Monday, June 11, 2007

Global Commodity Chains

Global Commodity Chains

This reading is from the introduction to Commodity Chain and Global Capitalism, by Gary Gereffi, Miguel Korzeniewicz, and Roberto P. Korzeniewicz. The purpose of the introduction is to provide some basic concepts regarding global commodity chains (GCCs), and to orient the reader to the scope of the text’s treatment of them.

The chapter begins by introducing the socio-economic context of today’s globalized economy. The dispersion of production and distribution of goods and services in this context has resulted in a relatively new form of capitalism in which production and consumption occur across national boundaries, within complex networks of entities. This emerging form of capitalism calls into question the applicability of concepts such as national development and industrialization. For this reason, the authors focus is on the GCC approach, as it is “sensitive to historical change in order to evaluate and distinguish cyclical patterns from new trends,” and it captures “both the spatial features of these transformations across the world-economy, and the relationships that link these processes together.” They apply the GCC analysis within the construction of core and peripheral “nodes.”

What is a global commodity chain? In its most basic definition, a GCC is a network, or rather a complex of networks, of processes that result in a finished product or commodity. These networks link labor, production, households, states, and enterprises to one another within the global economy. They are “situationally specific, socially constructed, and locally integrated, underscoring the social embeddedness of economic organization.”

GCCs can be represented by nodes that represent different processes in the production of a commodity. Each node represents the acquisition or organization of inputs, labor power used in the process, transportation, distribution, and consumption. The interaction of the nodes is socially shaped.

“The GCCs approach promotes a nuanced analysis of world-economic spatial inequalities in terms of differential access to markets and resources.” Because it is “network-centered,” and uses an “historical approach,” it is better able to analyze patterns and changes in the current world economic context than previous methods.

One main emphasis of the text is the treatment of how competition and innovation work as forces in shaping the organization of GCCs, as well as in the distribution of wealth among nodes. The fundamental premise is that competition is lower in core nodes, while innovation is higher. This shifts the pressures of competition toward the periphery, while concentrating profit-producing advances in the core.

To illustrate how competition and innovation have historically shaped GCCs, the text looks at shipbuilding during the period following the oceanic revolution, and how competitive pressures caused the constant peripheralization of some production process (due to lower cost in the periphery), creating the necessity of generating innovations in the core to maintain a competitive edge.

The text also provides a non-manufacturing example of how GCC processes function by examining the wheat commodity chain, and how those processes have varying effects in core and periphery nodes on elements such as marketing, consumption, and distribution. For example, marketing as a distinct activity emerged only in the core, because in the periphery merchants and landlords tended to be the same person. Another example showed how consumption differed across core and peripheral nodes, as wheat bread was only consumed by the wealthy in the core, and by the “highest magnates” in the periphery, while rye bread was consumed by the poor in the core, and almost everyone in the periphery. These examples show the importance of competition and innovation in understanding the organization and transformation of GCCs, and it brings a new focus to world-systems theory.

In analyzing the new division of labor in the world-systems theory, the authors examine competition as a geographically embedded phenomenon in GCCs. As opposed to previous models, in which stable products and markets allowed international production to be facilitated (more time allowed for greater spatial distribution), current emphasis on batch production and shorter cycles reduces the spatial flexibility of GCCs. To illustrate this point, the authors point out that during periods of economic expansion, there are “incentives to lower transaction costs (and hence lead to growing vertical integration),” while periods of economic contraction “provide incentives to reduce labor costs (leading to declining vertical integration and an increase of subcontracting).” The authors assume that “current transformations in the world-economy . . . are rooted in these historical cycles.” These patterns suggest a variation of organizational strategies across GCCs and within nodes, as exemplified by the shipbuilding and garment industry models. Because of this heterogeneity, patterns of organization and competition are examined in the text within GCCs.

This section looks at how competitiveness is a function of organizational strategies of firms and states. It considers two main factors to explain geographical location and organization of GCCs: low-wage labor and organizational flexibility. However, the authors point out that these two are not sufficient to account for the dynamic trends in international competitiveness: other “higher-order” factors include “proprietary technology, product differentiation, brand reputation, customer relationships, and constant industrial upgrading.”

The rest of the section tells us more about how to define GCCs, and the methodology within which they can be used to test hypotheses. For example, Gereffi tells us that commodity chains have three main dimensions: in input-output structure, a territoriality, and a governance structure. Whereas once the governance structure was internal to vertically integrated enterprises, it is now externalized as the task of a network of independent firms. These structures can be further classified as producer-driven or buyer driven. Other attributes of GCCs are described as length, depth, and density. At the end of the section some examples of how to construct hypotheses and gather data are provided, as well as direction to further information on methodological guidelines.

This section describes how the “analysis of GCCs provides a bridge between the macro-historical concerns that have usually characterized the world-systems literature, and the micro-organizational and state-centered issues that have stimulated recent studies in international political economy.” By looking at the micro dimensions of GCCs, it is possible to examine the role of factors like ethnicity, family, and other social resources in shaping the structure of commodity chains.

Of special emphasis is the role of the state in shaping the organizational structures within commodity chains. China’s state policies are given as an example of the relation of the state to the formation of commodity chain networks between Taiwan, Hong Kong, and China. Another example of how the state’s role effects GCCs is the production and distribution of crack cocaine. Despite it being an officially unregulated industry, government policies are fundamental in the formation and processes in the cocaine network system.

This section begins by further defining Gereffi’s buyer and producer-driven networks, and describing how systemic and subsystemic niches function in each. In producer-driven chains, systemic niches are “closely integrated with established markets and are characterized by high capital investments.” After initial periods of strong competition, they tend to be followed by limited competitive challenges. The technological and marketing paradigms generated by these systemic niches determine the more flexible subsystemic niches. Buyer-driven chains, on the other hand, are basically subsystemic, and lack the qualitative or technological shifts of the type that prevail in the systemic niches in producer-driven chains.

The section goes on to describe the role of services in GCCs, and how they function to link the nodes of GCCs together. They are said to “integrate and coordinate the atomized and globalized production processes.” In addition to shaping what is produced, how it is produced, spatial coordination, other facilitating activities, and the distribution of commodities, services also control the organization of information, the rate of increase of which helps to determine the production of wealth within a GCC.

The GCC approach identifies the recent transformations in the organization of production and consumption as “an outcome of the complex and diverse strategic choices pursued by households, states, and enterprises.” For example, Latin American farmers choice to pursue cocoa cultivation as a response to falling commodity prices, or the choice of the urban poor in the U.S. to sell drugs in response to low-paid jobs. Another way that the GCC approach is used in the text is in analyzing the recent trends in agriculture towards flexible production. Finally, the importance of consumption patterns in understanding the dynamics of commodity chains is introduced with an example of Nike and its success in extending effect control over the distribution, marketing, and advertising nodes of its commodity chain, as well as how an increase in health and fitness awareness in North America has affected the commodity chain of Chilean fruit. The emphasis is on the changing culture of the core, and the affect of that change on core consumption.

The last part of the section discusses households, and how that category is not sufficiently examined in the text.

The reading stresses the insufficiency of conventional approaches to the study of development, especially those of industrialization and national development. These two assume positive linkage between industrialization and development, and they share a focus on nation-states as being the locus of capital accumulation, industrial growth, and state policies fostering integrated national development. The authors find these assumptions debatable, preferring the GCC approach as its focus is on the “creation and distribution of global wealth as embodied in a multidimensional, multistage sequence of activities, rather than as an outcome of industrialization alone.”


1. It is clear that the GCC approach is based in world-system theory. The authors of the text contend that this approach serves to highlight the flaws in more conventional social theories. In light of this, does the GCC approach render the other theoretical approaches we have examined (liberal, conservative, radical) obsolete, or can those approaches be integrated into GCC?

2. How does the GCC approach fit into or work to describe the specific issues in the economic development of Taiwan? Are there examples we can take from the Taiwan experience and place them in a GCC explanation?

3. From the text of this reading, the GCC approach seems to encompass all possible explanations of development theory. What are some, if any, of the criticisms of this approach?

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