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An Introduction to (Client Oriented) Global Value Chain Analysis

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Duke CGGC researcher Lukas Brun leads a guest lecture for Duke University Professor Bora Park’s “The Politics of Market Competition in a Global Economy” class. The lecture covers the work of Duke CGGC and the GVC framework.

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An Introduction to (Client Oriented) Global Value Chain Analysis

  1. 1. An Introduction to (client-oriented) Global Value Chain Analysis Lukas Brun March 28, 2017 Guest Lecture for The Politics of Market Competition in a Global Economy (POLSCI 555S)
  2. 2. Agenda • Center Background & Activities • The GVC analytical framework
  3. 3. • Undertakes client-sponsored research that addresses economic and social development issues for governments, foundations and international organizations. • We do this principally through the global value chain (GVC) framework, supplemented by other analytical tools. • As a university-based research center, we address clients’ real world questions with transparency and rigor.
  4. 4. Representative Duke CGGC Projects – Industries & Regions Low-Mid Tech • Coffee (Burundi) & tobacco (multiple) • Wheat, corn & cotton (multiple) • Oysters (U.S.) & Shrimp (Mexico) • Beef & Dairy (multiple) • Coal (U.S.) • Oil & Gas (Kazakhstan) • Textile & Apparel (multiple) • Furniture (U.S.) • Water & transportation infrastructure (U.S.) • Logistics & transportation (Kazakhstan) Mid-High Tech • Aerospace (Brazil, Costa Rica) • Automotive (Canada) • Geosynthetics (U.S.) • Lithium-ion Batteries (U.S.) • Medical devices (Brazil, Costa Rica) • Ocean technologies (Canada) • Shipbuilding (multiple) • Solar & Wind Renewable Energy (U.S.) • Smart Grid (U.S./NC)
  5. 5. Scoping • Typical client contacts us b/c they have vague idea that they need to know more about X and how they can improve doing Y. • Recent example: “we want to know more about the value chain for 3 industries: extreme climate and inshore vessels, autonomous vehicles, and underwater instruments” … • Defining X important step in contract and report development. – What are the specific research questions client is most interested in? – Definition stage time-consuming but worth it.
  6. 6. Recent Research Questions Economic Development Sustainable (Environment) Development • How do I introduce safe fishing practices for Mexican shrimp fisheries? • What is the opportunity for better water management practices in the Mexicali Valley? • What led to the adoption of innovation (high efficiency motors and non-VOC coatings) in the US and Europe? What lessons can be drawn for China’s manufacturing sector? • What role does my industry in x play in the international/national/regional/local sector? How can I capture more value in the sector? • What innovations have been adopted in the agricultural sector in region x to increase participation in regional and global value chains? Social (Inclusive) Development • How can women and youth play a greater role in regional and global value chains in industry x? • How successful have disadvantaged business policies been in government procurement and why?
  7. 7. Governments Private foundations Recent clients Governmental organizations
  8. 8. Source: https://public.tableau.com/profile/stacey3346#!/vizhome/CGGC/CountriesMap
  9. 9. The GVC Framework Major components of the framework 1) Input-output structure: raw materials  inputs  final product 2) Geographic scope: local to global 3) Analysis of lead firms and governance 4) Institutional framework: rules, forums of exchange, and key organizations Analytical Sections • Mapping the Global Value Chain • Geographic Distribution (global demand, global supply) • Lead firms and governance • Standards and institutions • Human capital and workforce development • Upgrading trajectories
  10. 10. GVC MAPPING
  11. 11. Understand product or service Battleship Bulker Floating Production, Storage & Offloading Passenger Cruise Vessel Roll-on Roll-off (“RoRo”) Trawler Icebreaker LNG Ship LPG Ship Crude Tanker Container Vessel Refrigerated Vessel “Reefer”
  12. 12. Market Segments • Commercial – Commercial transportation vessels – Offshore vessels • Passenger & Recreational • Military/Government – Defense – Research Commercial • Barges • Bulk Carriers • Container Ships • Fishing vessels • General Cargo • Oil & Gas Exploration, Service & Supply • Tankers • Tugs/Barge Tugs Government • Defense • Research Passenger & Recreational
  13. 13. Propulsion system Electric plant Command & surveillance systems Auxiliary systems Outfit & furnishings Hull • Engine • Thrust block • Generator • Propeller shaft • Control unit • Propeller • Electric motor • Electric power generation and distribution • Lighting systems • Ship steering system • Berthing, mooring & towing systems • Climate control, fire extinguishing & water systems • Fluid, fuels handling & storage • Anchor handling & stowage systems • Auxiliary boats & stowage system • Replenishment-at-sea • Aircraft handling, servicing & stowage • Environmental pollution control systems • Steel plates (“skin”) • Keel • Girders • Frames • Beams • Coatings & Paint • Command system • Integrated Platform Management System (IPMS) • Electromagnetic environmental effects (E3) & radiation control • Navigation system • Meteorological & oceanographic system • Communication systems • Surveillance systems • Ship fittings • Hull compartments • Deck machinery • Preservatives & coverings • Living spaces Ship Systems & Subsystems
  14. 14. Create Value Chain • Value chain of (most important) pre- production, production & post-production phases & activities – Input-output driven approaches v. “craft”
  15. 15. Value Adding Activities Manufacturing • Pre-production • Production – Raw Materials – Component & Subassemblies – Final assembly • Post-production Services • Research & Development • Design • Manufacturing • Distribution • Marketing • Maintenance • Deconstruction • What are low-value products & activities? What are high-value? • How do manufacturing and services relate to one another in the product?
  16. 16. Parts & Components Composite components Mechanical components Electronic components Wiring Hull Platform Systems • Propulsion system • Electric plant • Auxiliary Systems (e.g. ship steering; berthing, mooring & towing; HVAC; anchor handling) • Outfit & Furnishings Sub-Systems/ Subassemblies Final Products Systems integration Hull blocking & assembly Outfitting Assembly & Integration Offshore Post-Sales Services Technical training, manuals and customer support Maintenance & Repair (ISS) Mission Systems • Navigation • Electronic • Communication Chemicals/paint/ coatings End-of-Life Decommissioning & Disassembly Recycling/ Disposal Passenger & Recreational Tankers Containerships/ Other Cargo Bulkers Other (tugs, fishing, dredgers, etc.) Metal (steel)/alloys Storage Design and Production Support Services Ship & sub-assembly design Materials planning & procurement (shipbuilder & systems integrators) Production planning & engineering (shipbuilder and/or specialized firms) Policies & Regulations Government Education & Training Research Supporting Institutions & Organizations
  17. 17. Value Composition Major Categories System Breakout External services + contracts 7% Materials 24% Systems/ equipment 69% external services 7% total steel (hull, superstructures) 13% total ducts + pipes 7% paintings and coatings 4% ship operation 6%cargo handling 14% accomodations 8% propulsion + power generation 18% auxiliary systems (excl. pipes) 12% electrical plants, electronics + automation 11% Source: Calculated from EU Commission (2014)
  18. 18. GEOGRAPHIC SCOPE Global Production
  19. 19. Identify market dynamics in segments & industry • What are the major market & technology developments in the segment & industry? – Technology changes? Regulatory issues? Environmental issues? • Production, exports and imports of product – main actors (countries) – growth/decline in – causes of changes • Generally, what are the major issues and trends in the industry?
  20. 20. World new shipbuilding completions (million GT), 2003-2015 Source: IHS Fairplay; Japanese Shipbuilders Assn (2016)
  21. 21. World Completions by Country, 2010-2015 World Completions by Ship Type, 2010-2015 LPG/LNG, 4% Chemical, 4% Tanker, 15% Bulk Carrier, 48% Containership, 18% Other Dry Cargo, 7% Passenger, 1% Misc, 4% China 38% S. Korea 34% Japan 20% Others 8% Global Production in the Shipbuilding GVC Source: Calculated from IHS Fairplay; Japanese Shipbuilders Assn (2016)
  22. 22. Bulk Carrier 42% Containership 21% LNG Tanker 18% Crude Oil Tanker 11% Chemical/Oil Products Tanker 8% Japan Bulk Carrier 40% Containership 29% Chemical/Oil Products Tanker 16% Crude Oil Tanker 9% General Cargo 6% China LNG Tanker 38% Crude Oil Tanker 27% Containership 20% LPG Tanker 9% Chemical/Oil Products Tanker 6% Korea 0 50 100 150 200 250 2010Avg.Price($US,Mil) Source: IHS Fairplay; Japanese Shipbuilders Assn (2016); UNCTAD 2016 (top)
  23. 23. EXPORTS AND IMPORTS Global Trade
  24. 24. World Ship Exports, by Type & Value, 2007-2015 (US$ billions) Source: UN COMTRADE
  25. 25. Global ship exports (2015) Rep. of Korea, 30% China, 22% Japan, 9% Germany, 4% Poland, 4% India, 3% Netherlands, 3% Italy, 3% USA, 2% Saudi Arabia, 2% Singapore, 1% France, 1% Spain, 1% Brazil, 2% Philippines, 1% Source: UN COMTRADE
  26. 26. Global Ship Exports and Imports Exports (2015) Overall Container ships, Bulkers, Cargo Offshore Tankers Recreatio nal vessels Passenger ships Total Exports $129 billion $44 billion $33 billion $22 billion $12 billion $5 billion Top 5 (by type) Korea (30%) China (37%) Korea (50%) Korea (58%) Italy (16%) Germany (38%) China (22%) Japan (21%) China (18%) China (18%) Netherlan ds (15%) Italy (23%) Japan (9%) Korea (20%) India (8%) Japan (8%) USA (13%) Finland (10%) Germany (4%) Poland (6%) Brazil (6%) Poland (7%) Germany (11%) Philippine s (7%) Poland (4%) Germany (3%) Singapore (4%) Germany (3%) France (9%) Poland (4%) Korea 0.1%, 46th 1%, 14th HS02 89 890190, 890130 890520, 890590 890120 8903 890110 Imports (2015) Overall Other carriers Tankers Recreatio nal vessels Passenge r ships Total imports $53 billion $13 billion $6 billion $9 billion $2 billion Top 5 (market share in vessel type) India (9%) Germany (216) Poland (25%) USA (14%) Denmark (13%) Poland (8%) Denmark (14%) Greece (17%) UK (11%) India (12%) Norway (5%) Poland (14%) Russia (13%) Netherlan ds (9%) Malaysia (9%) Denmark (5%) Greece (10%) Belgium (7%) Canada (7%) Poland (9%) Germany (5%) Korea (9%) Denmark (6%) Malta (7%) Italy (8%) Source: UN Comtrade Source: calculated from UN Comtrade
  27. 27. INDUSTRY GOVERNANCE & LEAD FIRMS
  28. 28. • Shipbuilder (project management, procurement)Shipbuilder •Platform system integrators (propulsion & auxiliary systems) •Mission systems integrators (command, surveillance & armament systems, outfit & furnishings) •Shipbuilder (hull, outfit & furnishings) Tier 1 • Sub-system manufacturers (HVAC, Sensors, Communications, Winches…) • Suppliers to Tier 1Tier 2 • Sub-system components • Suppliers to Tier 2Tier 3 • Raw materials and subcomponents for sub- systems • Suppliers to Tier 3 Tier 4 Shipbuilding Production System
  29. 29. Leading shipbuilding companies worldwide as of March 2016, by orderbook value (in billion U.S. dollars) 24.42 19.9 15.07 10.47 9.89 0 5 10 15 20 25 30 Hyundai HI (South Korea) Daewoo Shipbuilding (South Korea) China State Shipbuilding Corp. (China) Samsung HI (South Korea) Imabari Shipbuilding (Japan) Value in billion U.S. dollars Source: Statista
  30. 30. Leading component firms System Subsystem Global Lead Firms Hull Steel multiple Coatings/Paint Akzo Nobel (Brand: International Paint)(Netherlands); Chogoku Marine Paints (Japan).; Jotun Paints (UK); PPG Coatings (China, Belgium); Sigma Samsung Coatings (Korea); Subsea Industries (Belgium) Platform Systems Propulsion ABB (Switz); Caterpillar (US); GE (US); MAN Diesel (Germany); Sulzer (Switz); Rolls Royce (UK/US); Stadt (Norway); TECO Westinghouse (US); Wartsila (Finland; China) Marine Engines HHI (Korea): marine diesel engines Doosan (HSD) (Korea) Mitsui (Japan) See Excel HVAC Bronswerk Marine; Alscott Air Systems Mission Systems Communication L-3 Communications; Thales; Saab Navigation Kongsberg; SperryMarine
  31. 31. Number of Firms? Zero 1 < X ≤ X < X ≤ X Over X Assembly & Integration Final Products Marketing & Sales Offshore Post-Sales Services Technical training, manuals and customer support Maintenance & Repair (ISS) End-of-Life Decommissioni ng & Disassembly Recycling/ Disposal Passenger & Recreational Tankers Containerships / Other Cargo Bulkers Other (tugs, fishing, dredgers, etc.) Storage Design and Production Support Services Ship & sub-assembly design Materials planning & procurement (shipbuilder & systems integrators) Production planning & engineering (shipbuilder and/or specialized firms) Parts & Components Composite components Mechanical components Electronic components Wiring Hull Platform Systems • Propulsion system • Electric plant • Auxiliary Systems (e.g. ship steering; berthing, mooring & towing; HVAC; anchor handling) • Outfit & Furnishings Sub-Systems/ Subassemblie s Systems integration Hull blocking & assembly Mission Systems • Navigation • Electronic • Communication Chemicals/pai nt/ coatings Metal (steel)/alloys Outfitting Philippines in the Shipbuilding Value Chain
  32. 32. STANDARDS AND INSTITUTIONS
  33. 33. Important Standard Setting Organizations and Agreements in the Shipbuilding GVC IACS International Association of Classification Societies: Umbrella organization for the major twelve national classification societies, which comprise more than 90% of in- service cargo ships. The twelve members represent the US, UK, Russia, Poland, South Korea, Japan, Italy, India, Germany/Norway, France, Croatia, and China National classification societies Classification, societies set technical rules confirm that designs and calculations meet these rules, inspect (“survey”) ships and structures during construction and commissioning, and survey vessels to ensure that they continue to meet the rules during in-service IMO International Maritime Organization: United Nations agency founded in 1948 which establishes standards on maritime safety, health and environmental protection SOLAS International Convention for the Safety of Life at Sea (1974): key IMO convention that governs many of the safety regulations for ships. MARPOL International Convention for the Prevention of Pollution from Ships (1973, modified 1978, 1997): key IMO convention that govern air and water pollution released from marine sources. Includes Annex VI, which limits sulphur oxide nitrogen oxide emissions from ship exhausts and mandatory technical and operational energy efficiency measures aimed at reducing greenhouse gas emissions from ships.
  34. 34. Sample certifications Marine equipment • EU’s Marine Equipment Directive (MED) – requires that certain categories of marine equipment placed on European ships have a EU marine equipment “conformity mark”. • Typically required for safety equipment by Classification Society – KRS: radio equipment, fire extinguishing equipment, lifesaving equipment, voyage recorders and low location lighting (LLL) systems Management systems • ISO 9001 - Quality management certification • ISO 14001- Environmental management system certification • ISO 28000- Supply chain security management certification • ISO 28007- Guidelines for Private Maritime Security Companies (PMSC) providing privately contracted armed security personnel (PCASP) on board ships • ISO 50001- Energy efficiency management system certification • OHSAS 18001- Occupation health and safety management system certification
  35. 35. UPGRADING
  36. 36. Industrial Upgrading • Products: Moving to higher value niches in GVCs (goods & services) • Industries: Moving from labor- intensive to capital intensive to knowledge & technology intensive industries • Roles: Assembly – OEM – OBM – ODM • Capabilities: Production to Design to Commercialization to Innovation Smile Curve
  37. 37. Stage Value Chain Segment Capability Level Activity Example Pre-production Research & Design Low Product design modification and customization Re-designing ships for conversion and refitting Medium Applied research and new product design Developing a new hull design with advanced capability or efficiency High Basic nautical research Conducting scientific research to develop new anti- fouling coatings Purchasing Low Local search for supply chain partners Shipbuilder identifies outfitting contractors within 20 km of plant Medium Local and regional search for supply chain partners + practice of simple supply chain management practices Shipbuilder scans for regional outfitting contractors and maintains informal quality assessments of suppliers High Regional and/or global search for supply chain partners + sophisticated supply chain management practices Shipbuilder seeks “best in class” component producers and evaluates suppliers with balanced scorecards Production Production Low Construction + assembly of simple vessels Cargo vessels and bulk carriers Medium Block construction + assembly for moderately complex vessels Producing moderately sophisticated ships (LNG tankers; Ro-Ros) High Fully integrated block construction + assembly for complex vessels Producing sophisticated passenger ships (cruise ships) or military vessels (frigates; aircraft carriers) Post-production Marketing, distribution and post- production services Low Domestic distribution + MRO Domestic distribution and MRO repair network for locally owned and operated commercial vessels Medium Domestic + regional distribution and MRO Regional distribution of assembled vessels and providing MRO for regionally-owned and operated commercial + passenger vessels High Domestic + regional + international distribution and MRO activities + advanced post-production services, such as consulting & training Global export of assembled vessels; providing MRO for globally-owned and operated commercial/passenger or sophisticated military vessels; providing post- production services for commercial/passenger + military vessels
  38. 38. Upgrading • Entry: firm entering the shipbuilding segment and offering a simple product or service within the shipbuilding industry. • Product upgrading: increase the value of the good or service produced by a firm. For example, a firm could produce a more durable product or provide a service requiring advanced engineering capabilities more valued in the marketplace. • Process upgrading: a firm produces a product or service more efficiently. For example, some shipbuilders have adopted robotic plasma steel plate-cutting to improve cutting quality, speed, and waste reduction. In-sourcing and outsourcing decisions are also process upgrading practices used in the shipbuilding industry. • Functional upgrading: firm enters new segments of a value chain. Examples include adding maintenance services to existing product offerings, or creating new products identified as a potential growth market in the industry. • Intersectoral upgrading: allows companies from one sector to enter another sector.
  39. 39. Some thoughts about upgrading… • Traditional focus has been on process upgrading and product upgrading – R&D and design almost exclusively focused on better processes or products (deepening capability) – Opportunity: producing components for LNG ships domestically – Opportunity: diversifying end-markets for Korea intermediate suppliers • Functional upgrading hard, but currently pursued • Downstream largely not considered. – Opportunities for innovations in finance – lowering total cost of ownership for shipowners (leasing, addressing maintenance surveys)
  40. 40. Parts & Components Manufacturing Composite components Mechanical components Electronic components Software Wiring HullPlatform Systems • Propulsion system • Electric plant • Auxiliary Systems (e.g. ship steering; berthing, mooring & towing; HVAC; anchor handling) • Outfit & Furnishings Sub-Systems/ Subassembly Marketing & Sales Systems integration Hull blocking & assembly Outfitting Assembly & Integration Market Segments Commercial • Barges • Bulk Carriers • Container Ships • Fishing vessels • General Cargo • Oil & Gas Exploration, Service & Supply • Tankers • Tugs/Barge Tugs Government • Defense • Research Post-Sales Services Technical training, manuals and customer support Maintenanc e & Repair (ISS) Design Ship & sub- assembly design Mission Systems • Navigation • Electronic • Communication Hull components End-of-Life Storage Decommissioning & Disassembly Recycling/ Disposal Passenger & Recreational Metals, Alloys & CompositesChemicals Inputs Production Support Services • Materials planning & procurement (shipbuilder & systems integrators) • Production planning & engineering (shipbuilder and/or specialized firms) Policies & Regulations Government Education & Training Research Supporting Institutions & Organizations
  41. 41. Key take-aways Value chain analysis is an economic development tool to help: – Define industries – Identify where & how value is added in an industry – Identify market & technology trends especially key exporters and importers – Identify companies in each segment and phase of an industry – Understand how private governance and public policies affect the conduct and performance of an industry – Identify needed skills and key stakeholders – Develop upgrading recommendations for local economy

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