Global value chains and development. The presentation discusses: 1. The rise of global value chains, with 80% of world trade now in intermediate goods and concentration in fewer large suppliers. 2. Concepts of value chain mapping, governance and upgrading are introduced as tools to examine participation in the global economy. 3. Kazakhstan faces the challenge of economic diversification beyond oil and gas, which currently make up over 70% of exports, leaving the economy exposed to commodity price volatility.

1. GLOBAL VALUE CHAINS AND DEVELOPMENT
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Gary Gereffi
Duke University
October 17, 2016
Nazarbayev University
Astana, Kazakhstan

2. AGENDA
1. The New Global Economy
2. Clarifying GVC Concepts & Methods
 Value Chain Mapping
 Value Chain Governance
 Value Chain Upgrading
3. Kazakhstan: The Challenge of
Industrial Diversification

3. © 2016 Duke CGGC
The New Global Economy
Old World of Trade (pre-1980)
• Countries trade finished goods
• Build national industries (ISI)
New World of Trade
• Countries trade intermediate goods; imports needed to export
• Join global industries (EOI)
Trends
– GVCs  80% of world trade (UNCTAD, WIR 2013)
– Rise of intermediate goods trade (import content of exports): 20% in
1990; 40% in 2010; 60% in 2030 (P. Lamy, WTO)
– Consolidation within GVCs in fewer, larger suppliers
– Concentration of production and consumption in relatively few large
emerging economies

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CLARIFYING GVC CONCEPTS
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TYPES OF CHAINS:
Inter-Firm Networks in the Global Economy
• Global Supply Chains: LOGISTICS (1970s & 1980s)
– Logistics (transportation focus: reduce time + costs)
– Trade Facilitation (lower barriers at the border)
• Global Commodity Chains: LEAD FIRMS (1990s)
– Producer-driven chains: Trade + FDI (e.g., aircraft, autos, mining,
oil)
– Buyer-driven chains: Trade w/o FDI (retailers, global brands,
manufacturers without factories)
• Global Value Chains: CREATING & CAPTURING VALUE-
ADDED (2000s)
– Create, capture & sustain domestic value added
• Regional Value Chains: EMERGING ECONOMIES (2010s)
– Growing in importance, esp. since 2008-09 and in emerging
economies.
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LINKING GLOBAL CHAINS AND LOCAL CLUSTERS
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GOVERNANCE & UPGRADING
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Global value chain analysis provides both conceptual and
methodological tools for examining the global economy
• Top-down: a focus on lead firms and inter-firm
networks, using varied typologies of industrial
“governance”
• Bottom-up: a focus on countries and regions, which
are analyzed in terms of various trajectories of
economic, social and environmental “upgrading” (or
“downgrading”)

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VALUE CHAIN MAPPING

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FRUIT & VEGETABLES VALUE CHAIN (SIMPLIFIED)
Analyzing the position of different countries in the value chain can allow you to identify
countries that have successfully upgrading & then examine the policies and changes they
implemented to successfully achieve that functional upgrading.
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EXAMPLE 1: GEOGRAPHY OF THE ELECTRONICS GVC
Contract manufacturersGlobal brand leaders Product designers
Components & AssemblyDesignR&D & marketing
What role, if any, do African countries participate in the electronics
GVC?
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EXAMPLE 2: OFFSHORE SERVICES
GLOBAL SUPPLY AND DEMAND
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VALUE CHAIN GOVERNANCE
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Five GVC Governance Types
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G. Gereffi, J. Humphrey & T. Sturgeon, “The governance of global value chains,”
Review of International Political Economy 12, 1 (2005), p. 89.

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GVC LEAD FIRMS & THEIR SUPPLY CHAINS
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Giant Retailers: Wal-Mart
 Largest retailer in the world directs the biggest supply chain
 > 60,000 suppliers worldwide and over 80% are in China
Global Brands: Nike
 Nike, the largest sportswear company in the world, does not own any
factories.
 Nike products made in 930 factories (subcontractors) in 50 countries
 >1 million workers in supply chain, but just 38,000 direct employees
in U.S.
Manufacturers w/o Factories: Apple
 Apple, the top smartphone company in the world, designs and
markets its products but owns no factories
 Foxconn, the largest electronics contract manufacturer in the world,
makes Apple products and employs >1 million workers in mainland
China

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VALUE CHAIN UPGRADING
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TRIPLE BOTTOM LINE:
Diversified, Inclusive and Green Growth
Economic
Upgrading
Social
Upgrading
Environmental
Upgrading
Sustainable Growth
Development Outcomes:
• Job creation
• Exports
• Income generation
• Added value
• Better use of
resources
• Backward linkages
Development
Outcomes:
• Inclusion of
vulnerable
groups
• Job creation
• Improve working
conditions
• Higher wages
• Skills acquisition
Development
Outcomes:
• Soil preservation
and improvement
• Water
conservation
• Wildlife
conservation
• Pollution and
waste reduction

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GENERIC VALUE CHAIN SMILE CURVE

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WHERE ARE THE HIGH-VALUE ACTIVITIES IN GVCs?
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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

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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.

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U.S. Trade Balance with China for iPhone 4
(US$, 1 unit)
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Source: G. Gereffi and J. Lee, “Why the world suddenly cares about global supply chains,” Journal of Supply Chain Management (2012).

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VALUE CHAINS AND ECONOMIC
DIVERSIFICATION IN KAZAKHSTAN
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KAZAKHSTAN’S INDUSTRIAL POLICIES IN THE 2000s
• Kazakhstan 2030 Strategy  Initial push toward
industry-focused diversification
• Strategy of Industrial Innovation Development (2003-
2015)  Sets official targets for various sectors
• Accelerated Industrial Innovation Development (2010-
2014)  16 different sectors in 4 areas (traditional,
domestic-demand, high export potential & “economy of
the future”) / GOALS: productivity & value added
• Kazakhstan Strategy 2050  Shifts resources away
from SOEs toward entrepreneurs & SMEs
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Kazakhstan: A Failing Quest for Economic Diversification
• Growth in the last decade has been
impressive (Felipe and Rhee 2013)
– 10% annual GDP growth between 2000 and
2007
– Per capita income reached the World Bank
threshold for high-income countries ($12,000),
in 2012
• However, Kazakhstan’s growth remains
exposed to volatile global commodity
prices
• 8.7% of Kazakhstan's exports in 1995
were in crude/refined petroleum and
natural gas. By 2010, the figure had
reached 70%
• Apart from oil and gas, Kazakhstan
remains dependent on primary
commodities such as iron, copper, gold,
uranium and silver among others
Kazakhstan Export Value 1995-2010: Focus on Mineral Products
Crude and Refined Petroleum, Natural Gas and other Mineral Products
Details: Trade data presented in Harmonized System (HS) 4-digit classification
Source: MIT’s Observatory of Economic Complexity

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Major Export Industries in Hungary, Romania, Latvia,
Russia and Kazakhstan, 2000
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(% of total export in current USD)
Resource- Capital- Capital and Labor-
based intensive basic skill-intensive intensive
industries manufacturing complex manufacturing
manufacturing
Hungary 14 9 50 24
Romania 25 16 15 42
Latvia 53 12 9 25
Russia 60 14 6 3
Kazakhstan 81 15 2 1

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Kazakhstan’s Oil & Gas Value Chain:
Pyramid of Supporting Industries
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Source: Gereffi & Rodriguez, World Bank Mission Report, Sept. 2003
Global
competition
Local
competition
Labor
intensiv
e
Capital &
knowledge

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Links Between Key Oil & Gas
Players in Kazakhstan
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Source: Gereffi & Rodriguez, World Bank Mission Report, Sept. 2003

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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
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http://www.cggc.duke.edu
ggere@soc.duke.edu
Gary Gereffi
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