-

ature seemed overly pre-occupied with local trans-

actions and institutional forms at the expense of

the many extra-local connections within which

regions are embedded, while the functional con-

nections between seemingly desirable regional

institutional configurations and actual levels of

economic development were open to question

(Amin and Thrift 1994). The GCC/GVC approaches,

in turn, operated largely at the national scale,

saying little about how particular sub-national

spaces and their institutions are integrated into,

and shaped by, transnational production systems

(for recent critiques, see Henderson

and markets. These relations may be with other

regions within the same national territory, but

increasingly occur at the international scale. Hence,

our conceptualization of a region is not as a tightly

bounded space, but as a porous territorial forma-

tion whose notional boundaries are straddled by a

broad range of network connections (Amin 2002;

Allen

. 1998).

The paper is organized into two main sections.

First, we explore how the strategic coupling of

global production networks and regional assets

may (or may not, depending on the context) facili-

tate the processes of the creation, enhancement and

capture of value upon which regional development

ultimately depends. Second, in order to illustrate

how our conceptual framework might be utilized

empirically, we present an illustrative case study of

the German car manufacturer BMW and its interac-

tions with regional development processes in East-

ern Bavaria, Germany and Rayong, Thailand.

et al

. 2002;

Smith

2001).

Recent developments in these two fields, how-

ever, have begun to address these shortcomings

and to move somewhat closer together. The ‘new

regionalism’ literature, for example, places increased

weight on the extra-local dynamics shaping eco-

nomic growth within regions (both knowledge,

capital and labour flows and also the wider institu-

tional structures within which regions are embedded

(e.g. Amin 2002; MacKinnon

et al

. 2002; Dicken

et al.

‘Globalizing’ regional development:

towards a re-conceptualization

. 2002; Bunnell

and Coe 2001; MacLeod 2001a; Lovering 1999).

Conversely, a number of GCC and GVC studies

explicitly explore how regional clusters and indus-

trial districts are incorporated into global production

systems, and consider their implications for local eco-

nomic development and industrial upgrading (e.g.

Bair and Gereffi 2001; Gereffi

et al

In developing a broad conceptual framework for

understanding regional development we need to

pay analytical attention

to endogenous growth

factors within specific regions

both

also to the

strategic needs of trans-local actors coordinating

global production networks (cf. Scott and Storper

2003). In our framework, regional development is

conceptualized as

and

2001; Humphrey

2001; Sturgeon 2001; Humphrey and Schmitz 2000).

In this paper, we seek to make a primarily

et al.

a dynamic outcome of the complex

interaction between territorialized relational networks

and global production networks within the context of

changing regional governance structures

con-

ceptual

contribution to these converging research

agendas. Drawing upon a global production net-

works (GPN) perspective (see Henderson

. In that sense,

it resonates with Amin’s topological/relational

view (Amin 2002; see also Dicken 2004). We aim

to specify the interactive complementarity and

coupling effects between localized growth factors

and the strategic needs of trans-local actors in

propelling regional development. We argue that it

is these

2002), and deriving insights from both the new

regionalist and GCC and GVC literatures, our

approach focuses on the dynamic ‘strategic cou-

pling’ of global production networks and regional

assets, an interface mediated by a range of institu-

tional activities across different geographical and

organizational scales.

et al

that contribute to regional

development, not inherent regional advantages

or rigid configurations of globalization processes.

Despite certain path-dependent trajectories, regional

development remains a highly contingent process

that cannot be predicted

interactive effects

Our contention is that

regional development ultimately will depend on

the ability of this coupling to stimulate processes of

value creation, enhancement and capture.

We regard regional development as a set of

rela-

. This conceptual-

ization, however, does not mean that regional

institutions are unimportant. On the contrary.

Often, such complementarity and coupling effects

can be enhanced and exploited through particular

sets and practices of ‘regional’ institutions. The

a priori

tional processes

(see Amin 2002). It is also, by defini-

tion, an

process (Massey 1984). The

fortunes of regions are shaped not only by what is

going on within them, but also through wider sets

of relations of control and dependency, of competition

interdependent

470

Neil M Coe et al.

Figure 1

A framework for analysing regional development and global production networks

term ‘regional’ must be used with care here. We

place it in scare quotes to indicate that, in reality,

regional development is not just shaped by regionally

specific institutions, but also by a variety of extra-

local institutions (e.g. national, supra-national) that

will impact on activities

sufficient, to generate regional growth in an era in

which competition is increasingly global. There is

no doubt that, for development to take place, a

region must benefit from economies of scale and

scope derived from what Storper (1997, 26) terms

the ‘holy trinity’ of technology–organization–

territory. In Figure 1, we use the term ‘regional

assets’ to describe this necessary precondition for

regional development. In general, these assets can

produce two types of economies. First, economies

a region. This ‘scaling’

of institutional influence is critical. In short, regional

development at any particular historical moment

requires the

within

co-presence of three inter-

related sets of conditions:

necessary

can be achieved in certain regions through

highly localized concentrations of specific know-

ledge, skills and expertise. This concentration of

technological advantages embodied in and per-

formed by social actors located in specific regions

creates economies of scale in particular technolo-

gies that can be exploited through the agglomeration

of firms that in turn provide employment and

generate economic outputs within similar high

tech industries. Second, economies of

scale

1 the existence of economies of scale and scope

within specific regions;

2 the possibility of localization economies within

global production networks; and

3 the appropriate configurations of ‘regional’

institutions to ‘hold down’ global production

networks and unleash regional potential.

We have summarized these conditions and their

interactions in Figure 1.

can

exist if these regions are able to reap the intangible

benefits of learning and the cooperative atmo-

sphere embedded in these agglomerations. These

are famously known as ‘spillover’ effects. A variety

of different high value-added activities may be

scope

Regional advantages, global production networks

and economies of value.

Our analytical framework starts with the premise

that endogenous factors are necessary, but in-

‘Globalizing’ regional development

471

Table I

Local and non-local dimensions of regional development

Dimensions

Local manifestations

Non-local forms

Firms

Indigenous SMEs

Global corporations

Industrial clusters

Entrepreneurial subsidiaries

Intra-regional markets

Distant global markets

Venture capitalists

Decentralized business and financial networks

Global production networks

Labour

Skilled and unskilled workers

Skilled experts and technologists

Permanent migrants

Transient migrants

Transnational business elites

Technology

Spillover effects

Global standards and practices

Tacit knowledge

Intra-firm R&D activities

Infrastructure and assets

Technological licensing

Strategic alliances

Institutions

Conventions and norms

Labour and trade unions

Growth coalitions

Business associations

Local authorities

National agencies and authorities

Development agencies

Inter-institutional alliances

Supranational and international organizations

located or developed in these regions because the

tendencies towards learning and cooperation

facilitate a broad spectrum of production and

entrepreneurial activities.

We argue that economies of scale and scope

embedded within specific regions are only advan-

tageous to those regions – and bring about regional

development – insofar as such region-specific

economies can complement the

relationships, but also integrate regional and

national economies in ways that have enormous

implications for their developmental outcomes. At

the same time, the precise nature and articulation

of firm-centred production networks are deeply

influenced by the concrete socio-political contexts

within which they are embedded. The process is

especially complex because while the latter are

essentially territorially specific (primarily, though

not exclusively, at the level of the nation-state and/

or the region), the production networks themselves

are not. Global production networks ‘cut through’

national and regional boundaries in highly differ-

entiated ways, influenced in part by regulatory and

non-regulatory barriers and local socio-cultural

conditions, to create structures that are ‘discontinu-

ously territorial’ (see Henderson

trans-local actors situated within global production

networks. As shown in Figure 1, when such a com-

plementary effect exists between regions and global

production networks, a coupling process will take

place through which the relational advantages of

regions interact with the strategic needs of actors in

these global production networks. Regional devel-

opment thus depends on such a coupling process

that evolves over time in relation to the rapidly

changing strategic needs of global production

networks and the rather slow transformations in

regional economies of scale and scope. Before we

analyse such a coupling process, it is important to

unpack what we mean by the

strategic needs

et al

. 2002; Dicken

and Malmberg 2001).

Put in these conceptual terms, it becomes clear

that local actors in specific regions (e.g. labour and

the state) and non-local actors in global production

networks (e.g. TNCs and financial capital) are dif-

ferentiated by their degree of

actors in global production networks. We define

strategic needs

territorial embedded-

ness

which, in turn, will have very significant

implications for regional development (see Table I).

This distinction in territorial embeddedness is

important because it shapes how value and power

are distributed in their relational interactions, a

point we develop in the next section (see also

Hudson 2001).

As key local actors in regional development, the

organizational strength and flexibility of labour is

global production networks

as the globally organized

nexus of interconnected functions and operations

by firms and non-firm institutions through which

goods and services are produced and distributed.

Such networks not only integrate firms (and parts

of firms) into structures which blur traditional

organizational boundaries through the develop-

ment of diverse forms of equity and non-equity

472

Neil M Coe et al.

critical to the alignment of the region with the stra-

tegic needs of focal firms in global production net-

works. While labour has been internationalizing

through inter-institutional alliances and interna-

tional organizations (see Table I), the reality

remains that in most cases labour is spatially

entrapped in local labour markets (see Herod 2001;

Peck 1996). To Castree

have strongly embedded local labour markets,

we argue that focal firms in global production

networks can better exploit economies of scale

through technology- or expertise-specific produc-

tion systems (e.g. in biotechnology or cultural

industries). In regions with more flexible labour

markets, economies of scope might be better

achieved through the co-presence of a variety of

different industries that reap the benefits of

‘untraded interdependencies’. The role of state

institutions is important here through their regula-

tion of labour and its organizations. In some

regions, state institutions may work with labour

organizations and labour market intermediaries to

increase the skill levels of labour and the flexibility

of local labour markets (see Benner 2003; Peck

2000; Jones 1999). In other regions, the adversarial

and confrontational relationship between the state

and labour may significantly reduce the region’s

attractiveness to focal firms in global production

networks (see Kelly 2002).

Before we move on to unravel the complexity

behind the strategic considerations of focal firms in

global production networks, it is useful to consider

one significant category of non-local actors that

impact significantly on local and regional develop-

ment: financial capital institutions. While global

production networks may not directly encapsulate

financial capital in their network configuration, it

is useful to distinguish three types of financial

capital in relation to their differential territorial

embeddedness: local venture capital, national bank-

ing institutions and globally decentralized financial

networks (see Table I). From the perspective of

global production networks, venture capital tends

to be highly localized primarily because talents

and expertise are often embodied in people within

a particular region that are known to venture

capitalists through interpersonal networks of rela-

tionships. Venture capital is important to regional

development both in terms of its financing of high

risk ventures that are more likely to be at the cut-

ting edge of technological development and in

terms of its financing of supporting industries that

supply to global production networks. The nature

and organization of local venture capital, however,

is embedded within national banking systems.

In some countries, venture capital is much less

active because of the close relationships between

banks and industries (e.g. Germany and Japan).

Regional developmental trajectories are highly

dependent on the direction and influence of national

, workers face a particu-

lar kind of geographical dilemma because ‘what

might make sense for them at one geographical

scale may have unfortunate consequences at other

scales’ (2004, 119). They thus recognize that

et al.

it’s not just that workers may be tempted to put local

interests first, it’s also that the very

of local

interests varies depending on the specifics of local

industry, local standards of living, local living wages

and so on. (Castree

nature

et al.

2004, 120; original emphasis)

In short, there is a

case that economies of

scale and scope in particular regions can be reaped

more effectively by focal firms in global production

networks through labour’s spatial immobility

and flexibility in skills. The local and the regional

become the most important geographical scales

through which labour interacts with the strategic

needs of key actors in global production networks.

Their interactive effects tend to favour trans-local

actors embedded in these global production

networks because, as pointed out some time ago by

Massey (1984) among others, these global actors

can engage in ‘spatial switching’ much more easily

than workers themselves.

Similarly, the state and its development agencies

are institutions that are strongly embedded locally

in specific regions (see Table I again). This institu-

tional dimension of regional development has been

well theorized in the new regionalism literature

(e.g. MacLeod 2001b). It is sufficient to say that the

increasing devolution of political and economic

authority from the nation state to local and

regional institutions has led not only to the rise of

growth coalitions within specific regions, but also

to a higher degree of uneven regional develop-

ment. The latter phenomenon occurs primarily

because different regions have very different con-

figurations of state institutions that in turn shape

how these regions are articulated into global pro-

duction networks. This situational power and role

of the state (and labour) and its manifestations in

local and regional institutions has very important

implications for understanding the distributional

aspects of regional development. In regions that

prima facie

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