Commodity chains
Commodity chain refers to the linked set of processes involved in the design, production, distribution, and consumption of goods and services in the world economy. Many commodity chains are, and have long been, geographically extensive, spanning multiple countries and regions of the world. They are also often organizationally complex, involving multiple firms and economic agents connected to one another by a range of contractual and noncontractual relationships, including ownership ties, joint ventures, subcontracting networks, and strategic alliances. Because of the analytical leverage that the commodity chain construct provides for understanding the organization of global industries and the dynamics of the capitalist world economy, it has attracted considerable interestamong social scientists froma range of disciplines. There are several varieties of global chain analysis, but each focuses on the networks linking people, places, and processes to one another across space, and seeks to underscore the importance of these networks as a critical infrastructure of economic globalization.History of the Concept
The term commodity chain, first defined by Terrence Hopkins and Immanuel Wallerstein as a ‘‘network of labor and production processes whose end result is a finished commodity,’’ originates in world-systems theory. Three features characterize the world-systems tradition of commodity chain research. First, the focus is on how the global division and integration of labor into the world economy has evolved over time. Although some scholars argue that globalization is a relatively novel process facilitated by advances in information technology and transportation, historical reconstruction of commodity chains suggests that trade and production networks have been international in scope sincemodern capitalism’s emergence. Second, the commodity chain concept enables analysis of the distribution of wealth and power in the world system by focusing on the differential returns to various actors linked through particular chains. Some links in a chain tend to be located in core (i.e., developed) countries of the world system, and others in the less-developed zones of the semiperiphery and periphery, although the particular geography of any chain changes over time. Third, the spatial and social configurations of chains are linked to cyclical shifts in the world economy. World-systems theorists contend that during phases of economic contraction, chains tend to shrink in size (as production volumes or the numbers of producers decline) and/or scope (with production becoming more geographically concentrated). During such periods, the degree of vertical integration along the chain also increases (i.e., a greater number of links become consolidated into fewer). The reverse is true for expansionary periods.
The first book in this field, Commodity Chains and Global Capitalism, edited by Gary Gereffi and Miguel Korzeniewicz, appeared in 1994. This volume featured papers presented at an annual conference of the Political Economy of the World-System section of the American Sociological Association. Most of the essays,with the exception of those on the shipbuilding and wheat flour commodity chains during the 16th and 17th centuries, focus on contemporary manufacturing industries and, in particular, on trade and production networks linking developing country exporters to world markets.
In retrospect, the 1994 volume can be seen as having inaugurated a distinct approach to chain analysis, the global commodity chain (GCC) framework, which diverges somewhat from the worldsystems research programoncommodity chains.The GCC framework was first developed by sociologist Gereffi, who identified four dimensions with respect to which all commodity chains can be analyzed: (1) an input-output structure, describing the process of transforming raw materials and other inputs into final products; (2) a territoriality, or geographical configuration; (3) a governance structure, referring to the processes by which particular players in the chain exert control over others and appropriate and/or distribute the value that is created along the chain; and (4) institutional context, or the ‘‘rules of the game’’ bearing on the organization and operation of the chain.
Over the course of the 1990s, a substantial empirical literature on commodity chains accumulated, featuring studies of products such as cars, computers, clothing, chocolate, and coffee, among others.By the end of that decade, some scholars were beginning to reappraise the original global commodity chain approach. Specifically, they questioned the very description of these networks as commodity chains, since the term commodity is generally taken to denote either primary products (e.g., agricultural staples) or basic manufactures (e.g., T-shirts as ‘‘commodity’’ garments). Others criticized the insularity of the GCC approach, noting that there was relatively little exchange between researchers working withinGereffi’s paradigm and those who, although similarly interested in the organizational dynamics of theworld economy,were using different concepts to describe interfirm networks in global industries. Some argued that a common terminology would foster dialogue and promote a sense of intellectual community among scholars of international trade and production networks. With the aim of selecting a neutral term that would encompass these various network constructs, global value chain (GVC) was chosen ‘‘because it was perceived as being themost inclusive of the full range of possible chain activities and end products’’ (Gereffi et al. 2001).
Governance of Global Chains
As Gereffi explained in his contribution to Commodity Chains and Global Capitalism, the governance structure of a commodity chain is the set of ‘‘authority and power relationships that determine how financial, material, and human resources are allocated and flow within the chain.’’ Gereffi proceeded to make what has become a seminal distinction in the GCC literature between ‘‘producer-driven commodity chains’’ (PDCCs) in heavy manufacturing or more capitalintensive industries such as motor vehicles, and ‘‘buyer-driven commodity chains’’ (BDCCs) in light manufacturing industries such as footwear and apparel. While producer-driven industries tend to be characterized by hierarchy (i.e., links in the chain are vertically integrated within the ownership structure of a firm or, in the case of international production, foreign direct investment), network (i.e., nonequity) forms of governance are characteristic of buyer-driven chains.
Gereffi’s BDCC construct was a key theoretical innovation because it pointed to the changing role of commercial capital in establishing and managing global production networks. The lead firms of BDCCs, mostly retailers and brand name marketers, are able to exert control over firms involved in their production networks, although they generally have no equity relationship with themanufacturers and/or contractors making goods on their behalf. One of Gereffi’s main interests was to show that even chains with more ‘‘marketlike’’ governance structures require coordination, and that these coordinating tasks are assumed by lead firms that determinemuch of the division of labor along the chain and define the terms on which actors gain access to it. In this sense, the distinction between ‘‘producer-driven commodity chains’’ and BDCCs presented a new twist on the ‘‘markets versus hierarchies’’ formulation elaborated by Oliver Williamson and other contributors to the new institutional economics: lead firms in ‘‘buyer-driven commodity chains’’ are frequently connected to their suppliers by networks that differ from both armslength, one-spot transactions (market) and ownership ties (hierarchy). Nevertheless, these networks are generally characterized by a power structure that gives the ‘‘buyers’’ in these chains leverage over other actors.
Although the analytical utility of these ideal types was confirmed by many studies using the PDCC / BDCC constructs as templates for analyzing various industries, the buyer-driven/producer-driven distinction was also faulted for being too narrow or overly abstract. Some critics suggested that these categories did not adequately capture the range of governance forms observed in actual chains. In his analysis of the electronics industry and the relationships between brand-name computer companies such as Dell and Compaq (so-called original equipment manufacturers, or OEMs) and their major component suppliers,Timothy Sturgeon identified a new governance structure, which he termed the modular network. Although modular value chains appear similar to BDCCs in the sense that OEMs typically have no equity tie to the companies manufacturing their components, Sturgeon argued that interfirmnetworks in the electronics industry are also different from the paradigmatic ‘‘buyer-driven commodity chains’’ characterizing industries such as apparel.
Sturgeon drew on transaction cost economics in elaborating his theory of value chainmodularity.The question underlying transaction cost economics is, why are somany economic activities bundled within the firm instead of transacted on the market? For Williamson, the answer hinged largely on asset specificity; transactions are more likely to be internalized in the firm when they require particular, dedicated investments. This is because such investments foster mutual dependence between the actors in an exchange (for example, between buyer and supplier), which creates conditions for opportunistic behavior on the part of one or both parties to the transaction. Tomitigate this risk, safeguards that are capable of guarding against malfeasance must be built into the exchange, and this process increases the cost of the transaction. One way to deal with this problem is through hierarchy that is, the acquisition and incorporation of asset-specific suppliers into the boundaries of a vertically integrated firm. But Sturgeon argues thatmodular value chains represent a different solution to the problem of transaction costs: in these networks, asset specificity remains relatively low because the codification of knowledge in industry standards allows a highly formalized link at the interfirm nexus betweenOEMs and theirmain suppliers.
Thus characteristics specific to the electronics industry particularly the development of industrywide standards permitting a high degree of codification enable lead firms and highly competent ‘‘turnkey’’ suppliers to exchange rich information (such as detailed product or design specifications) without the kind of intense, face-to-face forms of communication associated with the interfirm networks documented by contributors to the ‘‘new economic sociology’’ literature. Economic sociologists, many influenced by Mark Granovetter’s seminal statement regarding the embeddedness of economic activity in social life (1985), have tended to emphasize the ‘‘relational’’ feature of interfirm networks that is, their particular value orientation as open-ended and trust-based. Sturgeon’s work implicitly contrasts the relational networks described by sociologists such as Granovetter and Uzzi (1977) with the modular networks found in the electronics industry.
Sturgeon’s work on value chain modularity challenged the adequacy of the PDCC/BDCC distinction and underscored the need for a more differentiated understanding of governance structures in global chains. This challenge was taken up by Gereffi, Humphrey, and Sturgeon (2005), who developed a formal theory of global value chain governance that aims to explain and predict the way that exchanges at the interfirm boundary are coordinated. The authors propose a continuum of five governance structures that describe the type of transactional linkage connecting firms in a global value chain. In addition to the poles of market and hierarchy, this continuum contains three distinct types of network linkages: (1) closest to the hierarchy pole is the captive network, which is characterized by a relatively large power differential between the stronger firm(usually the buyer) and the weaker firm (typically the supplier); (2) the relational network, which is in the middle of the continuum and characterized by complex interactions and greatermutual dependence; and (3) the modular network elaborated in Sturgeon’s work on the electronics sector, which is closer to the market pole. Gereffi, Humphrey, and Sturgeon identify three independent variables which, they contend, explain a significant portion of the variation in governance structures across chains: the complexity of transactions, the codifiability of information to be exchanged, and the capabilities of the supply base.
Many global commodity chain and global value chain scholars focus on the governance dimension because they seek to understand how the dynamics of global chains can be leveraged into development outcomes, such as facilitating the shift of firms tomore profitable links in the chain and fostering the creation of skills and competencies that would permit local producers to upgrade to higher-value-added activities within a chain (e.g.,moving fromassembly subcontracting to integrated manufacturing), or to switch to a new value chain (e.g., moving from apparel to electronics). For this reason, research on global chains has been supported by bodies such as the UN Commission for Latin America and the Caribbean as well as the U.S. Agency for International Development. The influence of the GCC and GVC literatures in the contemporary development field reflects an elective affinity between global chain frameworks, which analyze the way in which particular economic actors are inserted into international trade and production networks, and the paradigm of export-oriented development, which similarly focuses on the incorporation of local firms and workers into globalmarkets. Chain-inspired development research also highlights, if not resolves, perennial units of analysis problems in development theory and policy:Towhat extent does increasing the participation of firms in global markets and their competitiveness in particular chains benefit local capital and labor? What is the relationship between firm-level upgrading at the micro level and themoremacrolevel development of the regional or national economy?
Future Research and Complementary Approaches
As analytical frameworks, the GCC and GVC approaches bring to the foreground the organizational dynamics of contemporary capitalism and their implications for local development in today’s global economy. Some critics contend, however, that empirical analysis of commodity chains must pay greater attention to the historical and socioinstitutional specificity of the contexts in which these networks are formed and operate. Although ideal types such as the producer-driven and buyer-driven constructs are useful abstractions, the study of commodity chains in situ reveals significant variation in the way that trade and production are organized across space and time, evenwithin the same industry, thus reflecting the influence of the broader regulatory and political-economic frameworks which shape the linkages that emerge between places and processes in the world economy. The contingent and variable nature of international trade and production networks is underscored by recent contributions to an emerging subfield of historical research on commodity chains,with scholars describing and analyzing the centuries-old connections between geographically distant producers and consumers that world-systems theorists coined the termcommodity chain to describe (Topik, Zephyr, and Marichal 2005).
In addition to the commodity chain concept, several related terms and frameworks have also been developed to analyze the geographical dispersion and organizational fragmentation of production in the global economy. These alternative but potentially complementary frameworks, such as global production networks, systems of provision, and the filie`re approach, draw inspiration from intellectual traditions that differ, to a greater or lesser extent, from those orienting global commodity chain and global value chain analysis. Furthermore, the GCC and GVC approaches are not identical to each other, as the former draws more from world-systems theory, organizational sociology, and the comparative political economy of development, while the latter borrows fromthe fields of institutional economics and industrial organization. Despite the differentmethodological and theoretical emphases of these various approaches, greater dialogue among them may facilitate a richer understanding of how international trade and production networks are organized, as well as their implications for a range of economic and developmental outcomes at the global-local nexus. Similarly, commodity chain analysis might be strengthened by dialoguewith theNewEconomicGeography, since the latter’s emphasis on spatial and institutional specificity could enrich the former’s understanding of the processes by which the organizational dynamics of global industries become manifest in particular locations. See also foreign direct investment (FDI); fragmentation; globalization; New Economic Geography; outsourcing/ offshoring