Chapter 24
Bringing Politics Back In: Reading the Firm-Territory Nexus Politically
Introduction
The large variety of firms in what has clearly become a closely interconnected, globalizing economic system is an object of fascination: from household workshops to multinationals, vertically disintegrated firms to vertically integrated companies, and global subcontractors to local franchises. Despite these variations, the firm is conventionally understood to be a governance mechanism for economic activities distinct from the market, in which hierarchical control is the central organizing principle. But the real thrust comes from the market; an invisible hand allocating resources efficiently. This yields a misleading image of firms as islands of planned coordination in a sea of market relations. But as Richardson (1972) demonstrated, the dichotomy between firm and market, between directed and spontaneous co-ordination, is an unhelpful one. Amongst other things, it ignores the reality of interfirm cooperation and neglects the distinct method of coordination that this can provide.
In the late 1960s, geographers were preoccupied by the role of large, vertically-integrated firms in the creation of the space-economy (see Dicken 1976). Corporations, in this view, were endowed with an internal division of labor, an internalized system of commodity production and service flows, multilocational operations, and a hierarchical mode of organization. This conception of the internal division of labor was mapped onto spatial divisions of labor in which labor skills and costs determine the geographical configuration of the vertically-integrated firm (Walker 1989).
At the end of the 1980s, flexibility became the catchword, and social scientists rediscovered small and medium sized enterprises (SMEs) and agglomerated industrial districts (Piore and Sabel 1984). A principal reason behind this transformation was that large corporations had found themselves under siege from labor disputes in the production realm and diversified demands in the consumption realm. Consequently, cooperation within clusters drove networks of specialized SMEs to the forefront of contemporary capitalism. The old recipes of division of labor and vertical integration were abandoned in favor of project-based teamwork and relational contracting between individuals or firms (Powell 2001). Industrial subcontracting became the favored strategy for profit restoration, and indeed a celebrated business model, while production chains ran across national boundaries to include the OEM (Original Equipment Manufacturing) operators in the developing countries.
Following the intensification of global economic integration in the 1980s, a so-called new economy began to take shape in the 1990s, emphasizing reflexivity and education, design and creativity, information technology and organizational learning, and adoption (Thrift 2005). An evolutionary perspective became prominent, where it was argued that firms were facing mounting pressures to explore new knowledge or exploit existing knowledge, to become “learning organizations,” to maximize innovation and creativity, and to become light-footed and adaptable (Nelson and Winter 1982).
In brief, a persistent variety of firm forms – in terms of size, organization, and geographical configuration – continues to characterize the industrial landscape. This poses significant and pressing challenges for economic-geographical theory. The key lesson from past industrial development is that firms are collective actors, and the establishment and development of both their boundaries and constitution are shaped by changing socioeconomic forces. Firms therefore are socially constructed, and as such, they are nurtured and regulated by capitalist institutions. Under such circumstances, contemporary theories of the firm, which sequentially were concerned with modern firms, flexible firms, and learning firms, must be reconceptualized from an institutionalist perspective (Yeung 2005). The firm has always been present in economic geography; it has been handled in very different ways over time, in diverging analytical traditions, and in changing industrial paradigms. It is long overdue for geographers to take up the task of analyzing the firm from an institutionalist perspective.
In the following two sections, I will review two separate but complementary perspectives on the nature of the firm: rationalist perspectives, concerned with efficiency, and socioeconomic perspectives, concerned with the social construction of the economy. It is argued that existing theories fail to appreciate the role of the firm as an active agent, which strategically responds to regulations imposed by institutions and which consequently (re)shapes its industrial practices, economic organization, and geographical configuration.
In the third section I will develop the idea of the firm as a reflexive socioeconomic agent, strategically interacting with its institutional environment. By doing so, I aim to flesh out the argument that the core of current theories of the firm, both in culturalist and in institutionalist strands of the new economic geography, incline towards a horizontal-network approach rather than a vertical-power analysis. In consequence, these theories gradually lose explanatory power in investigating those varieties of firms which collectively remain the key players making uneven geographic development, place making, and scalar constitution in the dominant capitalist economy. The idea of the firm as a collection of communities will be used to illuminate the network paradigm. It will be argued that the notion of communities of practice cannot be applied unproblematically to the firm, due to the way that it privileges collaboration, socialization, and learning, while pushing issues of dissonance, conflict, and rejection into the background (Taylor and Oinas 2006). Asymmetric power relations between members of communities of practice manipulate, shape, reshape, drive, misdirect, retard, and destroy firms and businesses. Therefore, in the final section, I will propose a revisited and refined community-based theory of the firm, incorporating an analysis of power.
The Rise of the Dynamic Theory of Firm
Traditional price auction models of the market conceptualize firms as epiphenomena of market processes without economic significance. They are consequently deemed irrelevant to the analysis of optimal resource allocation under conditions of equilibrium. But if market exchange is the most efficient means of organizing and coordinating production and distribution, why do firms exist? Coase argued that the organization and coordination of economic activities occurs in firms whenever rational calculation determines that the market mechanism is more costly to use (Coase 1937).
Oliver Williamson (1975) developed Coase’s conjecture, arguing that the firm arises in response to the imperative of managing “transaction costs” in contractual market exchange. Contrary to expectations from the perfect competition model, transactions costs arise due to the existence of imperfect information and unequal bargaining strengths found within actually existing markets. Williamson argues that in many circumstances transaction costs can be reduced by the integration of the different parts of a contractually linked production chain. In brief, the transaction–cost economics (TCE) view of firm, in contrast to conventional assumptions of complete contracts in market transaction processes, attributes the existence of firms to the problem of incomplete contracts. In economic geography, Scott (1988) incorporates TCE in his studies of product specialization and clustering in urban centers, proposing that clustering takes place to reduce transaction costs.
But the narrow approach of TCE, with overly limiting efficiency assumptions, has been critiqued by many economic geographers (Maskell 2001; Yeung 2005). In fact, this has been the impetus for a series of theoretical turns which have occurred in the field of economic geography since the early 1990s, most of which have increased the distance from orthodox economics (Scott 2006). As economic geography is a subdiscipline which is heavily influenced by economic sociology, cultural studies, and institutional-evolutionary economics, economic geographers have taken insights from network theories and post-structural management theory to develop alternative conceptions of the nature and organization of the firm. Maskell (2001) asks the question, “what kind of theory of the firm suits economic geography and why?” Firstly, he suggests that economic geographers are likely to accept theories that assume bounded (rather than complete) rationality of economic agents. Secondly, after reviewing existing firm literature, he finds that the evolutionary resource-based theory represents the best fit for economic geography. Why?
The resource-based theory of the firm (RBF) mainly builds on behavioralist and evolutionary ideas, pioneered respectively by Penrose (1959) and by Nelson and Winter (1982). Instead of taking the firm as a machine for contract enforcement, RBF adopts a dynamic perspective on firm growth. Penrose (1959) proposed that the firm should be understood as a set of resources mobilized to cope with pressures posed by the external commercial environment, and to gain momentum in growth. At the heart of RBF is the construction of dynamic competence, or value creation, rather than resource allocation or value appropriation. Firms grow through the development of core capabilities by combining internal resources in new ways and through innovative interactions with external partners. RBF views the firm as a social institution, the principal characteristic of which is to know how to do certain things, based on competences or a coherent set of efficient routines (Nelson and Winter 1982). Rather than taking the firm as a static processor of information, as in TCE, the RBF approach conceives the firm as a dynamic processor of knowledge (Amin and Cohendet 2004).
Reading Firm Theories Geographically
From Firm Capabilities to District Effects
RBF based theories adopt an evolutionary perspective, arguing that economic change is a result of the combination of firm-specific, endogenously generated factors and exogenous pressures stemming from the environment within which firms operate. Consequently, firms are seen as repositories of competences and resources, and as devices for learning and accumulating both. Firms then evolve and change by building on their prior competencies and resources. Following the RBF perspective, a number of economic geographers have suggested that, in order to generate dynamic capabilities, firms deploy geographical strategies (Asheim 2000; Maskell 2001). Economic geographers have devoted considerable effort to studying local industrial specialization, spatial economic agglomeration, and regional development, and to identifying the relevant economic, social, and institutional processes. The concepts of industrial districts, new industrial spaces and learning regions, to name just a few, have played catalyzing roles in this work. Here, it has been argued that spatial proximity and territorial agglomeration generate distinctive (and superior) learning advantages, which translate into competitive advantage in the new economy (Amin and Thrift 1992; Asheim 2000). Co-location and “being there” therefore generate opportunities for the efficient interpersonal translation of strategically important information between actors and firms (Gertler 1995). In emphasizing “localized capabilities” and “untraded interdependencies,” it has been shown that socioinstitutional settings, interfirm communication, and interactive processes of localized learning play decisive roles in the processes of innovation and growth (Maskell 1998; Gordon and McCann 2000; Bathelt and Gl
ckler 2003). Thus, the reasons for firm clustering derive not from economic efficiency, as predicted by TCE theory, but from the kinds of interactive learning emphasized in RBF theory.
Despite the importance of spatial proximity in the learning economy, a number of economic geographers become increasingly skeptical of this “local priority” thesis. Among others, Bathelt, Malmberg, and Maskell (2004) have argued that learning firms are induced to move beyond localized learning, in the interconnected knowledge economy, in order to avoid those kinds of technological lock-in that might pose a threat to the competitiveness of firms in a close-knit district. For example, Zhou (1992) demonstrates that the abundance of cheap ethnic labor in New York’s Chinatown removes a stimulus for innovation among local producers. In addition to local buzz, which Storper and Venables (2004) characterize as the localized flow of specialized, highly tacit knowledge, firms must tap into external pools of knowledge, establishing new relations with distant firms or actors through global pipelines. In contrast to local buzz, learning in global pipelines does not come by chance, and it is often the result of devoted and targeted identification of specialist individuals, as demonstrated by Owen-Smith and Powell (2004). As a consequence, firms have to understand different institutional regimes in extra-local settings in order to effectively communicate and interact with actors through global pipelines. Gertler (2003) points out that in order to do so, firms require complex capabilities, which are not easy to achieve as they must also tap into particular cultures, which vary between places, regions, and states. How can firms build these profitable extra-local connections? Communities of practice could provide one of the most effective solutions, as Amin and Roberts (2008) and Bunnell and Coe (2001) argue.
From District Effect to Community Advantage
The idea of communities of practice has been widely developed by geographers in empirical and theoretical work on project ecologies, regional business, and innovation systems, and global production networks. Communities of practice are defined as groups of workers informally bound together by shared experiences, expertise, and commitment to a joint enterprise. In such communities, knowledge is actively produced inside teams of expertise – teams whose members are as likely to be spatially dispersed as they are to be geographically proximate to one another. These communities of practice are largely autonomous, self-organized groups of people working inside one or more organizations. They are constituted by actors who share a number of commonalities: shared expertise, joint work experience, and the focus on a common goal (Lave and Wenger 1991; Brown and Duguid 1996; Wenger 1998). These commonalities are argued to facilitate a process of knowledge production and sharing, collaborative problem-solving, and the deployment of a number of discursive devices for circulating knowledge. Amin and Cohendet (2004) demonstrate that the governance mode of communities exploits two major advantages in the knowledge economy. Firstly, communities “freely” absorb the sunk costs associated with building the infrastructure needed to produce and accumulate knowledge, usually in a completely non-deliberate manner embedded in their daily practices, which render the codification of tacit knowledge easy and costless. Secondly, communities do not need visible or explicit central authority to control the quality of work or enforce compliance with standardized procedures, as communities monitor the behavior of members and render them accountable for their actions. Moreover, the communities of practice themselves, within or across the boundaries of firms, can become spaces of innovation across divergent scales (Bunnell and Coe 2001). In the case of the Silicon Valley-Hsinchu (Taiwan) connection, it is contended that a transnational community of engineers has coordinated a decentralized process of reciprocal industrial upgrading by transferring capital, skills, and know-how to the source region, and by facilitating collaborations between specialist firms in the two regions (Saxenian and Hsu 2001).
In a sense, it can be argued that community-based relational proximity will take the place of distance-based spatial proximity in knowledge flows between different firms. Such a communitarian perspective could shed light on the key challenge of understanding how firms cope with the interface between the local and the global, or develop governance strategies within the glocalization process.
Firms under Community Governance: Regulating Firms
Amin and Cohendet (2004) also point out, however, that governance by community does not come without limits. One of the major causes of failure is the risk of parochialism, discrimination, or vengeance by other communities. Also, social networks can be detrimental as well as beneficial, in terms of their effects for the community. Social network analysts have consistently shown that networks with an abundance of structural holes (which can be seen as gaps between individuals with complementary resources or information) create opportunities for the novel combination and recombination of ideas. Dense networks facilitate the optimal conditions for the exchange of complex information necessary for innovation in complex organizations (Uzzi 1997). These same networks, however, may present an obstacle to subsequent efforts to mobilize beyond the initial, densely linked group and pose a problem for acting on novel ideas (Granovetter 1973).
Secondly, communities of practice may endanger variety. Individuals who bring dissimilar others together and facilitate action among different people within their social network will be more likely to combine ideas in a novel way, often the fuel of innovation. Knowledge heterogeneity is a significant predictor of both overall managerial performance and innovation performance (Owen-Smith and Powell 2004). As a result, the communitarian argument risks over-socializing those economic behaviors rooted in business and technological considerations.
Thirdly, as noted by Taylor (2006), the notion of communities of practice cannot be applied unproblematically to firms, because it implicitly prioritizes collaboration, socialization, and learning, while pushing issues of dissonance, conflict, and rejection into the background. Taking community as a form of social capital without exploring the structure and organization of social practice will take social practice at face value. As Duguid (2008) advised, an analysis of communities of practice should reflect the social loci of engagement, including the continuous power struggle over “continuity and displacement” in economic transaction and knowledge creation.
Finally, Gertler (2008) argues that the degree to which two economic actors, or members of a community of practice, can establish effective mutual understandings is likely to depend on more than just linguistic, educational, experiential, occupational, organizational, and industrial commonalities. The institutional context within which they are situated has a major influence over the “rules of the game,” motivations, and expectations, “how things are done,” and how learning is organized (Whitley 1999; O’Sullivan 2000; Hall and Soskice 2001). Indeed, the adoption of a communities of practice perspective implies that firms must be understood as more than legally bounded entities and owners of property assets, but also as institutions with permeable and highly blurred boundaries, or what Dicken and Malmberg (2001) have called “networks within networks.” Firms in the networking process open up their boundaries, tap into surrounding networks, thereby generating particular realms of firm-territory interaction and tension (Hsu 2006).
The comparison of US-trained engineers returning to China and Taiwan can be used to illustrate the critical role of the institutional context in the working of transnational technical communities. Chen (2008) shows that the social networks between Zhongguancun, Beijing’s most technologically advanced hub, and Silicon Valley are sparse, or maybe even non-existent. Most of the US-trained returnees find it difficult to start up their own business in China, despite their cultural and language affinities. Their Taiwanese counterparts, in contrast, remained heavily engaged with their US colleagues, fostering strong networks between Silicon Valley and Taiwan’s IT industry in Hsinchu. The key difference between these two groups of engineers stems from the divergent industrial systems and embedded institutions in Hsinchu (Taiwan) and Zhongguancun (China). Saxenian and Hsu (2001) assert that the best environments for breeding such specialist firms are the decentralized industrial systems characteristic of places like Silicon Valley and Hsinchu. The social structures and institutions within these regions encourage entrepreneurship and learning at the regional level, and the creation of a transnational technical community facilitates collaboration between firms in the two regions, supporting a process of reciprocal industrial upgrading. But in the case of Zhongguancun, Chen (2008) argues that the absence of a decentralized industrial structure and the attendant underdevelopment of the division of labor among the firms reflects a lack of trust inherited from the era of socialist planning. Consequently, the returnee group (transnational technical community) cannot perform the crucial “brain-circulation”1 role in connecting Zhonggunacun and Silicon Valley, as their Taiwanese counterparts do in the process of late-industrial development. Zhou and Hsu (2011) also demonstrate contrasting patterns of engagement across transnational technical communities in Taiwan and China, revealing important roles for local institutions in the regulation of firms and their communities of practice. The firm-territory nexus consequently assumes its significance within changing institutional fields.
Back to basics? Politics within the Firm-Territory Nexus in a Capitalist Economy
Peck (2005) and Grabher (2006) argue that there is nothing wrong in economic geography learning or the transfer of some socioeconomic concepts from economic sociology, such as embeddedness, social capital, and networks. But they express concern about an obsession with mere network topographies in economic geography. Whereas Granovetter’s celebrated metaphor of “embeddedness” locates individual actions in network contexts, his micro-sociological version of the network concept overlooks the other side of network analysis, which is concerned with the hard core of social organization (see Knox, Savage, and Harvey 2006; see also Vidal and Peck, chapter 38 this volume). In a similar vein, Hudson (2006) underlines the role of competition among firms, which not only vie to embed themselves in institutional environments but also seek to mobilize resources in order to leverage the market field to their advantage. In this sense, bringing politics back to the study of the firm sheds light on the divergent development of the firm-territory nexus in different varieties of capitalism. A hard institutionalism, which focuses on institutional arrangements, might be necessary as a complement to those soft-institutionalist economic geographies that emphasize institutional embeddedness (MacLeod 2001). While soft-institutionalists praise networking as the dynamic behind cross-fertilization among firms in a district or community, hard institutionalism, by contrast, calls attention to the role of such connectivities in the entrenchment of uneven development among firms and regions.
In fact, firms must shape, while being shaped by, the social field resulting from uncertainties of market competition (Ingham 2008). Competition is the driving force of a capitalist economy, the mechanism through which successful firms prosper, unsuccessful ones fail, and the trajectory of the accumulation process is maintained. But the capitalist system is prone to crisis, and the conditions that make a competitive capitalist economy possible must be socially established, politically regulated, and institutionally governed in order that competition does not become “ruinous” and create anarchy in markets, undermining the conditions for continuing capital accumulation. In a business system full of risks and uncertainties, firms have to maintain a certain degree of stability and predictability, or control, in order to survive and prosper.
According to Fligstein (2001), states establish these arrangements, thereby linking the process of market building to that of state building. State regulation is therefore necessary for the capitalist system, and firms necessarily become political actors. Firms are consequently the result of projects of institutionalization whose outcome is only partly driven by efficiency considerations. Given the complexity and “messiness” of economic exchange in industrialized societies, firms and other economic actors collaborate and combine to reduce uncertainty and advance their common position, frequently with the aid of state and other institutional actors.
On the one hand, firms are active creators of their own fate; they do not simply reproduce a dominant recipe but also search for profitable positions in markets (Hollingsworth 2000). This process of search and experimentation, in a tight selection environment driven by the market, is not always successful, although when it is, this may be caused not just by an effective use of existing institutional resources but also by the development of new combinations of resources. Firms have to build their long-term strategies on the ability to monitor changing institutional environments. They have to learn to continually upgrade or shift products and services in new directions.
On the other hand, institutions – in particular state policies at various scales whose reproduction and complementarities are relatively fixed – vary across different nations and even regions. In addition, modes of institutional regulation and economic coordination are “deeply rooted” in geo-societal conditions, limiting the extent to which coordinating systems might be transferable from one country to another (Hall and Soskice 2001). Such a “varieties-of-capitalism” approach argues that, at the national level, the nature and role of states is such as to generate coherent institutional environments, managing the interrelationships of firms and other actors in similar ways across sectors, regions, and types of firms. In addition to providing a stable and predictable environment for economic actors to make strategic decisions, an important feature of states concerns their involvement in the development and organization of economic actors. Since states are political entities, they institutionalize particular conceptions of power and authority which affect relations of subordination elsewhere in market economies, particularly within firms (Hudson 2006).
In light of the politics of the firm, firms as communities of practice cannot be understood apolitically. The central tenet of the community discourse is rooted in a social capital argument. Social capital implies bringing economic and social resources together, generating from the embedding economic activities within a historically grown culture of trust (Portes 1998; DiMaggio 2001). Policy makers and firm managers are formulating policies to enhance social cohesion and reduce barriers to competitiveness. In light of the hegemonic neoliberal regime which highlights entrepreneurship and voluntary coordination, the rise of communitarian discourses in firm management should not come as a surprise. Communities of practice within/across firms can behave as voluntary vehicles for technological learning in the absence of an authority structure in the competitive market system. Jessop (2002) sees the rise of volunteerism, including community building, as an example of a flanking or compensatory mechanism for the inadequacies of market-based strategies, rather than representing a new form of social governance based on trust and collaboration.
An institutional analysis of the capitalist firm focuses on capital accumulation and corporate regulation across different sectors, firm sizes, and geographical scales (Hollingsworth 2000). The focus in economic geography has been to understand and explain the circumstances under which certain types of firm have operated in particular ways with specific geographical outcomes. Jessop (2001) argues that the interaction among firms, other social actors, and the institutional environment is a multifaceted and multiscalar process. Successful actors must not simply respond to the institutional environment in which they are embedded but must also modify their environment in order to maintain competitive advantages. In other words, firms attempt to influence state policies at various regulatory scales and to shape the form and content of such modes of regulation, seeking to construct them in ways that favor and help secure their interests. In this sense, the firm is necessarily a site of power relations and power struggles among actors. Consequently, geographical differences and historical changes in corporate governance are related to variegated forms of political contestations common to all major capitalist societies (Dore 2000; Coates 2005). Over the past decade, economic geographers have demonstrated that economic processes cannot be examined separately from social and political processes (Yeung 2009; Lee 2006). Economic geography duly sought to examine the mutability of institutional arrangements and the dynamics of firm-level responses to institutional contexts. A number of case studies are highlighted below in order to exemplify the firm-institution interplay in divergent regions.
The Politics of the Firm-Institution Interplay
In the globalizing economy, cross-border business networks are becoming increasingly important. They constitute the channels through which capital, technology, people, and information flow. As such they affect social and economic factors in both home and host countries and regions. A new strand of the global production network (GPN) perspective provides a more detailed and nuanced analysis of the social and developmental dynamics of contemporary capitalism at the global-local nexus, which is central for the survival and prosperity of transnational corporations in the interconnected economic system (Dicken et al. 2001). The GPN perspective asserts that the strategic coupling of global production networks and regional assets, an interface mediated by a range of institutional activities across different geographical and organizational scales, will be critical for the development of each region in the global economy (Coe et al. 2004).
As production networks become transnational, divergent national business systems meet and interact, resulting in organizational tensions and contradictions. A key question is whether, in the process of transplantation, the practices of transnational production change in response to a host country’s industrial environment and regulatory system. These practices can be both internal to the firm, such as production systems, employment relations, and interdivisional relationships, and external to the firm, referring to interfirm and firm-government relationships.
The first case study involves a Japanese carmaker in the Anglo-American system and thus deals with actors working across contrasting models of capitalism. Based on the case study of the GM-Toyota joint-venture in California, some scholars (Kenney and Florida 1993; Womack, Jones, and Roos 1990) predict that common institutional configurations and ways of organizing the economy will emerge as globalization, and direct competition between different production systems, drive Darwinian forms of competition in favor of the most efficient configurations. Inward foreign direct investment (FDI) serves as a transmission vehicle for the practices, so that the investing firm’s organizational configuration and business strategy will remain relatively intact. These firms are able to insulate themselves from the local disturbances and even subdue the local industrial complex in their favor. According to this view, shopfloor politics are crucial for the successful transplantation of organizational practices. In contrast, scholars such as Hollingsworth (1998), Abo (1994), Boyer (1998), and Zeitlin (2000) argue that investing firms become embedded within host environments in complex ways, which, among other things, places constraints on their behavior. Hybridization occurs where forms become separated from existing practices and recombine with new forms and new practices. Under the regulatory influence of host regions, firms have to negotiate with relevant actors, such as the state, trade unions, and other firms, to make adjustments to the rules of the game. Rather than engaging in the sterile debate on whether hybridization occurs or not, economic geographers might more fruitfully conceive FDI as a process of firm-territory de-coupling and re-coupling (Jessop 2000). In other words, the attention should focus on how regional institutions shape firm behavior, and vice versa, how firms negotiate strategically across divergent local institutional environments.
Another example deals with different regions within the same business system and involves the internationalization of law service firms. Faulconbridge (2008) shows that even in London and New York, the two canonical cities of the Anglo-American model, institutional heterogeneity is still a key issue for transnational law firms. This highlights the influence of the state, professional bodies, and norms of conduct, that cause professional service firms to be particularly sensitive to institutional differences in the management of what could be seen as inefficient and irrational manners. Consequently, processes of transnational negotiation produce mutations of home-country norms in overseas settings. Due to divergent institutional regulations between the United Kingdom and the United States (for example, in conflict-of-interest management, remuneration, divisional strategies, and training), the UK based transnational law firms have to engage in a politics of negotiation, adjusting their operations to dynamic regulatory institutions in the United States, even though both these UK and US institutions might often be grouped under the same label of the Anglo-American model.
Finally, the imposition of supranational institutional regulations through global production networks forces firms, as economic actors, to construct spaces for maneuver, as political actors, within the global-local nexus. The case of fair trade, as described by Levy (2008), illustrates this point well. In fair-trade programs, growers are paid higher rates for certified coffee than is marketed under the fair trade label to Western consumers for premium prices. These programs are the object of campaigns by NGOs (non-government organizations), such as Global Exchange and the Rainforest Alliance, in collaboration with coffee growers, processors, and retailers. The fair-trade campaign has thus played a role in constructing and politicizing the GPN as a field in which corporate practices are linked economically and discursively to poor working conditions for growers in developing countries. This challenge to existing market relations has been countered by some coffee companies, which have forged alliances to “institutionalize” ethical forms of demand. The development of fair-trade practices and industry codes of conduct, such as the Common Code for the Coffee Community (4C), can be interpreted as a political effort to protect the hegemonic stability of the GPN from threats to its legitimacy. These developments have transformed some NGOs from challengers to partners, widening the hegemonic coalition. In so doing, the coffee companies turn a threat into a business opportunity. As a result, sales of fair-trade goods have expanded to the point that they are now “mainstream” products in the world market.
These case studies underscore the need to bring the firm back in, as an agent with spatially and temporally differentiated proactive capacities or power structures in different times and geographies (Hudson 2001; Yeung 2005). It demonstrates that the firm, as an organization in competitive markets, is an active, learning agency continually combining and recombining elements in order to develop distinctive capacities that will enable competition in the market. This is a process of learning and experimentation in uncertain environments in which embedded institutions, particularly the states at various levels, play active roles to secure appropriate couplings of firm regulation and economic growth (Hudson 2006). Despite stressing the proactivity of firms, it is important not to underestimate the role of the institutional context as a constraint and as a relatively fixed set of complementary processes that dictate a particular way of doing business. Rather, the institutional context can be seen as a resource for firms to interact with in order to pursue their own agendas for growth and survival. Firms may operate in ways that do not necessarily reflect the dominant institutional logic. Just as the transnational UK law firms discussed above, they may find hidden legacies and new potential within the existing environment. They may bring in new practices and processes (resulting from their international linkages and experiences) which test the tolerances of the existing institutions, as the transplant of Toyota practices to the United States shows. In the process, firms are actively engaged in negotiating with the regulatory regimes, and build coalitions with or buffer against the new environing institutions. This complicates the nexus of firm-territory politics, designating a fertile zone for economic geographical research.
Note
1 “Brain circulation” describes the phenomenon of skilled immigrants becoming increasingly beneficial to both home and host countries (Saxenian and Sabel 2008).
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