Chapter 5 continued How and why firms grow Geographic Organization of Corporations Forces of Production & Social Relations Business Cycles and Regional Landscapes The State and Economic Geography

Options in Spatial Organization of Production Systems: Boeing’s 787

Another View of the 787 Production System: Boeing is rethinking parts of it

How and Why Firms Grow Most firms are small, and they stay small Is this due to a lack of funds, as argued by Warf & Stutz? Or is it a reflection of their strategy (or lack of it)? Birch, Ansoff, Chandler

Size Distribution of Business Enterprises, U.S., % of Enterprises account for 62% of Receipts

Examples of Concentration Ratios Share in 1992 of Value Added accounted for by the largest companies, United States.

Examples of Concentration Ratios Share of value of shipments accounted for by the x-largest companies:

Source: Institute of Mergers, Acquisitions and Alliances

The Segmented Economy Dynamics in Firm Populations Averitt’s dual economy model Center firms - large, dominant, complex in organization, powerful resources and influence Peripheral firms - small, simple structures, weak resources, and little influence

David Birch’s Thundercloud Birth Rates: ~ 10-12% of Existing Population Death Rate: ~ 8-10% of Opening Stock of Businesses Size Big Small Most Firms stay small forever A few grow huge Most fall back after a short period A small cohort become global corporations Many voluntary startups and cessation's each year

A Model of the Segmented Economy by Taylor and Thrift BUSINESS ORGANIZATIONS Smaller Firms Large Firms Leaders Intermediates Laggards Craftsman Satisfied Satellites Subcontractors Franchises Loyal Opposition MultidivisonalGlobal Supports Laggards Intermediates Leaders Lindahl & Beyers test in the producer services

Beyers & Lindahl Test of Segmented Industry In Producer Services Leaders Intermediates Laggards Declining Strugglers High Fliers Still Growing, Exporters Still Growing, Local Right Industry Satellites & Spin-Offs Field Offices Stabilizing Craftsman Proprietor Satisfied Small Business Steady Cruisers

U.S. Establishment Dynamics (% Change) Source: U.S. Bureau of the Census Business Dynamics Statistics

U.S. Employment Change Source: U.S. Census Bureau Business Dynamics Statistics

U.S. Industry Establishment Birth and Death Rates 2005 Source: U.S. Census Bureau Business Dynamics Statistics

U.S Establishments with Employment Expansions, Contractions, or No Change in Employment Employment Expansion Mean 29.2% Employment Contraction Mean 26.7% No Change in Employment 44.1%

2005 Jobs Births, Deaths, Expansions and Contractions

Strategic Directions: Ansoff’s Model Product Present New Market New Present Market Penetration Product Development Market development Diversification New products Related Technology Unrelated Technology Related diversification Vertical integration (backward/forward) Horizontal integration Conglomerate diversification Unrelated diversification Market New Same In-house

Strategic Directions: Ansoff’s Model Product Present New Market New Present Market Penetration Product Development Market development Diversification New products Related Technology Unrelated Technology Related diversification Vertical integration (backward/forward) Horizontal integration Conglomerate diversification Unrelated diversification Market New Same In-house Jason’s Granite Company Starbucks New car models; fashion clothes Microsoft Comcast – cable Microsoft: games, Search engines Google – Buying up similar applications Airline online travel systems Grocers adding deli’s, home delivery Alcoa moving into real-estate

Diversification Strategies Options are manifold Any cells here are possible

Ansoff’s Box Present New Product/service technologies Present New Market type New Present Market geography A B C 9 Strategies beyond A, B, and C A - no change B - all change C - only geog. changes

Evidence of Performance: Ansoff’s Box & Producer Services Source: Beyers & Lindahl, E&P 1996 A B C NO 13

Strategy & Structure: “structure follows strategy” - Chandler’s model Stage in development Relationship between units Organizational structure Level I: top management, strategic decisions Level II: control and coordination of level III: administrative decisions Level III: management of day-to-day operations Levels of control Flows Information Materials or products Information - materials or products Decisions and instructions Stage I Single product Single function Single plant organization Single-owner administration No clear functional differentiation of strategic, administrative, and operating decisions

Strategy & Structure: “structure follows strategy” - Chandler’s model Stage in development Relationship between units Organizational structure Level I: top management, strategic decisions Level II: control and coordination of level III: administrative decisions Level III: management of day-to-day operations Levels of control Flows Information Materials or products Information - materials or products Decisions and instructions Stage II Single product Multifunction Multi plant organization Functional structure Headquarters Production Marketing Purchasing

Strategy & Structure: “structure follows strategy” - Chandler’s model Stage in development Relationship between units Organizational structure Level I: top management, strategic decisions Level II: control and coordination of level III: administrative decisions Level III: management of day-to-day operations Levels of control Flows Information Materials or products Information - materials or products Decisions and instructions Stage III Multi product Multifunction Multi plant organization Multidivisional structure Headquarters Corporate control functions Product A Product B Product C Production Production Production Marketing Marketing Marketing

Implementing Strategies Strategies Market penetration Market development Product development Diversification Methods of Implementation InternalExternal Merger and acquisition Collaboration with other firms

Internal Interdependence Corporate headquarters Operating units Product-market environment O O O    Pooled interdependence (a conglomerate) O O O     Sequential interdependence (a vertically integrated enterprise) O O  Reciprocal interdependence (a large single- product enterprise) ?Weyerhauser? ?Boeing? ?Paul Allen?

Geography of the (Large) Business Organization Top level decisions and control Day-to-day administration Basic work processes Craft-based textile and apparel networks ?Boeing production facilities - production lines? ?

Organizational Structures

The Corporate Control Structure is Now Global for the Largest Corporations Number of Headquarters and First-Level Subsidiaries of the World’s Largest 100 Corporations Source: Fortune (1996); Directory of Corporate Affiliations (1997)

Economic Geography and Social Relations Uncritical acceptance of elements of capitalist economic system - ownership, profit max, labor market, utility max by consumers, etc. Options? Evolution over time Relations of Production (economic power, class) Forces of Production (physical means, labor power) MODE OF PRODUCTION Capitalist Mode: 1. Capitalists own forces of production 2. Life is configured around goods production and exchange 3. Object of production is accumulation of surplus value by capitalists Alternative modes?

Competition and Survival In Space Reconfiguration of production systems to expand profit Often leads to geographic shifts in capacity – what Doreen Massey calls “The spatial division of labor” Some regions become economically stranded Other regions “prosper” - ? In some cases a “race to the bottom”?

The product life cycle model

Kondratiev Longwaves

The State and Economic Geography Markets do not provide all output in capitalist economies State intervention in cases of market failure Fiscal and monetary policy Spatial consequences of public sector activity - investment, land, employment, regulation, …..