Peripheral participants in global production networks - changing dynamics in the transformation from industrial to intellectual capitalism

There is a burgeoning international literature on the rapid spread of new organizational practices in the dynamic business environment of knowledge-based economies. The knowledge-based approach to organizations – as opposed to one based on transaction costs – presumes that the new structures replace the traditional virtues of formalization and specialization with flexibility and vertical forms, while hierarchical coordination gives way to trust-based, horizontal network forms. This paper goes against a near consensus in theoretical literature, arguing that hierarchical coordination persists in global production networks. It contrasts the experience of peripheral players recently incorporated into global production networks (GPNs) with the ‘fading-hierarchy’ thesis of organizational economics. The incorporation has occurred in a vertical manner, making them subject to hierarchical coordination. This is due to the modernization patterns found in transforming and some developing countries that are receiving foreign direct investment (FDI).