A global production network connects the firms, workers and places involved in making, moving and using a product.
A transnational corporation, or TNC, coordinates or controls activities in more than one country. It may own overseas operations, contract with independent suppliers, or use both. A global production network, or GPN, includes these relationships and the institutions that support them. Control does not require ownership of every factory.
TNC functions have different roles. Headquarters coordinate strategy and major decisions. Research and development centres design and test products or processes. Branch offices manage activities such as regional administration or sales. Branch plants carry out production. These functions may occupy different places, although some can share a site.
Input sourcing brings together raw materials, components, energy and services from different places. Transformation changes inputs into components and final products, sometimes through several countries. Distribution moves products through logistics and retail networks. Consumption takes place where people or firms use the product.
Material flows and capital flows connect these stages. Investors finance facilities; buyers pay suppliers; wages and taxes are paid where activities occur; and some profits return to owners elsewhere. Payments often move in a different direction from the goods. The final selling price is not the amount retained by each production place.
The network is more than a single straight chain. A lead firm may coordinate several suppliers, factories and markets, while states provide infrastructure and rules and workers provide skills. Different functions choose locations for different reasons: research needs specialised knowledge, production needs appropriate workers and infrastructure, and distribution needs access to markets.
Step by step
Identify the stages
Locate sourcing, transformation, distribution and consumption.
Add the money
Explain investment, supplier payments, wages and profit flows separately from materials.
Explain control
Identify the lead firm and distinguish owned operations from independent suppliers.
Worked example: An original bicycle network
Imagine a firm designs bicycles in A, buys aluminium from B, uses components from C and assembles in D. A logistics company distributes them to shops in E. Customers' payments support several activities, but bargaining power, costs and ownership determine how much income each place retains.
Watch out for this
Every supplier in a TNC's network must be owned by that TNC.
Independent suppliers can follow contracts and specifications set by a lead firm without being its subsidiaries.
Check your understanding
The lead firm contracts an independently owned factory abroad. Which description is accurate?
- All sales revenue must remain in the factory's country.
- The factory lies outside the GPN because ownership differs.
- The factory is part of the GPN, although it is not necessarily a subsidiary.