ADMN Definitions Midterm

Horizontal Foreign Direct Investment

Investment to serve local market or specific commodity markets, invests in the same industry at home and abroad

Avoids trade barriers like tariffs and import restrictions, allows strengthening of their global competitive position and contributes to job creation

Vertical Foreign Direct Investment

Offshoring portions of the production process abroad, investing in different stages of the production process

Allows for cost efficiency and enhancing competitiveness as well as using developing countries for production

Transnational Corporation (TNC’s)

A firm with the power to coordinate and control operations in more than one country

They are the key figures of globalization with trade, investments and technology flows, also the main sources of Foreign Direct Investments

Global Production Networks (GPN)

A global web of activities (R&D, transporting, selling) that connects companies, countries and people globally. 

Has different effects on different actors and places, reflects the balance of power between TNC’s, States, Labour etc

Geographical Clusters

Spatially concentrated groups of interconnected firms, suppliers, related industries in cities or regions (Generalized and Specialized)

Allows rapid exchange of ideas and knowledge through proximity, reduces costs of logistics and coordinating and easy access to inputs

Techno-Economic Paradigm (TEP’s)

A broad wave of technological change that transforms production, business models and society (Industrial Revolution, Digital Age)

Identifies opportunities and challenges as new tech creates winners and losers, companies that align early with a new TEP often become global leaders

Kondratiev Waves (K-Wave)

Big economic waves that are driven by major tech innovations, has phases of prosperity, recession, depression, recovery

The waves explain periods of boom and stagnation in capitalist economies, they’re closely linked to TEPs

Flexible Specialization

Production based on small-batch, customized manufacturing using adaptive/flexible technology 

Allows quick response to changing demand, encourages local development through networks of SMEs (small and medium enterprises)

Vertical Integration

Integration of all production processes from strategy, design to packaging within host company, company controls multiple stages of its production/supply chain

improves coordination between different stages allowing for faster innovation/efficiency and gives firms greater control, efficiency and strategic power across their supply chains

Vertical Modularity

Host firm retains critical functions in-house (strategy, R&D and design) and contracts out the rest

Allows easy relocation/supplier switches to adapt to market changes and leads to cost savings due to the firms focusing on their own specializations

Tacit Knowledge

Personalized knowledge that is impossible to make explicit and communicate through formal means, personal, experience-based and difficult to express

It is the source of Innovation and competitive advantage

Codified Knowledge

Knowledge that can be formally expressed in documents, blueprints and software

Can be shared widely allowing rapid spread of tech and practices, acts as a base for learning/innovation and can be standardized

TNC Internal Structure: Global Organization Model (GO)

Consists of highly centralized decision making and local units that implement/assemble/sell

Has efficiency/control gains but limits flexibility and learning

TNC Internal Structure: Integrated Network Organization Model (INO)

Flexible Coordination, unranked structure w/ decentralized decision making and horizontal collaboration

Maximizes efficiency, flexibility and learning (Especially for Global Production Networks)

Relational External/Production Networks

Flat, non hierarchal, Based on trust and mutual dependencies, tacit knowledge is important

facilitates innovation, knowledge sharing, flexibility and reduces transaction costs (lowers need for renegotiation)

Modular External/Production Networks

Lead firms outsource everything but R&D, lets turnkey suppliers cover marketing

Firms can focus on the things that they are good at and makes it easier to scale production globally while being able to innovate their parts independently

Turnkey Supplier

Firm that provides a complete, ready-to-use product/service, “turn the key” and it’s done

Outsourcing

Subcontracting out parts of production domestically or abroad, sending parts of the process out to other people

Key driver of Global Production Networks, also allows firms to tap into specialized skills and concentrate on their main strengths

Just-in-Case System

Large, infrequent stocks/shipments/suppliers 

Protects against supply chain disruption but it’s more expensive and less flexible

Just-in-Time System

The key to flexible specialization, small but frequent shipments/stocks

Increases risks of supply chain disruption

The State

A geographical space where the population is organized by an authority structure w/ sovereignty over its territory, the legislative/executive branches are responsible for setting rules (legislations/regulations), and managing the economy

They shape business environments by setting the rules, attracts/regulates FDI and connects domestic firms to global value chains

The Nation State

The State plus shared sense of community, purpose and identity among its members

The Market

The workings of the private sector/supply and demand, network of buyers and sellers interacting through prices to allocate resources

Coordinates economic activity by linking producers, suppliers, consumers and investors globally, encourages countries/firms to specialize in areas of comparative advantage contributing to global value chains

The Washington Consensus

A framework set of ten economic policy recommendations that has deviated from Keynesianism and become a model for economic reform. Covers topics on renewing public finance measures and liberalization, privatization and deregulation measures

Focused on Trade Liberalization and Liberalization of FDI’s, aimed to promote economic growth and integrate developing countries into the global market

Keynesianism

The Government should actively manage the economy to stabilize the business cycle

Import Substitution Industrialisation (ISI)

Promoted domestic industrialization by reducing reliance on imported manufactured goods

The failure of ISI was a key trigger for the wave of globalization and economic liberalization in the 80’s-90’s, considered the second wave

Export Oriented Industrialization (EOI)

Development strategy that focuses on producing goods for export rather than for domestic consumption, a contrast to ISI

Connected developing countries into the global economy w/ trade, production and investment. Also became the dominant development strategy recommended by the World Bank and IMF

Technological Sovereignty

The capacity of a state to provide and regulate the technologies it considers critical to its welfare, competitiveness and autonomy. Avoiding dependencies on external suppliers. Having the power to make independent decisions about critical technologies, rather than being dependent on others

Countries seek technological sovereignty because globalization created interdependence and vulnerabilities, may also reshape global flows of tech and data, leading to fragmentation.

Gross Domestic Product (GDP)

How big the economy is, total value of goods and services produced within a country

GDP Cap

Measures how rich/poor people are (GDP ÷ Population)

Free Trade Agreement

Government stays out of trade (no tariffs), introduction of this made value of exports go up

Embedded Autonomy

Describes a type of state capacity combining Autonomy (independent from corruption/capture) and Embeddedness (connected to society and firms), allowing the state to guide industrial policy effectively

Allows for states to compete internationally while strategically steering globalization without simply liberalizing it or closing it off, giving it resilience

Helped S. Korea in the 60’s-80’s to become a major industrial exporter

Foreign Direct Investment (FDI)

Cross-border investment in which an investor from one country establishes a lasting interest and significant control in a business enterprise in another country.

One of the main channels through which capital, technology and business practices flow across in globalization