Explain the structure of global production and consumption networks and their geographical effects

What this dot point is asking

SCSA wants you to explain how goods and services are produced through globally dispersed chains, identify who organises and profits from them, and analyse the geographical effects of separating where things are made from where they are bought. A strong answer uses the vocabulary of commodity chains, value chains and the division of labour, with named examples.

Commodity chains and value chains

A commodity chain is the sequence of linked steps that takes a product from raw material through processing, manufacture and assembly to the final consumer. A value chain emphasises where value is added at each step.

For most globalised products, the steps are spread across countries: raw materials from one place, components from several others, assembly somewhere with low labour costs, and sale in high-income markets. Each link is a node in a global network.

The new international division of labour

Historically, developing countries supplied raw materials while industrialised countries manufactured goods. From the late twentieth century this shifted into a new international division of labour, in which labour-intensive manufacturing relocated to lower-wage economies in Asia, Latin America and elsewhere, while high-income countries specialised in design, finance, marketing and high-value services.

This relocation is driven by:

• Cost. Lower wages, land and regulatory costs in destination economies.
• Technology. Containerised shipping and digital communication make distant coordination cheap.
• Trade liberalisation. Lower tariffs and free-trade agreements ease the movement of components.
• Special zones. Export processing zones and special economic zones, such as those in China, attract manufacturing with tax breaks and infrastructure.

Transnational corporations as organisers

Transnational corporations (TNCs) such as Apple, Nike, Toyota and Nestle coordinate these networks. They typically keep high-value functions, design, branding and finance, in their home country and outsource low-value assembly to contractors abroad. This lets them control the chain and capture most of the profit without owning every factory.

The geography of consumption

Consumption, the buying and using of goods and services, is concentrated in high-income countries and the growing middle classes of emerging economies. The separation of production from consumption has several effects:

• Spatial mismatch. Goods are made far from where they are consumed, generating huge flows of trade and shipping.
• Uneven value capture. The places that assemble goods often earn the least; design, branding and retail capture the most.
• Ethical and environmental concerns. Consumers in wealthy countries may be unaware of labour conditions and environmental impacts at distant points in the chain.

Geographical effects

Production and consumption networks reshape places. Manufacturing regions can experience rapid industrialisation and rising incomes, as in coastal China, but also pollution and dependence on foreign firms. High-income regions may deindustrialise, losing factory jobs while gaining service employment. Producers of primary commodities can remain vulnerable to volatile world prices.

A balanced answer recognises that these networks create growth and opportunity in some places while concentrating profit elsewhere, and that the costs and benefits are distributed unevenly.