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From Value Chain Mapping to Policy Recommendations

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Professor Gary Gereffi’s presentation highlights the GVC experiences of different countries, including China vs. Mexico and the offshore services GVC of countries like Chile and Costa Rica. It also shows how Mexico links regional value chains, clusters and policies; and some of the development strategy challenges facing emerging economies. Professor Gereffi presented this overview at the World Bank Group, Trade & Competitiveness GVC workshop on technical tools and operations in Washington, DC on June 17, 2016.

Published in: Economy & Finance

From Value Chain Mapping to Policy Recommendations

  1. 1. © 2015 CGGC, Duke University FROM VALUE CHAIN MAPPING TO POLICY RECOMMENDATIONS 1 Gary Gereffi Duke University June 17, 2016 World Bank Group, Trade & Competitiveness GVC workshop on technical tools and operations Washington, DC
  2. 2. © 2014 Duke CGGC AGENDA COUNTRY EXPERIENCES • China vs. Mexico • Offshore services GVC (Chile, Costa Rica, et al.) • Mexico: Clusters, Nations & Regions • Emerging Economies in GVCs: Diversity & Policies
  3. 3. © 2014 Duke CGGC GVC BATTLE FOR THE U.S. MARKET: CHINA VS. MEXICO 3
  4. 4. © 2014 Duke CGGC  Head-to-head competition in U.S. market  China is world’s leading exporter of many manufactures, esp. consumer goods  China and Mexico are typically among the top three exporters to the U.S. market in many product categories  China is moving ahead of Mexico with dominant market shares in the United States since 2000 Mexico vs. China 4
  5. 5. © 2014 Duke CGGC 5 Composition of Mexico’s Exports to the World Market, 1990-2014 Source: UN Comtrade. 26 27 46 52 61 80 96 110 117 136 166 158 161 165 188 214 250 272 291 230 298 350 371 380 398 0 5 10 15 20 25 30 35 40 45 50 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 %ExportMarket Primary Products Resource Based Manufactures Low Tech Manufactures Medium Tech Manufactures High Tech Manufactures Total Exports US $B
  6. 6. © 2014 Duke CGGC 6 Composition of China’s Exports to the World Market, 1990-2014 Source: UN Comtrade. 62 72 85 92 121 149 151 183 184 195 249 266 326 438 593 762 969 1.2T 1.4T 1.2T 1.6T 1.9T 2.0T 2.2T 2.3T 0 10 20 30 40 50 60 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 %ExportMarket Primary Products Resource Based Manufactures Low Tech Manufactures Medium Tech Manufactures High Tech Manufactures Total Exports US $B
  7. 7. © 2014 Duke CGGC Mexico's and China's Competing Exports to US Market 7 SITC Category Product Value (billions) Share of US market Value (billions) Share of US market Value (billions) Share of US market Mexico 6.4 11.5 5.6 9.6 13.5 16.6 -1.9 7.0 China 6.3 11.3 28.6 49.3 53.3 65.7 38.0 16.4 US Total 55.9 57.9 81.1 Mexico 9.1 20.6 10.8 13.6 12.1 10.2 -7.0 -3.4 China 4.6 10.3 29.6 37.3 68.7 58.0 26.9 20.8 US Total 44.3 79.5 118.4 Mexico 3.1 18.3 5.0 21.8 7.2 21.4 3.5 -0.4 China 2.0 11.9 6.1 26.6 11.2 33.2 14.7 6.6 US Total 17.1 23.1 33.7 Mexico 4.6 16.3 10.2 22.2 19.1 30.4 5.8 8.2 China 0.4 1.5 3.6 7.8 8.3 13.2 6.2 5.4 US Total 28.4 46.2 62.9 Mexico 3.2 16.9 4.6 13.6 7.6 18.3 -3.3 4.7 China 4.5 23.6 16.2 47.7 19.2 46.3 24.1 -1.4 US Total 18.9 33.9 41.5 Mexico 8.7 13.6 4.7 5.8 4.0 4.4 -7.8 -1.4 China 8.5 13.2 27.1 33.4 34.2 37.9 20.2 4.5 US Total 64.3 81.2 90.2 Source: US Department of Commerce (http://dataweb.usitc.gov), Downloaded Aug 26, 2015 84 Apparel and Cothing 778 Electrical Machinery 784 Auto Parts 2007 821 Furniture 752 Automatic Data Processing Machines 764 Telecom Equipment 2014 Change in Market Share 2007-2014 Change in Market Share 2000-2007 2000
  8. 8. © 2014 Duke CGGC 8Source: USITC http://dataweb.usitc.gov downloaded Aug 26, 2015
  9. 9. © 2014 Duke CGGC 9Source: USITC http://dataweb.usitc.gov downloaded Aug 26, 2015
  10. 10. © 2014 Duke CGGC 10Source: USITC http://dataweb.usitc.gov downloaded Aug 26, 2015
  11. 11. © 2014 Duke CGGC 11Source: USITC http://dataweb.usitc.gov downloaded Aug 26, 2015
  12. 12. © 2014 Duke CGGC  China is a lower-cost producer overall (labor costs lower, but not transport & tariffs)  China has huge scale economies  China has a coherent and multidimensional upgrading strategy – diversify and add high value activities  China is using direct foreign investment to promote “fast learning” in new industries  China uses access to its domestic market to attract TNCs and promote knowledge spillovers Why is China gaining U.S. market share over Mexico? 12
  13. 13. © 2014 Duke CGGC China’s Supply Chain Cities in Apparel 13
  14. 14. © 2014 Duke CGGC 14  What kinds of work are Chinese, Indian, and American engineers actually doing? • Answer: Not just product adaptation, but cutting-edge research & commercialization  China: More than 1,200 MNC R&D Centers • GE’s China Technology Center: Advanced research in energy storage, environmental management • Microsoft Research Asia: Cutting-edge graphics & multimedia research
  15. 15. © 2014 Duke CGGC China Is Climbing the Value Chain… • Moving from low-tech to high-tech manufactured goods • Moving from manufacturing to high value services – R&D, design, marketing of national brands, logistics, finance • Moving from inward FDI (joint ventures & technology transfer) to outward FDI (primary commodities, computers, shipping) • BUT BEWARE…High tech exports don’t necessarily mean high value added production  e.g., China’s iPod
  16. 16. © 2014 Duke CGGC 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 $8 to various domestic component makers. Source: Varian, Hal R. The New York Times, June 28, 2007. An iPod Has Global Value. Ask the (Many) Countries That Make It.
  17. 17. © 2014 Duke CGGC U.S. Trade Balance with China for iPhone 4 (US$, 1 unit) 17 Source: G. Gereffi and J. Lee, “Why the world suddenly cares about global supply chains,” Journal of Supply Chain Management (2012).
  18. 18. © 2014 Duke CGGC Emerging Economies: Development Strategies in Conflict China: Combining labor-intensive, technology- intensive and knowledge-intensive GVCs • iPhone case: East Asian regional ecosystem • Innovation & MNC R&D centers; joint-ventures Brazil • Soybean value chain • Electronics & Foxconn South Africa • Climbing natural resource GVCs in Africa
  19. 19. © 2015 CGGC, Duke University COSTA RICA’S OFFSHORE SERVICES GVC 19
  20. 20. © 2015 CGGC, Duke University© 2015 CGGC, Duke University EXAMPLE 2 -- OFFSHORE SERVICES: A Simplified View of Upgrading 20 ITO – Information technology outsourcing BPO – Business process outsourcing KPO – Knowledge process outsourcing ITO  BPO  KPO
  21. 21. © 2015 CGGC, Duke University © 2013 Duke CGGC OFFSHORE SERVICES GLOBAL VALUE CHAIN Infrastructure Software Network Management Applications Management Applications Development Applications Integration Desktop management CRM (Customer Relationship Management) HRM (Human Resource Management) ERM (Enterprise Resource Management) Marketing & Sales Finance & Accounting Procurement, Logistics and Supply Chain Management Training Payroll Recruiting Contact Centers/Call Centers Talent Management Content/ Document Management ITO Information Technology Outsourcing BPO Business Process Outsourcing KPO Knowledge Process Outsourcing Horizontal Activities Vertical Activities a Industry specific b Banking, Financial Services and Insurance (BFSI) Ex. Investment research, private equity research, and risk management analysis Telecommunications Ex. IP transformation, Interoperability testing and DSP and multimedia Manufacturing Ex. Industrial Engineering and sourcing and vendor management Retail eComerce and Planning, merchandising and demand intelligence Health/Pharma Ex. R&D, clinical trials, medical transcript Others Travel & Transportation Revenue management systems, customer loyalty solutions Business Consulting Business Analytics Market Intelligence Legal Services Energy Ex. Energy Trading and Risk Management , and Digital oil field solutions ERP (Enterprise Resource Planning): manufacturing/operations, supply chain management, financials & project management Infrastructure Management IT Consulting Software R&D ValueAdded LOW HIGH 21
  22. 22. © 2015 CGGC, Duke University LEAD OFFSHORE SERVICES COMPANIES IN COSTA RICA ITO General Business Activities Industry Specific Activities ValueAdded Broad Spectrum (ITO, BPO & KPO) d Call&Contact Centers CallCentersITBackOffice BPO KPO 22
  23. 23. © 2015 CGGC, Duke University COSTA RICA IN THE OFFSHORE SERVICES GVC, 2011 KPO General Business Activities Industry Specific Activities ValueAdded Broad Spectrum (ITO, BPO & KPO) d $638m $223m $186m $141m Call&Contact CentersCallCentersITBackOffice$51m $66m $85m 10,472 6,034 BPO 7,753 6,106 792 1,123 890 23 ITO
  24. 24. © 2015 CGGC, Duke University COSTA RICA: AVERAGE EXPORTS PER EMPLOYEE BY VALUE CHAIN SEGMENT, 2011 $94,907 $83,522 $60,943 $45,671 $27,658 890 792 10,472 1,123 19,893 0 5000 10000 15000 20000 25000 $0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 $80,000 $90,000 $100,000 NumberofEmployees ExportsUS$ Average exports per employee (LH) Number of employees (RH)
  25. 25. © 2015 CGGC, Duke University MEXICO: LINKING REGIONAL VALUE CHAINS, CLUSTERS, AND POLICIES 25
  26. 26. © 2015 CGGC, Duke University Mexico’s Plan Nacional de Desarrollo, 2013-2018 Estrategia Sectorial
  27. 27. © 2015 CGGC, Duke University© 2015 CGGC, Duke University UPGRADING: LEVELS OF ANALYSIS FIRMS • Within a firm CLUSTER • A group of firms in a particular geographic area COUNTRY • Critical mass of firms in a country REGION • Critical mass of firms in a region
  28. 28. © 2013 Duke CGGC
  29. 29. © 2013 Duke CGGC Automobile production in 2007 and 2011 1 USA TRADITIONAL 2 USA NEW 3 Mexico TRADITIONAL 4 Mexico NEW 5 Ontario CA
  30. 30. © 2013 Duke CGGC VALUE CHAIN UPGRADING AND LOCAL DEVELOPMENT POLICIES The GVC framework suggests ways to enhance the competitiveness of local economic clusters: • Focus on quality and high-value activities in order to move up global value chains • Target MNCs that will strengthen country’s GVCs and create dynamic local linkages • Strengthen the role of domestic suppliers and use TNCs as learning platforms • Workforce development – skills for upgrading • Regional integration – for productive upgrading 30
  31. 31. © 2013 Duke CGGC THE ROLE OF EMERGING ECONOMIES IN GVCs 31
  32. 32. © 2013 Duke CGGC Seven Selected Emerging Economies in Comparative Perspective, 2013 Agriculture Industry Services China 1,357 $2,209 $9,240 $6,807 $11,906 7.7 10 44 46 SouthKorea 50 $560 $1,305 $25,977 $33,140 3.0 3 39 58 Russia 143 $527 $2,096 $14,611 $24,114 1.3 4 38 58 Mexico 122 $380 $1,261 $10,307 $16,463 1.1 4 36 60 India 1,252 $337 $1,877 $1,498 $5,412 5.0 17 26 57 Brazil 200 $242 $2,246 $11,208 $15,038 2.5 6 26 68 SouthAfrica 53 $95 $351 $6,618 $12,507 1.9 3 29 68 TotalorAvg. 3,177 $4,350 $18,376 $11,004 $16,940 3.2 7 34 59 WorldTotal 7,125 $17,635 $75,593 $10,610 $14,397 2.2 % of WorldTotal 45% 25% 24% 104% 118% 146% Sources: (1)WorldBank,WorldDevelopmentIndicators: http://data.worldbank.org (2)UN Comtrade,InternationalTradeCenter: http://comtrade.un.org/ (3)CIAWorldFactbook,CountryProfiles: https://www.cia.gov/library/publications/the-world-factbook/ Exports ($Billions)² Population (Millions)¹Country Percentof GDP³GDPgrowth YoY (%)¹ GDP/capita (PPP)¹ GDP/capita (USD)¹ GDP ($Billions)¹
  33. 33. © 2013 Duke CGGC Emerging Economy Export Profiles (Percentages of total exports: 2013) Primary Products Resource Based Low-Tech Medium- Tech High-Tech Primary Products Resource Based Low-Tech Medium- Tech High-Tech China 3% 8% 32% 23% 34% 2,209 786% -4 0 -10 4 11 SouthKorea 2% 17% 9% 43% 28% 560 226% 0 6 -8 10 -8 Russia 55% 29% 2% 8% 2% 527 412% 6 10 -3 -3 -2 Mexico 16% 8% 9% 42% 22% 380 129% 3 3 -6 4 -6 India 14% 38% 20% 18% 8% 337 702% 0 9 -19 7 3 Brazil 33% 33% 5% 21% 4% 242 340% 13 6 -7 -4 -8 SouthAfrica 25% 31% 6% 27% 3% 95 265% 8 1 -3 1 -1 *Exportstotalsdonotincludeuncategorizedexports,andthereforetheymaynotequal100%. Legend: x≤-6 -5≤x<0 0≤x≤9 x≥10 Changein totalexport value, 2000-2013 Percentagepointchangein shareofexportsbysector,2000-2013 Shareofexportsbysectorin2013* Total Export Value ($Billions)
  34. 34. © 2013 Duke CGGC Overview: Industrial Policies in Emerging Economies Horizontal Policies (economy wide) Brazil China India Mexico Russia S. Africa S. Korea Improved infrastructure, especially trade and transportation infrastructure Increased education (particularly STEM education) Workforce development Investment in R&D Sustainable energy development Tax incentives Foreign direct investment Free trade agreements Vertical Domestic Industrial Policies (industry specific) Targeting specific industries, Including key upstream links or inputs Priority industries Airline, defense Advanced mfg./ consumer electronics Electronics & IT Export processing manufacturing Oil/coal/autos Autos/apparel/ horticulture Chaebols (electronics, automotive) GVC-Oriented Industrial Policies Specialization in GVC niches in global and regional production networks, to add value to primary or industrial commodities Local content requirements to attract global suppliers, and policies to facilitate intermediate and primary goods imports Use of GVC links to upgrade domestic production & brands (for large economies)
  35. 35. © 2013 Duke CGGC Emerging Economies: Development Strategies in Conflict China: Combining labor-intensive, technology- intensive and knowledge-intensive GVCs • iPhone case: East Asian regional ecosystem • Innovation & MNC R&D centers; joint-ventures Brazil • Soybean value chain • Electronics & Foxconn South Africa • Climbing natural resource GVCs in Africa
  36. 36. © 2013 Duke CGGC LATIN AMERICA’S UPGRADING PRIORITIES IN GVCs 36 • Upgrade resource-based GVCs – Processing (minerals and agriculture) – High-value services in extractive sectors • Engineering services in Chile • IT traceability system for cattle in Uruguay • Environmental services in Costa Rica • Growth in high-value niches of export-oriented GVCs – Specialty coffee (Central America & Brazil) • Advanced manufacturing – Medical devices (Mexico, Brazil, Costa Rica) – Aerospace & automotive • Skills for upgrading – workforce development • Regional integration – for productive upgrading
  37. 37. © 2015 CGGC, Duke University http://www.cggc.duke.edu ggere@soc.duke.edu Gary Gereffi 37

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