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GLOBAL VALUE CHAIN
Report by Alfredo V. Primicias III
In partial fulfillment of IR 204| Tues. 6pm -9pm | Dr. CabeginUniversity of the Philippines- Diliman, Quezon City
Alfredo V. Primicias III | IR 204 | Dr. Cabegin| Tues. 6pm- 9pm
2What isGVC?
Why GVC is analyzed?
Relevance of GVC
1. GVC stands for-- 5 pointsa) Global Volume Consumptionb) Gas Valve Compoundc) Global Value Chain
C
2. Globalization is (pg 15, Handbook for Value Chain by R Kaplinsky and M Morris)-- 10 pointsa) pervasive decline in barriers to the global flow of information, ideas, factors, technology and goods. b.) process of international integration from the interchange of world
viewsc.) variable that is accessible in every scope
A
3. 4 Key Dimensions of Global Commodity Chains are-- 15 points (1) Input- Output Structure(2) Geographical Coverage(3) Form of Governance(4) Institutional Framework
(pg 7, A New Approach to GVC Analysis by J Keane)
a) TRUEb.) FALSE
A
Alfredo V. Primicias III | IR 204 | Dr. Cabegin| Tues. 6pm- 9pm
3
4. Global Foreign Direct Investment (FDI) fell to 18% from US$1.25T in 2011to US$ 1.95T- 20 points
a) Trueb) False(pg 30, World Investment Report 2013)
B
Developing countries inserting into the global economy through commodity exports have little opportunities to sustain income growth in the long run. Only by downgrading into high-value added processes within primary industries or diversifying into technology-based and skill intensive sectors, will they be able to seize the development opportunities brought about by internationalization.- 30 points a) True b) False (pg 31, Understanding and Escaping Commodity dependency, O Farfan)
B
GLOBAL VALUE CHAIN
-- from US$1.65T to US$ 1.35T
GLOBAL VALUE CHAIN
Alfredo V. Primicias III | IR 204 | Dr. Cabegin| Tues. 6pm- 9pm
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What isGVC?
Why GVC is analyzed?
Relevance of GVC
GVC= Global Value Chain
1.) International Trade2.) Global GDP3.) Employment
Significance
1.) Understand how global industries are organized2.) Trace shifting patterns of global production3.) Focus on Value Added- conception to production
Framework
1.) How China and India became new drivers2.) Why process certifications = export- oriented success3.) What demand- driven workforce development is
Importance
Pages 2, 3: Global Value Chain Analysis: A Primer by Gary Gereffi and Karina Stark/ 2011
GLOBAL VALUE CHAIN
Alfredo V. Primicias III | IR 204 | Dr. Cabegin| Tues. 6pm- 9pm
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Source: Graphic News Boeing Dreamliner 787
Full range of activities that firms and workers perform to bring a product from its conception to end use and beyond.
GLOBAL VALUE CHAIN
Alfredo V. Primicias III | IR 204 | Dr. Cabegin| Tues. 6pm- 9pm
6China assembles all iPods, but it only gets about $4 per unit – or just over 1% of the US retail price of $300
451 parts that go into the iPod
The retail value of the 30-gigabyte
video iPod that the authors
examined was $299 in
June, 2007
The bulk of the iPod’s value is in the conception and design of the iPod. That is why Apple gets $80 for each of these video iPods it sells, which is by far the largest piece of value added in the entire supply chain. Apple figured out how to combine 451 mostly generic parts into a valuable product.
Hard Drive by Toshiba Japanese company, most of its hard drives made in the Philippines and China; it costs about $73 - $54 in parts and labor -- so the value that Toshiba added to the hard drive was $19 plus its own direct labor costs
Video/multimedia processor chip by Broadcom American company with manufactures facilities in Taiwan. This component costs $8.
Controller chip by Portal Player American company with manufactures .This component costs $5 .
-Final assembly done in China, costs only about $4 a unit
The unaccounted-for parts and labor costs involved in making the iPod came to about $110
The largest share of the value added in the iPod goes to enterprises in the United States $163 of the iPod’s $299 retail value in the United States was captured by American companies and workers, breaking it down to $75 for distribution and retail costs, $80 to Apple, and $8 to various domestic component makers.
Source: Varian, Hal R. The New York Times, June 28, 2007. An iPod Has Global Value. Ask the (Many) Countries That Make It.
GLOBAL VALUE CHAIN
Alfredo V. Primicias III | IR 204 | Dr. Cabegin| Tues. 6pm- 9pm
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HistoryFor developing countries, GVCs is as old as when we started exporting our commodities.
However, production, design, and marketing used to be more vertically integrated in developed countries.
Since 1980s – low costs of ICTs and wage differences, lower costs of transport, led to fragmentation of production – unbundling.
GVC Today
• Before countries had to build deep and wide industrial bases before becoming competitive. US, Germany, Japan.
• Today, countries take part in industrial production by joining international supply chains. Baldwin: ‘join-instead-of-build’ development paradigm. Emerging economies have adopted this new strategy.
GLOBAL VALUE CHAIN
Alfredo V. Primicias III | IR 204 | Dr. Cabegin| Tues. 6pm- 9pm
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What is a value chain?A value chain describes the full range of activities that firms and workers carry out to bring a product from its conception to its end use and beyond.
Source: CGGC (http://www.cggc.duke.edu), More Information: Global Value Chains (www.globalvaluechains.org )
8
GLOBAL VALUE CHAIN
Alfredo V. Primicias III | IR 204 | Dr. Cabegin| Tues. 6pm- 9pm
9
What isGVC?
Why GVC is analyzed?
Relevance of GVC
GVC= Global Value Chain
1.) Input- Output Structure2.) Geographical Consideration3.) Governance Structure4.) Institutional Context
4 Basic Dimensions*
Process that brings product or service from conception to consumer’s hands
Input- OutputStructure
Gereffi, 1995 | Humphrey and Schmidt 2002
Inputs Prod. for Export
Packing & Storage Processing
Distribution &
MarketingInputs Prod. for
ExportPacking &
Storage ProcessingDistributio
n & Marketing
GLOBAL VALUE CHAIN
Alfredo V. Primicias III | IR 204 | Dr. Cabegin| Tues. 6pm- 9pm
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What isGVC?
Why GVC is analyzed?
Relevance of GVC
GVC= Global Value Chain
1.) Input- Output Structure2.) Geographical Consideration3.) Governance Structure4.) Institutional Context
4 Basic Dimensions*
Developing Countries offer1.) Low Labor Cost2.) Raw MaterialsDeveloped Countries offer1.) Highly Educated Talent (R&D)2.) Product Design
Geographical Consideration
Gereffi, 1995 | Humphrey and Schmidt 2002
Regionalization:
EUASEAN
GLOBAL VALUE CHAIN
Alfredo V. Primicias III | IR 204 | Dr. Cabegin| Tues. 6pm- 9pm
11
http://online.wsj.com/article/SB10001424052748704828104576021142902413796.html
GLOBAL VALUE CHAIN
Alfredo V. Primicias III | IR 204 | Dr. Cabegin| Tues. 6pm- 9pm
12
What isGVC?
Why GVC is analyzed?
Relevance of GVC
GVC= Global Value Chain
1.) Input- Output Structure2.) Geographical Consideration3.) Governance Structure4.) Institutional Context
4 Basic Dimensions*
Authority and Power relationships that determine how financial, material and HR are allocated and flow within a chainGovernance
Structure
Gereffi, 1995 | Humphrey and Schmidt 2002
2 Terms of Governance:1.) Buyer- Driven (WalMart, Tesco, Nike, SM)2.) Producer- Driven (vertically integrated)
GLOBAL VALUE CHAIN
Alfredo V. Primicias III | IR 204 | Dr. Cabegin| Tues. 6pm- 9pm
13
What isGVC?
Why GVC is analyzed?
Relevance of GVC
GVC= Global Value Chain
1.) Input- Output Structure2.) Geographical Consideration3.) Governance Structure4.) Institutional Context
4 Basic Dimensions*
1.) Market2.) Modular3.) Relational4.) Captive5.) Hierarchy
Governance Structure 5 Typology
Gereffi, 1995 | Humphrey and Schmidt 2002
GLOBAL VALUE CHAIN
Alfredo V. Primicias III | IR 204 | Dr. Cabegin| Tues. 6pm- 9pm
14
What isGVC?
Why GVC is analyzed?
Relevance of GVC
GVC= Global Value Chain
1.) Input- Output Structure2.) Geographical Consideration3.) Governance Structure4.) Institutional Context
4 Basic Dimensions*
1.) Market•Transactions are simple•Information is easily transmitted•Suppliers can make products with minimal inputs from buyers•No formal cooperation between ‘actors’•Price is main consideration•McDonalds and Goldilocks
Governance Structure 5 Typology
Gereffi, 1995 | Humphrey and Schmidt 2002
GLOBAL VALUE CHAIN
Alfredo V. Primicias III | IR 204 | Dr. Cabegin| Tues. 6pm- 9pm
15
What isGVC?
Why GVC is analyzed?
Relevance of GVC
GVC= Global Value Chain
1.) Input- Output Structure2.) Geographical Consideration3.) Governance Structure4.) Institutional Context
4 Basic Dimensions*
2.) Modular•Complex transactions are easy to codify•Suppliers make products according to specifications using generic machines that spread investments across a wide customer base•Mexico and US– jeans industry
Governance Structure 5 Typology
Gereffi, 1995 | Humphrey and Schmidt 2002
GLOBAL VALUE CHAIN
Alfredo V. Primicias III | IR 204 | Dr. Cabegin| Tues. 6pm- 9pm
16
What isGVC?
Why GVC is analyzed?
Relevance of GVC
GVC= Global Value Chain
1.) Input- Output Structure2.) Geographical Consideration3.) Governance Structure4.) Institutional Context
4 Basic Dimensions*
3.) Relational•Buyers and Sellers rely on complex information that is not easily transmitted or learned•‘Lead Firms’ specify what is needed; exerts level of control over suppliers•Intel and Amkor Anam (Anam Tech)
Governance Structure 5 Typology
Gereffi, 1995 | Humphrey and Schmidt 2002
GLOBAL VALUE CHAIN
Alfredo V. Primicias III | IR 204 | Dr. Cabegin| Tues. 6pm- 9pm
17
What isGVC?
Why GVC is analyzed?
Relevance of GVC
GVC= Global Value Chain
1.) Input- Output Structure2.) Geographical Consideration3.) Governance Structure4.) Institutional Context
4 Basic Dimensions*
4.) Captive•Suppliers are dependent on Buyers who exert great deal of power•High degree of monitoring and control by the ‘Lead Firm’•Offshoring (Sykes, Convergys)
Governance Structure 5 Typology
Gereffi, 1995 | Humphrey and Schmidt 2002
GLOBAL VALUE CHAIN
Alfredo V. Primicias III | IR 204 | Dr. Cabegin| Tues. 6pm- 9pm
18
What isGVC?
Why GVC is analyzed?
Relevance of GVC
GVC= Global Value Chain
1.) Input- Output Structure2.) Geographical Consideration3.) Governance Structure4.) Institutional Context
4 Basic Dimensions*
5.) Hierarchy•Vertical integration•Product specifications can’t be codified, products are complex
Governance Structure 5 Typology
Gereffi, 1995 | Humphrey and Schmidt 2002
GLOBAL VALUE CHAIN
Alfredo V. Primicias III | IR 204 | Dr. Cabegin| Tues. 6pm- 9pm
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191919
Developing Country Examples in GVCs
SOFTWARE INDUSTRYMicrosoft and EgyptEgyptian firms translate software products of leading brands into Arabic, provide support package to users, running call centers. They have now branched into software development market in the Middle East.
IBM and VietnamFirms provide IBM software services to clients – banks, enterprises, the government Others distribute hardware
Participation in GVC makes upgrading easier- local firms have access to lead firm’s training. However, they sell and adapt established products and services. Genuine innovation is still in infancy. Firms lack maturity to compete globally.
AUTO INDUSTRYToyota and South AfricaToyota South Africa managed to export a couple of models globally. Local firms supplying to the first tier supplier experienced high competition to meeting technology, quality standards.
Volkswagen and MexicoNo SME has been able to use link to GVC as a springboard for its own internationalization. Import inputs, add little value to products.
Constraints: lack of skill labor, infrastructure, lack of finance to upgrade operations to meet international standards, no competitive edge in technology
GLOBAL VALUE CHAIN
Alfredo V. Primicias III | IR 204 | Dr. Cabegin| Tues. 6pm- 9pm
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2020
© 2010 Center on Globalization, Governance & Competitiveness © 2010 Center on Globalization, Governance & Competitiveness
Offshore Services Value Chain
GLOBAL VALUE CHAIN
Alfredo V. Primicias III | IR 204 | Dr. Cabegin| Tues. 6pm- 9pm
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212121
© 2010 Center on Globalization, Governance & Competitiveness © 2010 Center on Globalization, Governance & Competitiveness
Mapping Selected Countries in the Offshore Services Value Chain
12
Alfredo V. Primicias III | IR 204 | Dr. Cabegin| Tues. 6pm- 9pm222222
Factors that Hinder Lower-Income Countries to Enter GVCs
1. Being technology savvy is important - Knowledge intensive products depend on specialized and reliable suppliers. Low-income countries tend to be involved in low-value-added segments of chains; and in sectors where chains are shorter and less technologically intensive (eg. apparel, agriculture).
2. Need medium to large enterprises for large scale production. 3. Require investments to ensure timely shipments, high quality outputs.4. Management expertise necessary to meet complex GVC management
issues5. Size of the domestic market matters – attracts foreign forms . Smaller
developing countries have less leverage to create such a strong linkage with lead firms.
6. Trade and transport facilitation is important, but requires large financial resources. In recent years, assistance has increased but has gone to middle-income countries. In LDCs, donor resources may be competing with other priorities – health and education.
(UNCTAD, 2011)
22What isGVC?
Why GVC is analyzed?
Relevance of GVC
Alfredo V. Primicias III | IR 204 | Dr. Cabegin| Tues. 6pm- 9pm232323
In a NutShell…1. Participation in GVCs is useful.2. Ultimate objective must be building the domestic productive capacity (eg.
domestic industry in textiles and apparel).3. Developing countries inserting into the global economy through commodity
exports have little opportunities to sustain income growth in the long run. Only by upgrading into high-value added processes within primary industries or diversifying into technology-based and skill intensive sectors, will they be able to seize the development opportunities brought about by globalization.
4. In addition, and in most cases, poor framework conditions and deficient structural drivers – including skills, technology and innovation – largely inhibit the emergence of industrial capabilities.
23What isGVC?
Why GVC is analyzed?
Relevance of GVC
GLOBAL VALUE CHAIN
Alfredo V. Primicias III | IR 204 | Dr. Cabegin| Tues. 6pm- 9pm
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242424
Gary Gereffi, Director, CGGCDuke University
Center on Globalization, Governance & Competitiveness
ggere@soc.duke.edu
http://www.wto.org/english/res_e/statis_e/miwi_e/miwi_e.htm
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