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...cally integrated or incoherently diversified (Prahalad and Hamel 1990). These issues, while often discussed at the local or national level, or in the context of "a dense network of social relations" (=-=Granovetter 1985-=-: 507), can equally be applied to the structuring of global-scale production and distribution. The recent work of geographers such as Hughes (2000), Henderson et al. (2002) and Dicken et al. (2001) ha...

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...on the complementary competencies of other firms and focus more intensively on their own areas of competence will perform better than firms that are vertically integrated or incoherently diversified (=-=Prahalad and Hamel 1990-=-). These issues, while often discussed at the local or national level, or in the context of "a dense network of social relations" (Granovetter 1985: 507), can equally be applied to the structuring of ...

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...lained by transaction costs economics in terms of the complexity of inter-firm relationships and the extent to which they involve investments specific to a particular transaction — asset specificity (=-=Williamson 1975-=-). Arm’s-length market relations work well for standard products because they are easily described and valued. Coordination problems are reduced not only because their ease of description makes contra...

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...erived from empirical observation. They are: 5 This work drew on the analysis of Palpacuer's (2000) arguments about core and complementary competences in value chains. 6 Work on the apparel industry (=-=Gereffi 1999-=-) and on commodity exports from Africa (Gibbon 2001) also showed a variety of contracting arrangements. 7 An indication of the range of studies is provided by the collection edited by Gereffi and Kapl...

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...sm through the effects of repeat transactions, reputation, and social norms that are embedded in particular geographic locations or social groups. Network theorists (e.g., Thorelli 1986; Powell 1990; =-=Jarillo 1988-=-; Lorenz 1988) argue that trust, reputation, and mutual dependence dampen opportunistic behavior, and in so doing they make possible more complex inter-firm divisions of labor and interdependence than...

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...e design rules, which permit some components and sub-systems to be disaggregated and recombined into a large number of product variations (see Baldwin and Clark 2000; Schilling and Steensma 2001; and =-=Ulrich 1995-=-). 7which suppliers have the necessary capabilities to meet the buyers' requirements. Each governance type provides a different trade-off between the benefits and risks of outsourcing. As shown in th...

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...ethnic ties, and the like. It can also be handled through mechanisms that impose costs on the party that breaks a contract, as discussed in Williamson's analysis of credible commitments and hostages (=-=Williamson, 1983-=-). The exchange of complex tacit information is most often accomplished by frequent face-to-face interaction and governed by high levels of explicit coordination, which makes the costs of switching to...

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...Scott 1988; Storper and Walker 1989). This work has usefully stressed the spatial embeddedness of tacit knowledge and the importance of tight interdependencies between geographically clustered firms (=-=Storper 1995-=-; Maskell and Malmberg 1999). We acknowledge these points, and have argued elsewhere that such agglomerations are the places where the most relational portions of global value chains might be found (S...

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...orper and Walker 1989). This work has usefully stressed the spatial embeddedness of tacit knowledge and the importance of tight interdependencies between geographically clustered firms (Storper 1995; =-=Maskell and Malmberg 1999-=-). We acknowledge these points, and have argued elsewhere that such agglomerations are the places where the most relational portions of global value chains might be found (Sturgeon, 2003). The varieti...

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... instances control opportunism through the effects of repeat transactions, reputation, and social norms that are embedded in particular geographic locations or social groups. Network theorists (e.g., =-=Thorelli 1986-=-; Powell 1990; Jarillo 1988; Lorenz 1988) argue that trust, reputation, and mutual dependence dampen opportunistic behavior, and in so doing they make possible more complex inter-firm divisions of lab...

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...ign, especially the conservation of human effort through the re-use of system elements — or modules — as new products are brought on-stream (Langlois and Robertson 1995; Schilling and Steensma, 2001; =-=Sturgeon, 2002-=-). In the realm of value chain modularity, suppliers and customers can be easily linked and de-linked, resulting in a very fluid and flexible network structure. While the dynamics are market-like, the...

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...chitectures are more likely to require non-standard inputs, and changes in the design of particular parts tend to precipitate design changes in other areas of the system (Langlois and Robertson 1995; =-=Fine 1998-=-). Similarly, coordination costs increase for parts whose supply is time-sensitive, as separate processes have to be better coordinated in order to synchronize the flow of inputs through the chain. Ne...

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...st relational portions of global value chains might be found (Sturgeon, 2003). The varieties of capitalism literature, coming largely from political science (e.g., Streeck 1992; Berger and Dore 1996; =-=Soskice 1999-=-), similarly argues that national-level rules and institutions (e.g., in finance, corporate governance, and education and training) profoundly affect the character of industries. Other studies (Florid...

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...on. However, the global commodity chains framework did not adequately specify the variety of network forms that more recent field research has uncovered. While, research on the horticulture industry (=-=Dolan and Humphrey 2000-=-) and the footwear industry (Schmitz and Knorringa 2000) reinforced Gereffi's notion that global buyers (retailers, marketers, and traders) can and do exert a high degree of control over spatially dis...

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...e 1999), similarly argues that national-level rules and institutions (e.g., in finance, corporate governance, and education and training) profoundly affect the character of industries. Other studies (=-=Florida and Kenney 1993-=-; Lynch 1998; Borrus et al. 2000) show that many geographically rooted characteristics are carried abroad, as foreign direct investment projects local and national models onto the global stage. These ...

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...” refers to the geographic spread of economic activities across national boundaries, “globalization” implies the functional integration and coordination of these internationally dispersed activities (=-=Dicken 2003-=-: 12). 2 We do not suggest that the theory developed in this paper can explain all governance patterns observed in global value chains. The theory should be used as a complement to, not a substitute f...

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... effects of repeat transactions, reputation, and social norms that are embedded in particular geographic locations or social groups. Network theorists (e.g., Thorelli 1986; Powell 1990; Jarillo 1988; =-=Lorenz 1988-=-) argue that trust, reputation, and mutual dependence dampen opportunistic behavior, and in so doing they make possible more complex inter-firm divisions of labor and interdependence than would be pre...

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...hese coordination, or mundane, transaction costs rise when value chains are producing non-standard products, products with integral product architectures, and products whose output is time sensitive (=-=Baldwin and Clark 2000-=-). Lead firms increase complexity when they place new demands on the value chain, such as when they seek just-in-time supply and when they increase product differentiation. However, lead firms also ad...

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...ial and labor inputs, and then processed inputs are assembled, marketed, and distributed. A single firm may consist of only one link in this process, or it may be extensively vertically integrated…” (=-=Kogut 1985-=-: 15). The key issues in this literature are which activities and technologies a firm keeps in-house and which should be outsourced to other firms, and where the various activities should be located. ...

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...he places where the most relational portions of global value chains might be found (Sturgeon, 2003). The varieties of capitalism literature, coming largely from political science (e.g., Streeck 1992; =-=Berger and Dore 1996-=-; Soskice 1999), similarly argues that national-level rules and institutions (e.g., in finance, corporate governance, and education and training) profoundly affect the character of industries. Other s...

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...e realm of modular product design, especially the conservation of human effort through the re-use of system elements — or modules — as new products are brought on-stream (Langlois and Robertson 1995; =-=Schilling and Steensma, 2001-=-; Sturgeon, 2002). In the realm of value chain modularity, suppliers and customers can be easily linked and de-linked, resulting in a very fluid and flexible network structure. While the dynamics are ...

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...ed us with insights into how the spatial and social propinquity of local industrial agglomerations work to buoy organizationally disaggregated, and often highly innovative, economic activities (e.g., =-=Storper and Scott 1988-=-; Storper and Walker 1989). This work has usefully stressed the spatial embeddedness of tacit knowledge and the importance of tight interdependencies between geographically clustered firms (Storper 19...

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... how the spatial and social propinquity of local industrial agglomerations work to buoy organizationally disaggregated, and often highly innovative, economic activities (e.g., Storper and Scott 1988; =-=Storper and Walker 1989-=-). This work has usefully stressed the spatial embeddedness of tacit knowledge and the importance of tight interdependencies between geographically clustered firms (Storper 1995; Maskell and Malmberg ...

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...id not adequately specify the variety of network forms that more recent field research has uncovered. While, research on the horticulture industry (Dolan and Humphrey 2000) and the footwear industry (=-=Schmitz and Knorringa 2000-=-) reinforced Gereffi's notion that global buyers (retailers, marketers, and traders) can and do exert a high degree of control over spatially dispersed value chains even when they did not own producti...

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...ing, global apparel production is likely to become far more concentrated among the most capable firms in a handful of low-cost production sites, including China, India, Indonesia, Mexico, and Turkey (=-=Gereffi and Memodovic 2003-=-: 12). Such concentration could well undermine the position of intermediary firms. Still, the variables we have highlighted in this paper continue to be important. To the extent that the ability to co...

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...ult and risky. Since standards and protocols are dynamic, major advantages accrue to those actors that actively participate in the rule-setting process, which favors established actors and locations (=-=Sturgeon 2003-=-). Finally, there is clearly no single best way to organize global value chains. In some product categories, where integral product architecture makes it difficult to break the value chain, vertical i...

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...acturers such as the Fang Brothers, to coordinate the flow of orders from U.S. and European buyers to a large numbers of apparel factories established around the world in places with available quota (=-=Magretta 1998-=-; Gereffi 1999: 60-63). When the MFA is phased out beginning in 2005 in accordance with the World Trade Organization’s Agreement on Textiles and Clothing, global apparel production is likely to become...

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...he complexity of the transactions between lead firms and suppliers high even as the capabilities of suppliers, driven in part by the consolidation of first tier suppliers, has increased dramatically (=-=Sturgeon and Florida 2004-=-; Humphrey 2003). As standards, information technology, and the capabilities of suppliers improve, the modular form appears to be playing an increasingly central role in the global economy. 16 Again, ...

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...ourcing and consolidate their supply-chains have created a set of highly capable suppliers that, in turn, make outsourcing more attractive for lead firms that have yet to take the outsourcing plunge (=-=Sturgeon and Lee 2001-=-). Similarly, the evolution of 15general shift toward value chain fragmentation has been driven by the cost and risk advantages of outsourcing (assuming that a solution to the problem of asset specif...

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... are large firms within each segment of the value chain, such as Shimano in drive-train components and several large branded bicycle manufacturers, but very few firms that span more than one segment (=-=Galvin and Morkel 2001-=-: 40). The different bicycle components require different competencies, which limits economies of scope. An integrated bicycle manufacturer would require many different technological competences, or w...

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...work drew on the analysis of Palpacuer's (2000) arguments about core and complementary competences in value chains. 6 Work on the apparel industry (Gereffi 1999) and on commodity exports from Africa (=-=Gibbon 2001-=-) also showed a variety of contracting arrangements. 7 An indication of the range of studies is provided by the collection edited by Gereffi and Kaplinsky (2001). 41. Markets. Market linkages do not ...

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... linkages, but trust and reputation might well function in spatially dispersed networks where relationships are built-up over time or are based on dispersed family and social groups (see for example, =-=Menkhoff 1992-=-). 4. Captive value chains. In these networks, small suppliers are transactionally dependent on much larger buyers. Suppliers face significant switching costs and are, therefore, "captive". Such netwo...

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...he chain. While this does not generate a global value chain type, per se, it is a situation that is quite common, and with requirements for suppliers increasing, perhaps increasingly likely to occur (=-=Sturgeon and Lester, 2004-=-). This case is important insofar as it opens up a discussion of the problems facing developing country suppliers and policies for industrial upgrading. Product architectures generally vary from integ...

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... that national-level rules and institutions (e.g., in finance, corporate governance, and education and training) profoundly affect the character of industries. Other studies (Florida and Kenney 1993; =-=Lynch 1998-=-; Borrus et al. 2000) show that many geographically rooted characteristics are carried abroad, as foreign direct investment projects local and national models onto the global stage. These variations c...

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...nt industry, Zara’s success with extremely rapid product cycles — bi-weekly in some cases — has been supported by the company’s in-house textile manufacturing subsidiary and captive sewing workshops (=-=Bonnen, 2002-=-). 5 Conclusions In this article we have developed a typology of global value chain governance and presented some theoretical justifications for why these patterns might occur. We argue that the struc...