Download Tertiary Activity - Introduction to Sociology and World Economic

Dynamic Patterns
of the
Space Economy
Key Words
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agriculture
boserup thesis
collective farm
commercial economy
economic geography
extensive commercial
agriculture
extensive subsistence
agriculture
extractive industry
gathering industries
Green Revolution
intensive commercial
agriculture
• intensive
subsistence
agriculture
• maximum
sustainable yield
• natural resource
• nomadic herding
• nonrenewable
resource
• planned economy
• plantation
• primary activity
• quaternary activity
• quinary activity
• renewable resource
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secondary activity
shifting cultivation
State farm
subsistence
economy
technology
tertiary activity
tragedy of the
commons
truck farm
usable reserves
von Thunen rings
Economic Geography
The branch of systematic
geography concerned with how
people support themselves, with
the spatial patterns of production,
distribution, and consumption of
goods and services, and with the
areal variation of economic
activities over the surface of the
earth.
Economic Geography
A study of:
• How people earn their living,
• How livelihood systems vary by area, and
• How economic activities are spatially interrelated and
linked.
• It applies geography’s general concern with the study of
spatial variation to the special circumstances of the
production, exchange, and consumption of goods and
services.
Classification of Economic activity and
economies
• The complex environmental and cultural realities
controlling the economic activities of humans.
• Many production patterns are rooted in the spatially
variable circumstances of the physical environment.
• Unequal distribution of useful mineral deposits gives
some regions and countries economic prospects and
employment opportunities.
Classification of Economic activity and
economies (cont.)
• Technological development will affect its recognition of
resources or ability to exploit them.
• Political decisions may encourage or discourage
economic activity– through subsidies, protective tariffs,
or production restrictions.
• Production is controlled by economic factors of demand,
whether that demand is expressed through a free market
mechanism, government instruction, or the consumption
requirements.
Technology
The integrated system
of knowledge, skills,
tools, and methods
developed within or
used by a culture to
successfully carry out
purposeful and
productive tasks.
Categories of Activity
The main sectors of the economy do not stand alone.
They are connected and intergrated by transportation and
communication services and facilities not assigned to
any single sector but not common to all
Primary Activity
• Those parts of the economy involved in making
natural resources available for use or further
processing.
• They are mining, agriculture, forestry, fishing and
hunting, and grazing…
Primary Activity
Secondary Activity
• Economy involved in the processing of raw materials and
altering or combining materials to enhance utilities and
value.
They are:
• handicraft production,
• Woodenware,
• Copper smelting…
• Textile and chemical industries,
• Manufacturing and processing industries
• Construction industry, and
• power production…
Tertiary Activity
• This part fulfill the exchange function, provide market
availability of commodities, and bring together
consumers and providers of services.
• It includes wholesale, and retail trade, associated
transportation and governmental services, and
personal and professional services of all kinds.
Quaternary Activity
• The part of the economy concerned with research,
with the gathering and dissemination of information,
and with administration.
• It includes administration of the other economic
activity levels, often considered only as a
specialized subdivision of tertiary activities.
• They are ‘white collar’ professionals working in
education, government, management, information
processing, and research.
Quinary Activity
• A sometimes separately recognized subsection of
tertiary activity management functions involving
highest-level decision making in all types of large
organization.
• Also the most advanced form of the quaternary subsector.
Types of Economic Systems
• Subsistence economy
• Commercial economy
• Planned economy
Figure 8.4: Patterns of access and isolation.
Accessibility is a key measure of economic development and of
the degree to which a world region can participate in
interconnected market activities. Isolated areas of countries with
advanced economies suffer a price disadvantage because of high
transportation costs. Lack of accessibility in subsistence
economic areas shows their mordernization and hinders their
participation in the world market.
Subsistence Economy
• An economic system of
relatively simple
technology in which
people produce most or
all of the goods to satisfy
their own and their
family’s needs;
• Little or no exchange
occurs outside of the
immediate or extended
family.
Commercial Economy
• A system of production of goods
and services for exchange in
comparative markets where price
and availability are determined by
supply and demand forces
• In which, supply and demand
determine price and quantity, and
market competition is the primary
force shaping production
decisions and distributions.
Planned Economy
• A system of production of
goods and services usually
consumed or distributed by a
governmental agency, in
quantities, at prices, and in
locations determined by a
governmental program.
• Were rigidly programmed by
central planning department
without benefit of the cost or
demand information a free
market economy regularly
supplies.
Global shift: reshaping the global
economic map in the 21st century
The significance of the TNC
• That is seen to pose the major threat to
the autonomy of nation – state
• There has not only been a massive growth
of foreign direct investment (FDI), but also
the sources and destinations of that
investment have become increasingly
diverse
• A transnational corporation is a firm that
has the power to coordinate and control
operations in more than one country, even
if it does not own them.
• Its ability to coordinate and control
various processes and transactions
within production networks, both within
and between different countries
• Its is potential ability to take advantage
of geographical differences in the
distribution of factors of production
• Its is potential geographical flexibility –
an ability to switch and to re-switch its
resources and operations between
locations on an international, or even a
global, scale.
The chapter is organized into three parts:
1. We outline some of the broad theoretical
explanations of why firms should attempt
to transnationalize their activities beyond
exporting their products foreign market.
2. We address the question of how firms
transnationalize their activities in an
organizational sense
3. We confront the commonly held view that
TNCs are becoming “placeless”
Why (not) transnationalize?
Some general explanations
• Expressed in the simplest terms, profit (P)
is the difference between the revenue (R)
which s firm receives from selling its
products and the cost (C) of producing and
distributing the firm’s goods and services:
P = R - C.
A macro-level approach:
internationalization of the circuits of capital
• “the money at the end of the process is
greater than that at the beginning and the
value of the commodity produced if greater
than the value of the commodities used as
inputs”.
A macro-level approach:
internationalization of the circuits of capital
Three circuits of the capital has become
progressively internationalized:
• The circuit of commodity capital was the first of the
three circuits to become internationalized, in the form of
world trade.
• The circuit of money capital was the second to become
internationalized, in the form of the flow of portfolio
investment capital into overseas ventures.
• The circuit of productive capital was the most recent to
become internationalized, in the form of the massive
growth of transnational corporations and of international
production.
• A dynamic capitalist market system
• Individual agents
Micro-level approach: the search for an
integrative framework
• Stephen Hymer: the undisputed pioneer
- Give such domestic-firm advantage, a foreign firmspecific asset that would offset the advantage held
by domestic firms.
- Such assets are primarily those of firm size and
economies of scale, market power and marketing
skills, technological expertise, or access to cheaper
sources of finance. On these bases, then, a foreign
firm would be able to out-compete domestic firms in
their own home territory.
Micro-level approach: the search for an
integrative framework
• Raymond Vernon and the product life cycle
- The high average-income level and high labor costs
tended to encourage the development of new products
that catered to high-income consumers and were laborsaving (both consumer and producer goods).
- US firms would eventually set up production facilities in
the overseas market either because they saw an
opportunity to reduce production and distribution costs
or because of a threat to their market position.
- Even within strongly innovative TNCs, the initial source
of the innovation and of its production may be from any
point in the firm’s global network.
Micro-level approach: the search for an
integrative framework
• John Dunning’s “eclectic paradigm
- A firm must possess certain ownership-specific
advantages not possessed by completing firms of
other nationalities.
- Such advantages must be most suitably exploited by
the firm itself rather than by selling or leasing them to
other firms. In other words, the firm will internalize the
use of its ownership-specific advantage.
- There must be location-specific factors that make it
more profitable for the firm to exploit its assets in
foreign, rather than in domestic, locations.
John Dunning’s “eclectic paradigm
• Ownership-specific advantage are assets internal to a
firm
- relate to size and market power.
- A better credit
- Technology
• Markets are imperfect:
- Vertical integration.
- To ensure a satisfactory return on such investment, and to
protect against predators, firms have a strong incentive to
retain the technology for use within their own
organizational boundaries. Rather than sell or lease the
technology to another firm abroad the firm sets up its own
production facilities and exploits its technological
advantage directly.
John Dunning’s “eclectic paradigm
• Location – specific factors
-
Markets
Resources
Production cost
Political condition (including degrees of
political risk)
- Cultural/ linguistic affinities
TNC development as a sequential process
Figure. A sequential model of TNC development
Serve domestic market only
Export to overseas
market(s) through
independent channels
License foreign
manufacturer to produce
for overseas market(s)
Establish sale outlet
in overseas market(s)
a) By acquiring local firm b) by setting up new facility
Establish production facility overseas
a) By acquiring local firm b) by setting up new facility
Types of transnational production
• Market-oriented production
- The largest geographical markets in terms of incomes,
although not in terms of population, are obviously the
US and Western Europe. Such variations in per capita
GNP provide a crude indication of how the level of
demand will vary from place across the world.
- In the economist’s terminology, different products
have different income elasticities of demand. We
would expect populations in countries with low income
levels to spend a larger proportion of their income on
primary products (basic necessities) and, conversely,
countries with high income levels to spend a higher
proportion of their income on ‘higher-order’
manufactured good and services.
Types of transnational production
• Asset-oriented production
- Firms in the natural resource industries must, of
necessity, locate at the sources of supply.
- The relative importance of the various production
factors tends to vary according to the stage in the
product’s life cycle and, especially, with the maturity
of the technology.
- Geographical variations in labor knowledge and skill.
- Geographical variations in wage costs.
- Labor is strongly place-bound, although the strength
of the tie varies a great deal between different types
of labor. On average, male workers are more mobile
professional white-collar workers are more mobile
than blue-collar workers.
A diversity of organizational architectures: how
transnational operations are coordinated
• Coping with complexity: a diversity of
organizational structures
• Headquarter – subsidiary relationships
• Strategic tensions: global integration –
local responsiveness
The myth of the “placeless” TNC
 Before national identity, before local
affiliation… before any of this comes the
commitment to a single, unified mission
… Country of origin does not matter.
Location of headquarters does not matter.
The products for which you are
responsible and the company you serve
become denationalized.
 “placeless” and “boundary-less”
 In which nation or nations is the bulk of the
corporation’s assets and people located?
 By whom are the local subsidiaries owned
and controlled, and in which nation is the
parent company owned and controlled?
 What is the nationality of the senior
positions at the parent company, and what
is the nationality of the most important
decision – markers at the subsidiaries in
host nations?
 What is the legal nationality of the parent
company?
 To whom would the group as a whole turn
for diplomatic protection and political
support in case of need?
 Which is the nation where the tax
authorities can, if they choose to do so, tax
the group on its worldwide earnings rather
than merely its local earnings?
• The geographical embeddedness of
transnational corporations
• A comparison between US, German and
Japanese companies
• East Asian business organizations
- The Japanese keiretsu
- A comparison of Korean and Taiwanese
business groups
- The Overseas Chinese family business
network
• Continuity and change?
The Overseas Chinese family business
network
• Control of the firm must be retained in the longterm interest of family prosperity.
• Family assets must be protected by hedging of
risks.
• Key decision-making should be confined to an
inner circle.
• Dependence on outsiders (‘non-belongers’) for
key resources must be limited.
• Inter-firm transactions should be based on
“networks of interpersonal obligation.
Personalizing trust-bonds substitutes for a
system of legal contracts so normal in Western
contexts”.