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. © 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. © 2014 Duke CGGC
GVC BATTLE FOR THE U.S. MARKET:
CHINA VS. MEXICO
3

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. © 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. © 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. © 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. © 2014 Duke CGGC
8Source: USITC http://dataweb.usitc.gov downloaded Aug 26, 2015

9. © 2014 Duke CGGC
9Source: USITC http://dataweb.usitc.gov downloaded Aug 26, 2015

10. © 2014 Duke CGGC
10Source: USITC http://dataweb.usitc.gov downloaded Aug 26, 2015

11. © 2014 Duke CGGC
11Source: USITC http://dataweb.usitc.gov downloaded Aug 26, 2015

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. © 2014 Duke CGGC
China’s Supply Chain Cities in Apparel
13

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. © 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. © 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. © 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. © 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. © 2015 CGGC, Duke University
COSTA RICA’S OFFSHORE SERVICES GVC
19

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. © 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. © 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. © 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. © 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. © 2015 CGGC, Duke University
MEXICO: LINKING REGIONAL VALUE
CHAINS, CLUSTERS, AND POLICIES
25

26. © 2015 CGGC, Duke University
Mexico’s Plan Nacional de Desarrollo, 2013-2018
Estrategia Sectorial

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. © 2013 Duke CGGC

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. © 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. © 2013 Duke CGGC
THE ROLE OF EMERGING ECONOMIES IN GVCs
31

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. © 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. © 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. © 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. © 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. © 2015 CGGC, Duke University
http://www.cggc.duke.edu
ggere@soc.duke.edu
Gary Gereffi
37