Dynamics of Industrial Location
Factory, Firm and Production System(FFPS)
As noted in chapter 1, Dynamics of Industrial Location is primarily organized around the factory-firm-production system (FFPS) framework. Chapter 1 (pp. 8-10) briefly distinguishes factories, firms and production systems. Each of these 'levels' is a major focus for geographic work and each is related to one another. Factories, firms and production systems each reveal an incredible variety of forms both in terms of their 'internal architecture' (size, structure, lay-out, age, communication systems, function) and their relations to local and global economies (job, income, trade and environmental impacts). The purpose of this brief note is to emphasize the permeability of the boundaries between factories, firms and production systems.
If factories, firms and production systems constitute distinct perspectives on economic organization and distinct levels of analysis, the FFPS does not constitute a nested hierarchy (Fruin 1992: 17). The boundaries between firms and the factories they control and between firms and production systems (other firms and their factories) are often blurred and they do overlap. Indeed, as Fruin (1992) emphasizes, to some extent, factories, firms and production systems represent alternative ways of organizing production. Thus, firms have choices in the extent they produce themselves or rely on suppliers, and in the extent to which functions are provided by head-offices or by factories. Factories themselves can be highly specialized or highly diversified, horizontally and/or vertically. In addition, firms invest in joint ventures and alliances with other firms for specific purposes, and may have shares in other firms, with varying implications for control.
In other words, there is a high level of interdependence among factories, firms and production systems, and these interdependencies reveal an array of organizational alternatives. It is well known, for example, that in many industries, Japanese companies have preferred to rely on outside suppliers for parts and processes to a much greater degree than their western counterparts (see chapter 14). Many Japanese companies have also delegated more functions to individual factories than is often the case in the west. Florida and Kenney (1990a), for example, underline this point by characterizing Japanese factories as 'laboratories', in order to reveal the extent to which Japanese factory workers and factory supervisors and engineers contribute towards design and technological transfer, and ultimately in the extent to which research and development and manufacturing operations are closely interrelated. Fruin's (1992) elaboration of the importance of 'focal factories' in Japanese industries provides a related argument. Focal factories are multi-function manufacturing sites, in particular factories 'with appended planning, design, development and process-engineering capabilities, plus an ambition to accumulate, combine and concentrate experience for the propagation and improvement of products and processes' (Fruin 1992: 24). In this view, focal factories contain considerable concentrated, focused and closely related expertise which enhances the firm's innovativeness and permits product and process design and market opportunities to be fully developed. Focal factories, in other words, allow for the full exploitation of intra-firm economies of scope (see text, p. 32 and pp. 193-4 for a definition of this term).
In the context of the present discussion, focal factories represent a much different (more occupationally diverse, autonomous, innovative) alternative to highly specialized branch plants that assemble specialized, mature products and that are 'remotely controlled' by distant head-offices. One example of the options big firms have in organizing activities is provided by Toshiba, a major Japanese electronics/electrical equipment manufacturer (Fruin 1992: 20). In the early 1990s, Toshiba controlled 27 factories, half of which were focal factories, and was linked to over 600 affiliate and subsidiary companies, including 100 in which it held at least a 20% financial stake. Toshiba's coordinating office for these affiliates employed just 18 people, a direct reflection of the degree of autonomy of the affiliates. In addition, Toshiba purchased inputs from over 1,900 firms, including 1,300 businesses which supplied manufactured parts and processes. This sketch at least hints at the choices implied by the FFPS and is an example by which to compare alternatives.
There is an ongoing controversy about the 'best' way to organize production within the FFPS (See part IV). One view, especially in the context of sophisticated, 'high tech' industries, is that core firms will have to rely, perhaps increasingly so, on production systems or networks. In general terms, this view argues that for highly complex products, individual firms cannot develop efficiently and competitively the range of expertise required to internally manufacture all parts and processes. In the aerospace industry, for example, the major contractors have long relied on highly sophisticated subcontractors and according to Upton and McAfee (1996) these interdependencies are likely to deepen. Indeed, these authors suggest that electronic collaboration, based on the open standards of the internet and new types of 'information brokers', potentially allows hundreds of suppliers to be electronically linked, regardless of location, in a way that significantly reduces costs and promotes quality while maintaining security and propriety rights. An important key to this argument is the role played by 'information brokers', that is firms that are sophisticated and completely trustworthy interfaces between core firms such as McDonnell Douglas and Boeing and hundreds of actual and potential suppliers. The information brokers provide suppliers with access to the relevant part of the core firm's expertise and demands and the core firm with the capabilities and bids the suppliers while preserving propriety knowledge. Part of the advantage, from the point of view of these authors, is to remove the need for proximity. As such, this view counters conventional wisdom that sophisticated collaboration among firms is particularly demanding of personal contact and proximity.
Others argue that giant firms are organizing production systems on a global basis, less to access expertise, than to exploit cheap labour working for low waged subcontractors or in households eking out a subsistence existence. In this view, firms are simply responding to the competitive imperative to reduce costs faster that rivals. If Boeing and Toyota (see chapter 14) represent different examples of the view of production systems as linking highly specialized firms utilizing well paid labour Nike (chapter 12) illustrates a low waged driven production system. It should also be noted that there are many instances whereby firms argue that they should vertically integrate rather than buy from outside suppliers. In practice, whether firms should 'make or buy' is a complicated matter (chapter 13).
Fruin (1992) and Kenney and Florida (1990a) are cited in the text. In addition:
D M Upton and A McAfee 1996) The real virtual factory, Harvard Business Review July-August, 123-33
The Dynamics of Industrial Location