GLOBAL VALUE CHAINS AND DEVELOPMENTConcepts and Methodologies

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Gary GereffiDuke UniversityJune 17, 2016

World Bank Group, Trade & CompetitivenessGVC workshop on technical tools and operations

Washington, DC

AGENDA

1. The New Global Economy

2. Origins of the GVC Framework3. Clarifying GVC Concepts & Methods Value Chain Mapping

Value Chain Governance

Value Chain Upgrading

4. Small Countries and High Tech: Medical Devices GVC in Costa Rica

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WHERE DO GVCS COME FROM?

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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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Where does the idea of Value Chains come from?

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Google Scholar Publications Referencing GVC/GCC/GPN Frameworks

0

500

1000

1500

2000

2500

3000

3500

4000

4500

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

GVC & GVCs

GCC & GCCs

GPN & GPNs

GVC: 4090 Publications in 2014

GPN: 1680 Publications in 2014

GCC: 692 Publications in 2014)

Google Scholar search results that mention a framework in their titles, abstracts, keywords, or full texts: global value chain (GVC), global production network (GPN), and global commodity chain (GCC). Source: Google Scholar, https://scholar.google.com/. Retrieved Feb. 11, 2015.

https://scholar.google.com/

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MAJOR STEPPING STONES

GCCs (global commodity chains) GVCs (global value chains) (1990s-2000s)

Rockefeller Foundations Global Value Chain Initiative (2000-2005) -- https://globalvaluechains.org/

Duke Center on Globalization, Governance & Competitiveness (Duke CGGC) (2005-present) -- http://www.cggc.duke.edu/

Adoption and Elaboration by International Organizations of GVC Approach to Development (ca. 2009-2016) --https://dukegvcsummit.org/

E.g., World Trade Organization, OECD, World Bank, Inter-American Development Bank, African Development Bank, Asian Development Bank, ILO, UNCTAD, UNIDO, USAID, DFID, GIZ, etc.

https://globalvaluechains.org/http://www.cggc.duke.edu/https://dukegvcsummit.org/

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LANDMARK PUBLICATIONS

The organization of buyer-driven global commodity chains: How U.S. retailers shape overseas production networks, Gereffi (in Commodity Chains & Global Capitalism, 1994) 2544 google scholar citations*

International trade and industrial upgrading in the apparel commodity chain, Gereffi (J of Internatl Economics, 1999) 3256 google scholar citations*

The governance of global value chains, Gereffi, Humphrey & Sturgeon (Review of Internatl Political Economy, 2005) 4259 google scholar citations*

*As of 06/16/2016.

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CLARIFYING GVC CONCEPTS

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TYPES OF CHAINS

Global Supply Chains Logistics (transportation focus: reduce time + costs) Trade Facilitation (lower barriers at the border)

Global Commodity Chains Producer-driven chains: Trade + FDI (e.g., aircraft, autos, mining, oil) Buyer-driven chains: Trade w/o FDI (e.g., consumer goods); global

subcontracting by retailers, brands & supermarkets Global Value Chains

Rise of intermediate goods trade (import content of exports: 20% in 1990; 40% in 2010; 60% in 2030 P. Lamy)

Create, capture & sustain domestic value added (e.g., Chinese i-Phone example; build capabilities of domestic suppliers)

Regional Value Chains Growing in importance, esp. since 2008-09 and in emerging

economies; beyond fragmentation and EOI development model.

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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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DIMENSIONS OF GLOBAL VALUE CHAIN ANALYSIS

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1. Value Chain Mapping

2. Geographic Scope

3. Governance Structure: Lead Firms & Industry Organization

4. Local Institutional Context

5. Industry Stakeholders

6. Upgrading Trajectories

GLOBAL

LOCAL

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VALUE CHAIN MAPPING

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EXAMPLE 1: FRUIT & VEGETABLES VALUE CHAIN

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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UPGRADING TRAJECTORY: PRODUCTION TO PACKING AND COLD STORAGE

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Pac

king

& C

old

Stor

age

(Fun

ctio

nal U

pgra

ding

)

Typically women are hired to work in the packing plants. They must follow strict procedures to pack the products and prevent losses as well as protect against sanitary problems.

Skills Preparation Short training, certification, and/ or on-the-job training

Institutions Governments, private sector, buyers, training institutions

Packing & Cold Storage

(Functional Upgrading)

Typically women are hired to work in the packing plants. They must follow strict procedures to pack the products and prevent losses as well as protect against sanitary problems.

Skills Preparation

Short training, certification, and/ or on-the-job training

Institutions

Governments, private sector, buyers, training institutions

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WORKFORCE DEVELOPMENT AND UPGRADING

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JOB PROFILES AND UPGRADING

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Production for Export Packing & Cold Storage Processing

Skill Level

Value Chain Segments

Job Profiles

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EXAMPLE 2 -- OFFSHORE SERVICES: A Simplified View of Upgrading

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ITO Information technology outsourcing

BPO Business process outsourcing

KPO Knowledge process outsourcing

ITO BPO KPO

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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

BPOBusiness Process Outsourcing

KPOKnowledge Process Outsourcing

Horizontal ActivitiesVertical Activities aIndustry specific b

Banking, Financial Services and

Insurance (BFSI) Ex. Investment research, private equity research, and risk management

analysis

TelecommunicationsEx. IP transformation,

Interoperability testing and DSP and multimedia

ManufacturingEx. 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 ConsultingBusiness Analytics

Market IntelligenceLegal Services

EnergyEx. 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

Va

lue

Ad

de

d

LOW

HIGH

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EXAMPLE 2: OFFSHORE SERVICES GLOBAL SUPPLY AND DEMAND

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MAPPING SELECTED COUNTRIES OFFSHORE SERVICES GVC, 2008

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OFFSHORE SERVICES UPGRADING: INDIA, PHILIPPINES & CHILE

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India 1990s 2010 Early 2000s Mid to late 2000s

Philippines

Early 2000 Mid 2000s Late 2000

Chile

2000-2008 2007-2010 2010

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VALUE CHAIN GOVERNANCE

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PRODUCER-DRIVEN AND BUYER-DRIVEN GLOBAL COMMODITY CHAINS

Source: Gary Gereffi, The organization of buyer-driven global commodity chains: How U.S. retailers shape overseas production networks, in G. Gereffi & M. Korzeniewicz (eds.), Commodity Chains and Global Capitalism (Praeger, 1994), p. 98.

Producer-driven Commodity Chains

Manufacturers DistributorsRetailers and

Dealers

Domestic and Foreign Subsidiariesand Subcontractors

Retailers, branded marketers, and traders require full-package supply from overseas factories.

U.S. MARKETBuyer-driven Commodity Chains

OVERSEAS

BrandedMarketers

Retailers

BrandedManufacturers

Traders

OverseasBuyers

Factories

Notes: Solid arrows are primary relationships; dashed arrows are secondary relationships.

Branded manufacturers ship parts for overseas assembly and re-export to the manufacturers home market

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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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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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Determinants of GVC Governance

GovernanceType

Complexity oftransactions

Ability to codifytransactions

Capabilities inthe supply-base

Degree ofexplicit

coordination andpower

asymmetry

Market Low High High

Modular High High High

Relational High Low High

Captive High High Low

Hierarchy High Low Low

Low

High

Network org.

forms

Gereffi at al, The governance of global value chains, RIPE (2005), p. 87.

Governance Type

Complexity of transactions

Ability to codify transactions

Capabilities in the supply-base

Degree of explicit coordination and power asymmetry

Market

Low

High

High

Modular

High

High

High

Relational

High

Low

High

Captive

High

High

Low

Hierarchy

High

Low

Low

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Dynamics in Global Value Chain Governance

GovernanceType

Complexity oftransactions

Ability to codifytransactions

Capabilities in thesupply-base

Market Low High High

Modular High

Relational High Low High

Captive High High Low

Hierarchy High Low Low

increasing complexity of transactions (harder to codify transactions; effective decrease in supplier competence) decreasing complexity of transactions (easier to codify transactions; effective increase in supplier competence) better codification of transactions (open or de facto standards, computerization) de-codification of transactions (technological change, new products, new processes) increasing supplier competence (decreased complexity, better codification, learning) decreasing supplier competence.(increased complexity, new technologies, new entrants)

High High

Gereffi at al, The governance of global value chains, RIPE (2005), p. 90.

GovernanceType

Complexity of transactions

Ability to codify transactions

Capabilities in the supply-base

Market

Low

High

High

Modular

(High (

High

(

High

Relational

High

(Low

(High (

Captive

High

High

Low

Hierarchy

High

Low

Low

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Multiple Governance Structures in UK-African Fresh Vegetable Value Chains

Dolan, Catherine, and John Humphrey. 2004. "Changing Governance Patterns in the Trade in Fresh Vegetables between Africa and the United Kingdom." Environment and Planning A 36:491-509.

(2000s)

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Multiple Governance Structures Within the Offshore Services Value Chain

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Relational Governance Structure

Modular Governance Structure

Market Governance Structure

HierarchalGovernance

Structure

CaptiveGovernance

Structure

Past

Multiple Governance Structures

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VALUE CHAIN UPGRADING

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ECONOMIC UPGRADING

Strategies used by firms, clusters, and countries to improve their positions in global and regional value chains Product upgrading - moving into more sophisticated product lines

Process upgrading - transforms inputs into outputs more efficiently by reorganizing the production system or introducing superior technology

Functional upgrading - acquiring new functions (or abandoning existing ones) to increase the overall skill content of the activities

Chain upgrading entry or diversification into a new value chain by leveraging the knowledge and skills acquired in the current chain

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Functional Upgrading in GVCs: Linear View

Upgrading refers to the strategies that stakeholders (countries, regions and firms) can take to improve their position within the global economy.

Gereffi, Gary and Jennifer Bair. 2001. Local Clusters in Global Chains: The Causes and Consequences of Export Dynamism in Torreons Blue Jeans Industry. World Development. Vol. 29 No. 11

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WHERE ARE THE HIGH-VALUE ACTIVITIES IN GVCs?

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Apples Smiling Curve and GVC for iPhones

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Source: Grimes & Sun, Chinas evolving role in Apples GVC, Area Development & Policy, 2016.

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The Smile Curve in GVCs: Variations

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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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GVC Upgrading: Empirical Indicators

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Product Upgrading Unit price of goods Process Upgrading Productivity measures Functional Upgrading Backward/forward links Chain Upgrading Economic diversification

into new or related industries

Social UpgradingWage rates, working conditions

Environmental Upgrading Carbon footprint

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COSTA RICAS MEDICAL DEVICES GVC

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Components Manufacturing

Plastics extrusion & molding

Precision metal works

Electronics development

Software Development

Weaving/Knitting Textiles

Assembly

Packaging

Sterilization

Assembly / Production

Distribution & Marketing

Resin Metals

Chemicals Textiles

Input Suppliers

DisposablesUS$575.5 million

InstrumentsUS$270.5 million

Capital Equip.US$32.5 million

TherapeuticsUS$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)

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0

200

400

600

800

1,000

1,20019

98

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Expo

rt V

alue

s ($

US

Mili

on)

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

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Entry Year Firm Characteristics

Main Product Export Category

Core Market Segments

Product Examples

Select Firms

Up to 200024 firms:8 US15 CR1 German

4 OEMs8 Components1 Input distributor7 Packaging1 Finishing3 Support services

DisposablesDrug delivery;Womens health

Intravenous tubing (I)Mastectomy bra (I)

Hospira;Baxter; Amoena;Corbel

2001200413 firms:9 US3 CR1 Colombian

3 OEMS 6 Components1 Finishing1 Logistics provider2 Support services

Instruments Endoscopic surgery Biopsy forceps (II)Arthrocare;Boston Scientific;Oberg Industries

200520088 firms:7 US1 Puerto Rico

2 OEM4 Components1 Packaging1 Finishing

TherapeuticsCosmetic surgery;Womens health & urology

Breast implants (III)Minimally invasive devices for uterine surgery (II)

Allergan;Tegra Medical;Specialty Coating Systems

2009201221 firms:16 US 1 CR1 Ireland1 Japan2 Joint ventures (US-CR)

5 OEMS7 Components2 Non-OEM assemblers1 Input Distributor2 Sterilization2 Packaging

TherapeuticsDisposablesInstruments

CardiovascularDrug delivery

Heart valves (III)Dialysis catheters (III)Guide wires (III)Compression socks (I)

Abbott Vascular St. Jude MedicalCovidienMoogSynergy HealthVolcano Corp.

FIRMS IN THE COSTA RICA MEDICAL DEVICES SECTOR

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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 CardiovascularMarket 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

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BRAZIL AND MEXICO: MEDICAL DEVICE EXPORTS, 1998-2011

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

1998 2000 2002 2004 2006 2008 2010Ex

port

Val

ue (U

S$ M

illio

n)

MEXICO

Disposables: largest product category & growing Brazilian government & private sector actors working to promote price-competitive, mid-tech exports.

Stabilizing disposables exports Strong focus in instruments Growing gains in capital equipment

participation in electronics value chains

0

50

100

150

200

250

300

350

400

450

500

1997 1999 2001 2003 2005 2007 2009 2011

Expo

rt V

alue

(U

S$ M

illio

n)

Year

BRAZIL

45

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ggere@soc.duke.edu

Gary Gereffi

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http://www.cggc.duke.edu/

GLOBAL VALUE CHAINS AND DEVELOPMENTConcepts and MethodologiesAGENDAWHERE DO GVCS COME FROM?The New Global EconomyWhere does the idea of Value Chains come from?Google Scholar Publications Referencing GVC/GCC/GPN FrameworksMAJOR STEPPING STONESLANDMARK PUBLICATIONSCLARIFYING GVC CONCEPTSTYPES OF CHAINSLINKING GLOBAL CHAINS AND LOCAL CLUSTERSGOVERNANCE & UPGRADINGDIMENSIONS OF GLOBAL VALUE CHAIN ANALYSISVALUE CHAIN MAPPINGEXAMPLE 1: FRUIT & VEGETABLES VALUE CHAINUPGRADING TRAJECTORY: PRODUCTION TO PACKING AND COLD STORAGEWORKFORCE DEVELOPMENT AND UPGRADINGJOB PROFILES AND UPGRADING EXAMPLE 2 -- OFFSHORE SERVICES: A Simplified View of UpgradingOFFSHORE SERVICES GLOBAL VALUE CHAINEXAMPLE 2: OFFSHORE SERVICES GLOBAL SUPPLY AND DEMANDMAPPING SELECTED COUNTRIES OFFSHORE SERVICES GVC, 2008OFFSHORE SERVICES UPGRADING: INDIA, PHILIPPINES & CHILE VALUE CHAIN GOVERNANCEPRODUCER-DRIVEN AND BUYER-DRIVEN GLOBAL COMMODITY CHAINSGVC LEAD FIRMS & THEIR SUPPLY CHAINSFive GVC Governance TypesDeterminants of GVC GovernanceDynamics in Global Value Chain GovernanceMultiple Governance Structures in UK-African Fresh Vegetable Value ChainsMultiple Governance Structures Within the Offshore Services Value ChainVALUE CHAIN UPGRADINGECONOMIC UPGRADINGFunctional Upgrading in GVCs: Linear ViewWHERE ARE THE HIGH-VALUE ACTIVITIES IN GVCs?Apples Smiling Curve and GVC for iPhones The Smile Curve in GVCs: VariationsTRIPLE BOTTOM LINE: Diversified, Inclusive and Green GrowthGVC Upgrading: Empirical IndicatorsCOSTA RICAS MEDICAL DEVICES GVCCOSTA RICA IN THE MEDICAL DEVICES GLOBAL VALUE CHAIN, 2012EVOLUTION OF MEDICAL DEVICES EXPORTS FROM COSTA RICA, 1998-2011FIRMS IN THE COSTA RICA MEDICAL DEVICES SECTORUPGRADING SUCCESS: A LEADING MEDICAL DEVICES MNC BRAZIL AND MEXICO: MEDICAL DEVICE EXPORTS, 1998-2011Slide Number 46