The Competitiveness of Nations in a Global Knowledge-Based Economy

Peter Dicken

Global-Local Tensions: Firms and States in the Global Space-Economy (cont'd)

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Abstract [Web 1]


An Analytical Point of Entry: Production Chains and Relational Networks

Firm-Firm Competition: The Changing World of the Transnational Corporation

State-State Interaction: The Emergence of the “Competition State” [Web 2]

Firm-State Interactions: Dynamic Bargaining Relationships

Conclusion: The Global-Local, Debate Revisited [Web 3]



Conclusion: The Global-Local, Debate Revisited

The thread running throughout this paper has been the fact that, within a


volatile competitive environment, both firms and states as competitive institutions are subject to fundamental global-local tensions.  But precisely what is meant by “global” and “local” is itself problematical and has different meanings for firms and states.  To the firm, the global-local tension is expressed as the question of whether to “globalize” or to “localize” or whether to strive to combine the two in a stance of “global localization.”  In this case, “local” generally means “national”; the issues are those of the autonomy and responsiveness of national components of the international firm.  From the nation-state perspective, the global-local problematic means something rather different.  The pressures toward certain kinds of putative supranational organization at one extreme are counterpoised against a pressure toward greater degrees of local political autonomy at the other.  The current debates within the European Community around the issue of “subsidiarity” are a reflection of this, as are the growing demands of “local states” for greater independence.  But it is the interaction between international firms and nation-states that gives the global-local problematic a particular twist.  To the international firm, the division of the global political map along nation-state boundaries, with the extent of market and factor differentiation this implies, constitutes the major pressure to be sensitive to local differences even while pursuing a global strategy.  To the nation-state, the international firm is one of the major channels through which globalizing forces are directed.

The relationship between TNCs and states (at whatever level) is, self-evidently, a power relationship.  There is little doubt that, in general terms, the relative power of TNCs and states has shifted, but the position is far less straightforward than has often been supposed.  In view of the complexity and degree of contingency of the bargaining process, it is difficult to make broad generalizations about the relative “balance of power” between TNCs and states.  There is no doubt that in some areas, most notably that of financial policy, states have become increasingly less able to determine, with impunity, such things as the external value of their currencies.  The development of a global financial system, facilitated by electronic trading mechanisms, has vastly increased the exposure of state financial policies to external speculative forces (as the experience of the European Monetary System in 1992-93 showed very clearly.  Some very unwise generalizations have been made over the years, however, which have been used to write the premature obituary of the nation-state.  In contrast, Gordon (1988), for example, asserts that “TNCs are neither all-powerful nor fully equipped to shape a new world economy by themselves” (p. 64).  Other radical writers (e.g., Picciotto 1991; Pitelis 1991) adopt a similar position.  Stopford and Strange’s view is that

governments as a group have indeed lost bargaining power to the multinationals.  Intensifying competition among states seems to have been a more important force for weakening their bargaining power than have the changes in global competition among firms.  This is not to deny that governments can maintain considerable power in their dealings with any one foreign firm.  The reasons lie in the competition for world market shares.  It seems to us that the changes in the production structure have altered the relative importance of those factors over which states had most control, as compared with those over which firms had most control … [however] does it follow that firms as a group have increased their bargaining power over the factors of production?  Here, the argument becomes complex, for the power of the individual firm may be regarded as having also fallen as competition has intensified.  New entrants have altered the rules and offer governments new bargaining advantage.  One needs to separate the power to influence general policy, from the power to insist on specific bargains. (Stopford and Strange 1991, 215-16, emphasis added)

It is this issue of the “specific bargain” that is most relevant to the question of what the processes discussed in this paper mean for the “really seriously local,” the local community or region currently being


buffeted by the stormy seas of global economic change.  The problem facing the local community, in the global scheme of things, is that it is relatively powerless except in very specific circumstances (for example, where it possesses a unique or scarce resource that gives it some leverage).  The idea that the transformations that are occurring in the organization of production systems (notably the growth of network organizations and relationships) will automatically lead to a general enhancement of local economic opportunity and well-being is a pipe dream.

The evidence that changes in customer-supplier relations (both inside and outside the firm) will lead to greater local integration is mixed, even within the automobile industry, on which most attention has been focused.  As McGrath and Hoole (1992) show, global sourcing is far from dead.  It is certainly true that customer-supplier relationships do involve a greater emphasis on long-term, closer relationships based upon a high level of mutual trust and that this may be facilitated by geographical proximity.  Firms are, however, increasingly operating an upper tier of preferred suppliers that are closely integrated at all stages of the production process, from design to final production.  For any one firm, such preferred suppliers are relatively few in number and unevenly distributed geographically.  Not every local economy, therefore, can hope to participate in the new integrated networks (Amin 1992; Arnin and Malrnberg 1992; Dicken, Forsgren, and Malmberg, forthcoming; Schoenberger 1991).  As Schoenberger has perceptively argued, only some places will benefit from “localization” processes involving TNCs that arise from new forms of production organization:

First, the most likely scenario is that a smaller number of places will become the hosts to more integrated multinational corporate investments.  For these favored places, the prognosis is relatively good as the high level of integration will yield a more diverse and qualified occupational structure.  Moreover, the stability of the investment, implicating as it does multiple linked firms, is likely to be significantly higher.  Yet, while many local firms will no doubt be drawn into the production complex, it is perhaps less likely that they will become core members of the collaborative partnership, remaining rather in a subordinate position to it.  Secondly, as these investments become more concentrated in particular regions, the excluded regions are likely to become that much more excluded.  Rather than a general embracing of more and more territory into the productive orbit of multinational networks, the degree of geographical differentiation will tend to increase. (Schoenberger 1991, 21-22)

Ultimately, therefore, it may be that, because of the immense asymmetry of power between TNCs and local institutions, there is little that such institutions can do on their own other than to provide an attractive business environment or to attempt to stimulate the kinds of local businesses that might eventually be embedded in a TNC network.  Although much depends on the extent to which a national political system is centralized or decentralized, virtually all effective bargaining power lies not at the local level but at the national level or, in cases like the European Community, at a supranational level.  To that degree, therefore, the prospects of local economies will be influenced as much, if not more, by national policies as by local actions.  Within the global-local nexus, the key interactions, in a power sense, remain at the level of the TNC and the nation-state; in that respect, the “seriously local” is a serious problem whose solution requires a broader policy framework.



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