1. Gary GereffiDuke University Center on Globalization, Governance & Competitiveness http://www.cggc.duke.edu [email_address] COMESA Conference Seychelles March 12-13,2008 Global Value Chains and Industrial Upgradingin Developing Economies:A Comparison of Africa, China, and Latin America

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Global Value Chain Analysis and Industrial Upgrading

Africa and China

Comparing Latin America, Africa and China

Case Studies: China vs. Mexico

Challenges and Opportunities

Agenda 3. Global Value Chain Analysisand Industrial Upgrading 4. What is Global Value Chain Analysis?

Actorsin global industries, and how their roles are changing (lead firms plus supply chains)

Powerin the chain (brands, global buyers)

Linkages between GVC activities (firms, intra-firm, networks)

Geography locate domestic and national industries in their global context

Institutions Government, unions, trade associations, NGOs, multi-lateral agencies and regulations

http://www.globalvaluechains.org/

5. Upgrading Upgrading refers to the acquisition of technological capabilities and market linkages that enable firms to improve their competitiveness and move into higher-value activities. Analyses of upgrading from a value chain perspective pay particular attention to the ways in which value chain linkages facilitate or obstruct upgrading.

Product and Process Upgrading

Functional Upgrading

Inter-Chain Upgrading

6. Africa and China 7. Africas share of world exports has been declining 8. Africas Exports are still in Raw Form, Resulting in Little Value-Added Being Extracted on the Continent 9. Top 10 Exports COMESA to the World, 2006 Source:UN Comtrade 10. Chinese trade with Africa, 2007 (US$ bill) 11. China Imports from Africa % Share 12. Top 10 Chinese Imports from COMESA Source: World Trade Atlas 13. Top 10 Chinese Exports to COMESA Source: World TradeAtlas 14. Opportunities for COMESA

Engage and encourage trade with China

Involvement in higher value added activities

Upgrading key industries in which COMESA is already exporting raw materials

15. Case Studies: Latin America and China 16. China Import by Continents/Regions, 2007 Source: The Peoples Republic of China. Ministry of Commerce. 17. Chinas Trade with Latin America, 1995-2005 18. The Commodity Composition of China-Latin American Trade, 1999-2005 19. Chinas commodity Imports from Latin America, 1999 and 2005 20. Chinas Commodity Exports to Latin America,1999 and 2005 21. Chinas Trade withLatin America and Africa

Both regions export a diversified set of raw materials to China

Latin Americas commodity exports to China are more processed than those from Africa

Chinas manufactured exports to Latin America are diversified than those to Africa

A key challenge for both Latin America and Africa is to avoid declining terms oftrade with China, where the cost of raw material exports rises less than manufactured imports

22. Case Studies: China Vs Mexico 23. Mexico vs. China

Head-to-head competition in U.S. market

China is worlds 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, especially in 2000-2005 period

24. Composition of Mexicos Exports to the World Market, 1986-2006 Source:UN Comtrade. 25. Composition of Chinas Exports to the World Market, 1987-2006 Source:UN Comtrade. 26. Top US Imports in which Mexico and/or China hold 40% or more of the US market, 2007 27. Mexico's and China's Competing Exports to the United States, 2000-2007 28. Source: USITChttp://dataweb.usitc.govdownloaded Feb 22, 2008 29. Source: USITChttp://dataweb.usitc.govdownloaded Feb 22, 2008 30. Source: USITChttp://dataweb.usitc.govdownloaded Feb 22, 2008 31. Source: USITChttp://dataweb.usitc.govdownloaded Feb 22, 2008 32. Why is China gaining U.S. market share over Mexico?

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

33. Chinas Supply Chain Cities in Apparel Source: David Barboza, In roaring China, sweaters are west of socks city, New York Times, Dec. 24, 2004. 34.

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 1,000 MNC R&D Centers

• GEs China Technology Center: Advanced research in energy storage, environmental management

• Microsoft Research Asia: Cutting-edge graphics & multimedia research

MNC R&D Centers in China,How are engineers being used? 35. Challenges and Opportunities 36.

New actors (global buyers, global suppliers, and global intermediaries)

Rapid rise of new production centers (Taiwan, Korea, China, Mexico, India)

Higher capabilities required to enter chains (health and safety, speed, quality, responsiveness, IT)

Widening gap between connected and disconnected in developing world

Growing global consolidation (supply chains, countries)

Where we are today 37. Global Challenges and Opportunities

Commodity export boom (L. America, Africa)

Find GVC niches (specialization, high value products, local sourcing, fresh produce)

Take advantage of regional integration

Differentiated global services (tourism, finance, IT)

Invest in R&D

Go green with environmentally friendly goods and services (corporate sustainability)

38. Thank youfor your attention! Gary Gereffi, Director, CGGC Duke University Center on Globalization, Governance & Competitiveness[email_address]