Ir 204 global value chain

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Ir 204 global value chain

  1. 1. GLOBAL VALUE CHAIN Report by Alfredo V. Primicias III In partial fulfillment of IR 204| Tues. 6pm -9pm | Dr. Cabegin University of the Philippines- Diliman, Quezon City
  2. 2. Alfredo V. Primicias III | IR 204 | Dr. Cabegin| Tues. 6pm- 9pm 2What is GVC? Why GVC is analyzed? Relevance of GVC 1. GVC stands for-- 5 points a) Global Volume Consumption b) Gas Valve Compound c) Global Value Chain C 2. Globalization is (pg 15, Handbook for Value Chain by R Kaplinsky and M Morris)-- 10 points a) 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 views c.) 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) TRUE b.) FALSE A
  3. 3. Alfredo V. Primicias III | IR 204 | Dr. Cabegin| Tues. 6pm- 9pm 3 4. Global Foreign Direct Investment (FDI) fell to 18% from US$1.25T in 2011 to US$ 1.95T- 20 points a) True b) 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
  4. 4. GLOBAL VALUE CHAIN Alfredo V. Primicias III | IR 204 | Dr. Cabegin| Tues. 6pm- 9pm 4 What is GVC? Why GVC is analyzed? Relevance of GVC GVC= Global Value Chain 1.) International Trade 2.) Global GDP 3.) Employment Significance 1.) Understand how global industries are organized 2.) Trace shifting patterns of global production 3.) Focus on Value Added- conception to production Framework 1.) How China and India became new drivers 2.) Why process certifications = export- oriented success 3.) What demand- driven workforce development is Importance Pages 2, 3: Global Value Chain Analysis: A Primer by Gary Gereffi and Karina Stark/ 2011
  5. 5. GLOBAL VALUE CHAIN Alfredo V. Primicias III | IR 204 | Dr. Cabegin| Tues. 6pm- 9pm 5 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.
  6. 6. GLOBAL VALUE CHAIN Alfredo V. Primicias III | IR 204 | Dr. Cabegin| Tues. 6pm- 9pm 6 China 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.
  7. 7. GLOBAL VALUE CHAIN Alfredo V. Primicias III | IR 204 | Dr. Cabegin| Tues. 6pm- 9pm 7 History For 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.
  8. 8. GLOBAL VALUE CHAIN Alfredo V. Primicias III | IR 204 | Dr. Cabegin| Tues. 6pm- 9pm 8 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
  9. 9. GLOBAL VALUE CHAIN Alfredo V. Primicias III | IR 204 | Dr. Cabegin| Tues. 6pm- 9pm 9 What is GVC? Why GVC is analyzed? Relevance of GVC GVC= Global Value Chain 1.) Input- Output Structure 2.) Geographical Consideration 3.) Governance Structure 4.) Institutional Context 4 Basic Dimensions* Process that brings product or service from conception to consumer’s hands Input- Output Structure Gereffi, 1995 | Humphrey and Schmidt 2002 Inputs Prod. for Export Packing & Storage Processing Distributi on & Marketing Inputs Prod. for Export Packing & Storage Processing Distributi on & Marketing
  10. 10. GLOBAL VALUE CHAIN Alfredo V. Primicias III | IR 204 | Dr. Cabegin| Tues. 6pm- 9pm 10 What is GVC? Why GVC is analyzed? Relevance of GVC GVC= Global Value Chain 1.) Input- Output Structure 2.) Geographical Consideration 3.) Governance Structure 4.) Institutional Context 4 Basic Dimensions* Developing Countries offer 1.) Low Labor Cost 2.) Raw Materials Developed Countries offer 1.) Highly Educated Talent (R&D) 2.) Product Design Geographical Consideration Gereffi, 1995 | Humphrey and Schmidt 2002 Regionalization: EU ASEAN
  11. 11. GLOBAL VALUE CHAIN Alfredo V. Primicias III | IR 204 | Dr. Cabegin| Tues. 6pm- 9pm 11 http://online.wsj.com/article/SB10001424052748704828104576021142902413796.html
  12. 12. GLOBAL VALUE CHAIN Alfredo V. Primicias III | IR 204 | Dr. Cabegin| Tues. 6pm- 9pm 12 What is GVC? Why GVC is analyzed? Relevance of GVC GVC= Global Value Chain 1.) Input- Output Structure 2.) Geographical Consideration 3.) Governance Structure 4.) 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)
  13. 13. GLOBAL VALUE CHAIN Alfredo V. Primicias III | IR 204 | Dr. Cabegin| Tues. 6pm- 9pm 13 What is GVC? Why GVC is analyzed? Relevance of GVC GVC= Global Value Chain 1.) Input- Output Structure 2.) Geographical Consideration 3.) Governance Structure 4.) Institutional Context 4 Basic Dimensions* 1.) Market 2.) Modular 3.) Relational 4.) Captive 5.) Hierarchy Governance Structure 5 Typology Gereffi, 1995 | Humphrey and Schmidt 2002
  14. 14. GLOBAL VALUE CHAIN Alfredo V. Primicias III | IR 204 | Dr. Cabegin| Tues. 6pm- 9pm 14 What is GVC? Why GVC is analyzed? Relevance of GVC GVC= Global Value Chain 1.) Input- Output Structure 2.) Geographical Consideration 3.) Governance Structure 4.) 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
  15. 15. GLOBAL VALUE CHAIN Alfredo V. Primicias III | IR 204 | Dr. Cabegin| Tues. 6pm- 9pm 15 What is GVC? Why GVC is analyzed? Relevance of GVC GVC= Global Value Chain 1.) Input- Output Structure 2.) Geographical Consideration 3.) Governance Structure 4.) 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
  16. 16. GLOBAL VALUE CHAIN Alfredo V. Primicias III | IR 204 | Dr. Cabegin| Tues. 6pm- 9pm 16 What is GVC? Why GVC is analyzed? Relevance of GVC GVC= Global Value Chain 1.) Input- Output Structure 2.) Geographical Consideration 3.) Governance Structure 4.) 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
  17. 17. GLOBAL VALUE CHAIN Alfredo V. Primicias III | IR 204 | Dr. Cabegin| Tues. 6pm- 9pm 17 What is GVC? Why GVC is analyzed? Relevance of GVC GVC= Global Value Chain 1.) Input- Output Structure 2.) Geographical Consideration 3.) Governance Structure 4.) 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
  18. 18. GLOBAL VALUE CHAIN Alfredo V. Primicias III | IR 204 | Dr. Cabegin| Tues. 6pm- 9pm 18 What is GVC? Why GVC is analyzed? Relevance of GVC GVC= Global Value Chain 1.) Input- Output Structure 2.) Geographical Consideration 3.) Governance Structure 4.) 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
  19. 19. GLOBAL VALUE CHAIN Alfredo V. Primicias III | IR 204 | Dr. Cabegin| Tues. 6pm- 9pm 19 191919 Developing Country Examples in GVCs SOFTWARE INDUSTRY Microsoft and Egypt Egyptian 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 Vietnam Firms 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 INDUSTRY Toyota and South Africa Toyota 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 Mexico No 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
  20. 20. GLOBAL VALUE CHAIN Alfredo V. Primicias III | IR 204 | Dr. Cabegin| Tues. 6pm- 9pm 20 2020 © 2010 Center on Globalization, Governance & Competitiveness© 2010 Center on Globalization, Governance & Competitiveness Offshore Services Value Chain
  21. 21. GLOBAL VALUE CHAIN Alfredo V. Primicias III | IR 204 | Dr. Cabegin| Tues. 6pm- 9pm 21 212121 © 2010 Center on Globalization, Governance & Competitiveness© 2010 Center on Globalization, Governance & Competitiveness Mapping Selected Countries in the Offshore Services Value Chain 12
  22. 22. Alfredo V. Primicias III | IR 204 | Dr. Cabegin| Tues. 6pm- 9pm 222222 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 issues 5. 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 is GVC? Why GVC is analyzed? Relevance of GVC
  23. 23. Alfredo V. Primicias III | IR 204 | Dr. Cabegin| Tues. 6pm- 9pm 232323 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 is GVC? Why GVC is analyzed? Relevance of GVC
  24. 24. GLOBAL VALUE CHAIN Alfredo V. Primicias III | IR 204 | Dr. Cabegin| Tues. 6pm- 9pm 24 242424 Gary Gereffi, Director, CGGC Duke 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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