Richard Whitley
Professor of Organisational Sociology
Manchester Business School
University of Manchester
Booth Street West
Manchester
M15 6PB r.whitley@mbs.ac.uk
Not for quotation or citation without permission
An earlier version of this paper was presented at the 22 nd EGOS Colloquium,
Bergen, Norway, 6-8 July, 2006, and the final version is forthcoming in:
Whitley, R. (2007) Business Systems and Organisational Capabilities: The institutional structuring of competitive competences, OUP, Oxford

Global Production Networks and the Growth of International
Governance: The effects of multileveled governance in Europe and elsewhere
Summary of the Argument
1. Global production networks integrate economic activities across national jurisdictions through market power and authority relations.
2. They constitute distinct forms of international economic organisation insofar as they maintain relatively stable sets of inter-firm relationships governed by particular cross-national rules of the game.
3. However, the governance and behaviour of most leading companies in
OECD countries in the 20th century predominantly reflect domestic institutions, with few transnational institutions being effective in governing inter-firm relationships.
4. As a result, most international inter-firm networks have been ad hoc , highly varied and changeable in both the nature of key member firms and their authority structures, with few constraints on short term opportunism and few collective competition goods being provided internationally.
5. Towards the end of the 20th century, though, transnational governance has grown in significance, principally through the WTO and the EU.
6. Most of this growth in the transnational regulation of business activities has focused on establishing common rules for trade and investment across national economies, rather than standardising property rights and governance regimes.
7. In general, such rules have tended to increase inter-firm and intersectoral differences in many economies, but have had contrasting effects on different kinds of nationally specific institutional regimes and business systems.
8. Most consequential EU integration has been "negative" rather than
"positive", not least because the implementing capability and powers of
EU agencies and institutions remain limited compared to those of member states.
Insofar as the EU has succeeded in creating a single market and standardised some rules of the competitive game, four consequences can be discerned.
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Global Production Networks and Institutions
1. GPNs are a sub-set of inter-firm networks that coordinate activities across national jurisdictions.
2. They are constituted by a wide variety of different kinds of firms governed by different institutional regimes and that develop different kinds of competitive competences.
3. They become distinct and significant systems of economic coordination and control when they develop relatively stable patterns of inter-firm interaction governed by some authority structure and differ from established national ones.
4. In the largely anomic, adversarial and weakly institutionalised international business environment of much of the 20th century, most
GPNs have been unstable, highly fluid and varied in their membership and structure, and failed to establish distinct emergent properties as separate forms of transnational economic organisation.
5. However, the growth of cross national institutions governing economic activities towards the end of the 20th century might imply a decline in the largely national distinctiveness of leading firm type and behaviour and encourage the establishment of more stable and economically significant
GPNs.
6. This depends on the nature of these institutions, their relationships with established national and regional ones, and the strength, cohesion and priorities of national institutions and dominant coalitions within countries.
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1. Regulatory transparency
2. Harmonisation of regulatory norms
3. Mutual recognition of regulatory regimes
4. Extension of national treatment of firms to foreign ones
Leading to:
Some reduction of state control over markets, but safety and systemic risk concerns in banking, securities markets, nuclear energy and other fields have increased pressures for international business regulation through procedural norms and arm’s length agencies.
Overall then:
Most global business regulation in the late 20 th century has been focussed on establishing common rules for cross border trade and investment, thus integrating national markets.
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General Consequences of Institutionalising Transnational
Governance Principles
1. Increasing market size
2. Intensifying produce and service market competition
3. Constraining direct state support for national companies
4. Increasing heterogeneity and instability of firms’ ownership capabilities and goals in domestic markets
Leading to: a) Increasing firm specialisation and vertical disintegration where standards are codified and accepted, and there are many suppliers and customers. b) Reduced constraints on short-term opportunism and weakened interfirm commitments. c) Increased indirect state support for firms and industries. d) Reduced cohesion and authority of domestic business associations as foreign firms influence grows and domestic firms internationalise. e) Weakened commitments between large firms, state agencies, banks and dominant domestic interest groups.
Especially where:
1. Domestic economy is limited in size and open to trade and FDI.
2. Dominant domestic coalitions are weakening.
3. New collective actors can mobilise support for change.
4. Value of nationally provided collective competition goods is declining for some firms
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Likely Effects of Liberalisation and Re-regulation in Different
Institutional Regimes
Likely effects on:
Investor-firm relations
Diversification of large firms
Market segmentation
Inter-firm cooperation
Constraints on short-term opport-unism
Arm’s Length
Type of Institutional Regime
Reduced commitments, growth of fund manager influence
Reduced
Dominant
Developmental
State
Decline in state influence, growth of investor influence
Reduced where state influence weakened
Reduced
Low, except for pre-competitive collaboration in public mission fields
Further weakened
Reduced where state withdraws from direct control
Low, beyond business groups
Reduced where state influence weakened
Corporatist
Weakening of bank-firm ties in large firms
Cohesion and authority of business associations
Cohesion and authority of union federations
Further reduced
Further reduced
Limited
Further reduced in private sector
Reduced where foreign shareholders dominate
Reduced where domestic coalitions weakened
Reduced where business and union groups weakened
Reduced for largest and most internationalised firms, especially where unions weakened
Reduced as largest firms internationalise and foreign firms invest
Reduced at national and sectoral levels, increased differentiation between internationalised firms and industries and others
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Multi-level Governance in Europe
1. EU rules and regulations more effective in liberalising trade and investment than in achieving `positive’ integration.
2. Fragmented interest group representation at the EU level.
3. Limited competence and powers of EU institutions and agencies.
4. National political identities and competition dominate EU ones.
5. Implementation of EU regulations varies between member states, EU agencies have few implementation capabilities.
6. Key institutions governing economic activities continue to vary significantly between member states, with few standardised rules of the game across the EU.
7. Few collective competition goods provided at the EU level.
Likely consequences of increased EU governance:
1. Reinforce general tendencies of liberalisation, reduce direct state support of domestic firms and increase transparency.
2. Weaken domestic corporatist arrangements, especially where union federations are weak.
3. Weaken domestic coalitions based on direct state support.
4. Increase differentiation of firms and interest groups mobilising support at regional, national and European levels.
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:
1. The scope of transnational institutions governing economic activity is largely limited to market liberalisation, competition regulation and state support. Little or no standardisation of rules on corporate forms, property rights and mergers and acquisitions.
2. The impact of transnational institutions varies between dominant institutional regimes and depends on the cohesion of national coalitions and the shifting power of different interest groups.
3. Combined with growing internationalisation of trade and investment flows, the main consequences of the expansion of transnational governance have been: a) to reduce direct state management of national economies b) to encourage the differentiation of actors and interests in the more nationally homogenous economies c) to weaken the cohesion and scope of dominant national institutions and coalitions, except where labour movements remain powerful
4. EU institutions have had most impact on economic liberalisation within Europe, but only limited impact in other areas of economic activity. Further enlargement and increasing heterogeneity of EU member states’ institutions will restrict the development of standardised governance in Europe.
5. Ad Hoc, fluid and highly varied GPNs seem likely to continue to be formed and dissolved according to short term opportunities, but not to develop stable transnational authority patterns or constitute distinctive cross national systems of economic coordination and control with emergent properties.
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