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Global Value Chains and Industrial Clusters

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Presentation by Professor Gary Gereffi at the iBEGIN conference (International Business, Economic Geography and Innovation), held at the Fox School of Business at Temple University on October 30, 2016.

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Global Value Chains and Industrial Clusters

  1. 1. © 2015 CGGC, Duke University GLOBAL VALUE CHAINS AND INDUSTRIAL CLUSTERS 1 Gary Gereffi Duke University October 30, 2016 iBEGIN conference Fox School of Business, Temple University Philadelphia, PA
  2. 2. © 2014 Duke CGGC AGENDA 1. GVCs and Industrial Clusters: Co-evolution of Knowledge Networks and Economic Upgrading 2. Costa Rica’s High Tech GVCs – Medical Devices – Electronics – Offshore Services 3. Initial Takeaways
  3. 3. © 2014 Duke CGGC One Country, 3 GVCs How can a small developing country access and upgrade within global innovation networks? • Costa Rica case – Small country -- <5 million pop – Technology focus and export oriented (govt strategy) – Limited human capital and local supplier base • Research strategy: compare Costa Rica’s upgrading experience in 3 high-tech, knowledge- oriented GVCs from late 1990s to the present 3
  4. 4. © 2015 CGGC, Duke University Components Manufacturing Plastics extrusion & molding Precision metal works Electronics development Software Development Weaving/Knittin g Textiles Assembly Packaging Sterilization Assembly / Production Distribution & Marketing Resin Metals Chemicals Textiles Input Suppliers Disposables US$575.5 million Instruments US$270.5 million Capital Equip. US$32.5 million Therapeutics US$301 million Main Segments: Exports Post-Sales Services Consulting Maintenance, Repair Training Research & Product Development Regulatory Approval Process Development Sustaining Engineering Prototype Local firms are mainly in packaging & support services (12 of 19) versus 4 in limited role in plastics molding & metal finishing and 1 OEM with exports under $2 million. Number of Firms 0 - 5 6 - 10 11 - 15 16 - 20 COSTA RICA IN THE MEDICAL DEVICES GLOBAL VALUE CHAIN, 2012 Wholesale distributors Individual Patients Doctors & Nurses Hospitals (Public/Private) 4
  5. 5. © 2015 CGGC, Duke University 0 200 400 600 800 1,000 1,200 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 ExportValues($USMilion) Year Costa Rica's Medical Exports by Product Category: 1998-2011 Disposables Therapeutics Instruments Capital Equipment EVOLUTION OF MEDICAL DEVICES EXPORTS FROM COSTA RICA, 1998-2011 • Disposables still the largest product category exported, but no longer a strong growth area. • Exports in surgical instruments have grown steadily since 2005. • Therapeutics has become 2nd largest category since 2008; likely to increase as newly established firms complete transfer of new product lines. • Limited export of highest value capital equipment (eg. Electronic/software devices) 5
  6. 6. © 2015 CGGC, Duke University Entry Year Firm Characteristics Main Product Export Category Core Market Segments Product Examples Select Firms Up to 2000 24 firms: 8 US 15 CR 1 German 4 OEMs 8 Components 1 Input distributor 7 Packaging 1 Finishing 3 Support services Disposables Drug delivery; Women’s health Intravenous tubing (I) Mastectomy bra (I) Hospira; Baxter; Amoena; Corbel 2001–2004 13 firms: 9 US 3 CR 1 Colombian 3 OEMS 6 Components 1 Finishing 1 Logistics provider 2 Support services Instruments Endoscopic surgery Biopsy forceps (II) Arthrocare; Boston Scientific; Oberg Industries 2005–2008 8 firms: 7 US 1 Puerto Rico 2 OEM 4 Components 1 Packaging 1 Finishing Therapeutics Cosmetic surgery; Women’s health & urology Breast implants (III) Minimally invasive devices for uterine surgery (II) Allergan; Tegra Medical; Specialty Coating Systems 2009–2012 21 firms: 16 US 1 CR 1 Ireland 1 Japan 2 Joint ventures (US-CR) 5 OEMS 7 Components 2 Non-OEM assemblers 1 Input Distributor 2 Sterilization 2 Packaging Therapeutics Disposables Instruments Cardiovascular Drug delivery Heart valves (III) Dialysis catheters (III) Guide wires (III) Compression socks (I) Abbott Vascular St. Jude Medical Covidien Moog Synergy Health Volcano Corp. FIRMS IN THE COSTA RICA MEDICAL DEVICES SECTOR 6
  7. 7. © 2015 CGGC, Duke University© 2015 CGGC, Duke University UPGRADING SUCCESS: A LEADING MEDICAL DEVICES MNC 2010 Initial plant reopens after restructuring • 2004: Manufacturing functions • 2012: Engineering for process improvements Focused on cardiology segment; strategy – to alleviate R&D costs in the US. Functional Upgrading • Biopsy forceps Labor intensive, basic metal works & extrusion. • Urethral stent Thermoforming, laser marking, coating capabilities. • Guide Wires  Sophisticated Laser cutting & welding. • Today – CR facilities cover 42 manufacturing processes. Product & Process Upgrading • Gastroenterology segment  Urology  Cardiovascular Market Diversification • Recent co-location of sterilization vendors will allow the firm to export directly to global distribution centersForward Linkages 2004 First production plant opens in Costa Rica (10,000m2) 2008 Second plant opens. (32,000m2) First plant restructuring 2005 2011 Exports: US$18 million Exports: US$120 million 7
  8. 8. © 2015 CGGC, Duke University© 2015 CGGC, Duke University Costa Rica’s Electronics Exports, 2005-2015 8 $1.8 $2.1 $2.5 $2.3 $1.6 $1.9 $2.1 $2.3 $2.6 $0.3 0.0 0.5 1.0 1.5 2.0 2.5 3.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2015 ExportValue($US,Billions) Integrated Circuts (8542) Computer Parts (8473) Medical Equipment (901819) Other Intel represented >80% of exports Intel left CR during 2014; 88% decline in exports (2013-15)
  9. 9. © 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 9
  10. 10. © 2015 CGGC, Duke University COSTA RICA: LEAD OFFSHORE SERVICES COMPANIES ITO General Business Activities Industry Specific Activities ValueAdded Broad Spectrum (ITO, BPO & KPO) d Call&Contact Centers CallCentersITBackOffice BPO KPO 10
  11. 11. © 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 11 ITO
  12. 12. © 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) (govt policy)
  13. 13. © 2015 CGGC, Duke University INITIAL TAKEAWAYS 13 • GVC governance structures (role of lead firms) differ significantly across the 3 sectors • Nature of local “clusters” (supply base) in CR varies in density, ownership and knowledge spillover potential • GVC lead firm strategies and local clusters co- evolve – global & national factors • Costa Rica’s state policies matter a lot • Close relationship between high-value goods & services activities in GVC is critical to upgrading
  14. 14. © 2015 CGGC, Duke University http://www.cggc.duke.edu ggere@soc.duke.edu Gary Gereffi 14

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