Globalization of Major Manufacturing Sectors Textiles & Garments: classic case of labor- cost deviation Figure 7.8 Steel – Movement to rapidly industrializing countries (Figure 7.10) Automobiles (Figure 7.13, 7.14) Electronics (Figure 7.16, 7.17) S-Curves – Figure 7.15 – the concept is drawn from the industrial design literature – File on line is from MIT Opencourseware site –

Changing Geography of U.S. Manufacturing

% Change Manufacturing Employment U.S. Total -3%

Date of Maximum Employment in Manufacturing

Urban-Rural Manufacturing Trend

International Movement of U.S. Manufacturing Rise of F.D.I. Shifting locations of F.D.I. – Canada & Latin America –1950’s Western Europe –1960’s onward – a global reach Cumulative employment abroad of 500 largest U.S. corporations equaled domestic employment Most investment in advanced economies

Global Employment of U.S. MNC’s China?

Key Trends for U.S. Manufacturers Large overseas markets pull U.S. manufacturers into them The growth of nontariff barriers are forcing localization of production abroad Regional trading blocs push investment strategies and pull firms into these organizations to get benefits Shifting exchange rates are pushing firms to be flexible as to where they have capacity New manufacturing methods are reshaping the distribution of manufacturing capacity Large factories in low-skill labor regions are not sustainable

The Rise of Flexible Production Systems The historic development of manufacturing moving from fragmented small-scale facilities to vertically integrated corporations – The Fordist Paradigm The contemporary development of other paradigms – just-in-time; total-quality- control; flexible manufacturing systems – Fig Consequences of these new developments on plant size and labor force skills

From Fordist to Flexible Production

The End of Fordism? The Flexibility Debate Are we not only entering a new long-wave, where IT is the driving force, but also a new long-wave in which the basic structure of productive relations is in massive shift? The Fordist paradigm - implicit in the oligoplistic model - but also linked to consumption and the regulation of society/consumption Limits to the flexibility argument – can all industry move in this direction? NO!

A new regime of accumulation? (1) The emergence of clusters of small firms, including co-ops (2) Flexibility related to new machines (3) Labor’s new position - functional flexibility (multiskilling) - numeric flexibility - financial flexibility - more part-time, flex time, telecommuting (4) Changes in market place conditions - mass markets break down - rise of niche (craft) markets

Emergence of Flexible Specialization Fragmentation of the Fordist firm - vertical disintegration (shedding non-central functions; outsourcing) and Market fragmentation (niche) Adoption of new technologies, especially those dependent upon computers and telecommunications (CAD/CAM/FMS) Labor force adjustments – functional flexibility (multiskilling) – numeric flexibility (adjusting quantities by task) – financial flexibility (wage rate adjustment) – more part time, short-term, temporary work

Flexible specialization & new industrial spaces Piore & Sabel - The Second Industrial Divide - craft-based districts in Italy, Germany, Denmark Clusters of high tech industry - Silicon Valley; Route 128; Austin Wooden boats in Pt. Townsend WA; Log homes in Bitterroot Valley MT The movie industry  Debates over aspects of the flexibility thesis

Flexible Specialization and Regional Industrial Agglomerations: The Case of the U.S. Motion Picture Industry by Michael Storper & Susan Christopherson Historically, an oligopoly of – theaters – studio production facilities – actors/production specialists – spatially clustered in Southern California Vertical disintegration: 1950’s ’s, with consequences in the 1980’s

Productions by Organization Type Number of productions per year

The Proliferation of Establishments

Establishments in the Entertainment Industry data from U.S. County Business Patterns; in the 1987 revision of the SIC code motion pictures was combined into a single industry

The Decreasing Size Per Establishment Combined Motion Pictures and TV

California’s domination of the industry - measured by jobs

Structural Trends – Motion Pictures & Television Retention of core activities: TV & Major films & channels of distribution Forced divestiture of theater chains Development of generic specialists subcontracting with specific producers for a given film & narrow scope; linked to major studios; many part-time workers; “project orientation,” FLEXIBILITY Product diversification: TV, Video, Film Establishments clustered in California, while filming locations have dispersed

The Post-Fordist System is also more efficient Role of IT within and between firms; logistics revolution

Business Process Reengineering Division of labor rationalized Employees are empowered to a greater degree Tasks are harmonized in other than a linear sequence Processed batches have multiple versions, allowing scale economies simultaneous with custom producton Work is undertaken where it makes most sense geographically (recall the 787 production system) Internal structures are simplified / more coordinated and more decentralized

Downsizing as a consequence The growing angst over outsourcing The debate over its magnitude The debate over what to do for workers impacted The debate over public policy towards it The expectation that IT will fuel dramatic restructuring, accompanied by logistical sophistication: Friedman’s “flatteners”

Friedman’s Ten Flatteners: Outsourcing Offshoring Open- Sourcing Insourcing Supply Chaining In-forming (search engines) The Internet Fall of the Berlin Wall Netscape’s Public Offering Work Flow Software The Steroids (Digital, Mobile, Personal and Virtual) He argues together they have allowed unparalleled collaboration

The “New Economy” Rising productivity compared to recent years The growing importance of IT producing industries The growing productivity in IT using industries Finally, investment in IT appears to be having an economy-wide impact

Labor Productivity and IT Intensity Source: Digital Economy 2003 Error in Legend! All Less IT Intensive GDP/FTE Growth

A Common Outcome of this Turbulence: The Product Life Cycle Sales Volume Initial Growth Maturity Decline Obsolescence development

Examples of the Product Life Cycle Fashion clothes Automobiles Generations of Boeing airplanes …….but not all products follow this trajectory: Levi 501 shrink-to-fit jeans “Coke” & name brands that play off product stability: Tiffany; L.L Bean; Campbell’s Soup

Spatial Reorganization within Large Business Organizations Dynamism in firm activities: their size, number, function, and geographic configuration Inherent flexibility of multiplant firms - either in- situ change or locational shift IN SITU CHANGE LOCATIONAL SHIFTS Relocation of entire plant and equipment Expansion of existing capital stock Replacement of existing capital stock Reduction of existing capital stock - partial divestiture Investment at new location(s) opening of branch plant(s) Acquisition of plant(s) owned by another firm Divestment of existing plant(s) closure or disposal

Healey’s adjustment framework Product A Product B Product C Operating Plant O Plant Shut Down + Transfer of Production Specialization Partial concentration at an existing site Complete concentration at a new site Mixed Initial Conditions

Evolution of Global Corporations  Headquarters Production plant o Sales subsidiary + Licensing arrangement  Acquisition Exports Stage I Stage II Stage III    o   

Evolution of Global Corporations  Headquarters Production plant o Sales subsidiary + Licensing arrangement  Acquisition Exports        o  Stage V Stage IV

Summary Global concentrations of manufacturing, but they are not static Capital moves from place to place in the search for profit Multinational corporations and processes of FDI have reshaped the geography of manufacturing Today Schumpeter’s process of “creative destruction” is fueled by IT, logistics, and the rise of new production regimes built around more flexible manufacturing systems