Global value Chains

There have been rather a plenty of literature on the “firm and industry level” analyses of GVCs impacts through some kinds of case studies. Picking up some examples, Nadvi et al. (2004) traced how Vietnamese garment and textile firms are inserted into global garment and textile value chains, and examined how the nature of insertion into global value chains leads to differentiated gains for state owned and private enterprises, and for textile and garment workers. Lee and Gereffi (2013) examined how the GVCs of mobile phone manufacturing have changed the dynamics of trade, production and value creation in developing countries, and how those dynamics have affected the social upgrading of workers in GVCs in terms of employment and wages; and finally found that GVCs participation has a significant impact in terms of generating employment, but a limited impact on wage increase. Backer (2011) examined the distribution of value added within GVCs focusing on China, but referred only to the commonly cited study of the Apple iPod, showing that the actual value added in China – that from the pure assembly of parts and components imported from Japan, U.S. and Korea, represented a fraction of the final retail price in U.S..

Global value chains vary in their structure, length and overall complexity, but the important uniting feature is that in every chain corporations play a role either by controlling the overall chain, or by being participants in one or more dimensions of it. This domination by corporations poses a challenge for the WTO rules because at first glance they are predicated on state behaviour and not on that of corporations per se. Article II(1) of the Marrakesh Agreement makes it clear that the WTO rules only apply as between its members. And, only states, or separate customs territories “possessing full autonomy” in the conduct of their external commercial relations, like Hong Kong and Chinese Taipei for example, are eligible for WTO membership. 7 The DSU further reiterates the state-centric nature of the WTO’s rules, stating in Article 3(2) that the DSU is designed to provide “security and predictability to the multilateral trading system” but only in a way that “serves to preserve the rights and obligations of Members under the covered agreements” (emphasis added). To the extent that corporations control and participate in the exploitation and use of natural

Regional Comprehensive Economic Partnership (RCEP) is a coherent approach towards economic integration. Association of South East Nations (ASEAN) that includes ten member states namely Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam) is negotiating the RCEP to broaden and deepen ASEAN’s engagement with its Free Trade Agreement (FTA) partners namely Australia, China, India, Japan, Republic of Korea and New Zealand. Core areas of negotiation include trade in goods and services, investment, economic and technical cooperation, intellectual property rights, dispute settlement, competition and other relevant issues. ASEAN’s economic dynamism is expected to benefit from RCEP that will provide a platform for broader economic integration and help address concerns about the ‘noodle bowl’ effect of overlapping bilateral and regional agreements. RCEP will deliver tangible benefits through potential improvements in market access, more coherent trade facilitation, regulatory rules, reforming barriers and cooperation. In turn, this will provide more choices and opportunities for ASEAN people to participate gainfully in global value chains.

This paper presents the results of a study conducted in 2011 in Sonora State, Northern Mexico, a regional environment populated by large multinational corporations and where small firms face many difficulties to innovate and participate in global value chains. The relation between trust and technological innovation in SMEs (Small and Medium Enterprises) is analyzed under the assumption that trust reduces uncertainty and transaction costs by replacing the incomplete information in the client-supplier relation. Trust has been classified in three dimensions: normative (based on honesty and good will), technical (based on technical skills) and strategic (based on leadership and prestige). Results indicate that the influence of normative and strategic trust is indirect since both are mediated by learning processes resulting from the client-supplier relation, meanwhile technical trust exerts a direct influence on innovation.

Following the spread of global value chains new statistical tools, the Inter- Country Input-Output tables, and new analytical frameworks have been recently developed to provide an adequate representation of supply and demand linkages among the economies. Koopman, Wang and Wei propose an innovative accounting methodology to decompose a country’s total gross exports by source and final des- tination of their embedded value added. However this decomposition presents some limitations and relevant inexactnesses in some of its components. We develop their approach further by deriving a fully consistent counterpart for bilateral trade flows, also at the sectoral level, addressing the main shortcomings of previous works. We also provide correct breakdown of the foreign content in total (world) trade flows and a brand new classification of these components that take the perspective of the exporting country. Finally, drawing on our methodology we derive for the first time a precise measure of international trade generated within global production networks. Two examples of empirical applications with relevant policy implications are also provided.

The transition from value chains to global value chains has not taken place smoothly. Although the international business field has explored a broad range of modes of firm internationalization and strategic alliance formation, it has, until recently, tended to focus on the market-hierarchy dichotomy rather than on intermediate forms. Most of the research has focused on modes of internationalization and foreign market entry, utilizing the assumption of firms as independent strategic agents, autonomous from input and output markets (Dunning, 1980, 1988, 1998; Johanson & Vahlne, 1977). A significant number of articles have focused on international strategic alliances and partnerships, joint ventures, and mergers and acquisitions without exploring the distribution of value added within these inter-firm relationships. The international business strategy literature explores motives for and drivers of strategic alliances and partnerships, with a focus on performance rather than value added. The discussion on knowledge and learning very often treats these concepts as assets and resources, rather than dynamic capabilities (Kogut & Zander, 1992).

In this paper we investigate mainly the impact of exchange rate volatility on the participation in global value chains within African countries. In addition, we shed some light on the simultaneous effect on GVC engagement when exchange rate volatility interacts with activities in upstreamness or downstreamness. Another important aspect of this research is to examine whether the participation in GVC of a currency union’s members is higher than those which are not members. For the benchmark results, we employ panel ordinary least square with fixed effects, whereas the robustness check is carried out through panel fixed- effects vector decomposition (FEVD) because a dummy variable is included into the model. The results show that, albeit the magnitude of the coefficients is relatively low, the fluctuation in exchange rate has a significant detrimental effect on the participation in value-added to exports. This adverse impact does not differ between direct and indirect engagement in GVC. When it comes to interaction terms, the study reveals that the joined impact between exchange rate volatility and sectors in upstreamness promotes the involvement in GVC, while the combined action between uncertainty of exchange rate and activities in downstreamness hinders the level of factor content to exports. Moreover, the findings highlight that African countries and members of a currency union are less performant than non-members in the participation in value-added trade.

This paper examines how the Chinese economy has been involved in global value chains from the perspective of domestic value creation, by using the OECD value- added-trade data (OECD TiVA database). This study contributes to the existing literature by decomposing the domestic value creation into a direct effect from export industries and an indirect effect from the other supporting industries. The empirical estimation first identified the ―smile curve‖ in the ―indirect‖ domestic value creation in total manufactures as the average pattern of the Asian GVCs development paths, in which the domestic value share to exports declines at the early development stage and regains itself at the later stage with the turning point being at 1,830 US dollars as per capita GDP. Then the analysis confirmed the position of Chinese economy, which has already passed the Asian average turning point and has entered the phase of regaining the domestic value share to exports. Finally, the analysis found that the domestic value creation in China has originated from the development of supporting industries, in particular, service industries, which might reflect the progress in basic infrastructure there.

This article examines the structural changes in domestic value creation in exports in the involvement process of global value chains with a focus on eight Asian economies, through the quantitative analyses using the updated OECD value-added-trade data. The major research questions are: what is an average turning point in terms of per capita GDP in regaining domestic value added share to exports, and which industries, the export industry or supporting industries, have contributed to regaining domestic value added share to exports. The empirical analyses identified an accurate turning point at 2,032 US dollars as per capita GDP in regaining domestic value added share to exports, and also showed that the supporting industries including service sector, rather than the exporting industry itself, have played an active role to push up the domestic value added share to exports in the involvement process of global value chains. The two strategies, “enterprise clustering” and “linkages development”, facilitating technological transfers from international firms to local ones, contributed to the domestic value creation in the involvement process of global value chains.

The World Trade Organization’s new Agreement on Trade Facilitation has the potential to significantly reduce East Asia’s trade costs along the entire supply chain, increasing regional gross domestic product (GDP) by 2.7 percent and employment by 1.2 percent. At present, the region’s developing economies suffer from trade costs well above those of the newly industrialized countries and of developed economies, owing to the large number of inefficient border and behind-the-border procedures. Countries have been adding to their stock of nontariff measures, which now account for as much as 90 percent of (non-transportation) trade costs. The ATF defines a new reform agenda for East Asia with potentially far-reaching effects on private sector development, especially for small businesses that need greater transparency and simplification of procedures to enable them to readily access regional and global value chains.

There has been a plenty of literature on the “firm and industry level” analyses of GVC impacts through case studies. In the field of traditional industries, some upgrading effects have been identified in the context of GVCs. Picking up some examples, Nadvi et al. (2004) traced how Vietnamese garment and textile firms are inserted into global garment and textile value chains, and examined how the nature of insertion into global value chains leads to favorable gains for state owned and private enterprises, and for textile and garment workers. Frederick and Gereffi (2011) argued that apparel exporters in Chine and Asia have outperformed those in Mexico and Central America due to market diversification by joining the GVCs. Rasiah (2011) picked up moving-up case of button manufacturing in Qiaotou-city cluster in China in the context of joining GVCs. Zheng and Sheng (2006) showed a case study of the Yunhe wood toy cluster in Zhejiang in China, in which the GVCs has provided external channels of knowledge and learning opportunities for local firms.

T he process of globalization has, in recent decades, wrought a dramatic change in the international economy. One of the sources of this new dynamic is the swift process of technical change in the circulation of information and in the reduction of transport costs in general. There has been a significant increase in the levels of trade, and broadening of the basket of economic activities (goods and services) traded at the level of the international economy. Furthermore, the mobility of factors is also important, although this has an asymmetric pattern concentrated in capital (physical and financial) and in labor with a high human capital endowment. From the specialization point of view, this phenomenon is expressed in the process of fragmentation of production at the planetary level. The various stages making up the production of a given amount of economic activity —whether in the production of goods and/or services— have been distributed across the planet through numerous national jurisdictions in a vast array of organizational forms or modes of governance that are known, among other names, as global value chains (GVCs). This fragmentation of production is the modality that characterizes the internationalization of the production processes in many modern manufactured goods, but it has been spreading to a varied group of economic activities, notably the service sector.

An analysis of the relationship between FDI and exports (namely, the value added in it) will be given below. As for FDI in the context of Global Value Chains, it worth answering the question how does the presence of MNEs affect countries' GVC participation. For example, UNCTAD is of the opinion that the involvement of MNEs in generating value added trade is confirmed by the statistical relationship between FDI stock in countries and their GVC participation rates. The correlation is strongly positive, and increasingly so over time, especially in the poorest countries, indicating that FDI may be an important avenue for developing countries to gain access to GVCs and grow their participation. The best development outcome may result from increasing GVC participation and upgrading along GVCs at the same time (UNCTAD, 2013). Thus, globalization motivates companies to restructure their operations at the international level through outsourcing and offshoring activities (OECD, 2017).

The WTO’s new Agreement on Trade Facilitation (ATF) will help to reverse the region’s deceleration of overall export growth and, when implemented, could add as much as 3 percent to regional GDP and lift employment across the region by 1.2 percent. In the region’s developing economies, inefficient border and behind-the-border procedures are well above those of the NIEs and far exceed those of the developed economies. Persistent and often growing protectionism has broadly continued as countries have added further measures to their stock of Non-Tariff Measures (NTMs), which now account for as much as 90% of trade costs other than transportation. As such, it defines a new reform agenda for the East Asian economies that could have far-reaching effects on private sector development, especially for small businesses that need greater transparency and simplification of procedures to enable them to more readily access regional and global value chains.

T he process of globalization has, in recent decades, wrought a dramatic change in the international economy. One of the sources of this new dynamic is the swift process of technical change in the circulation of information and in the reduction of transport costs in general. There has been a significant increase in the levels of trade, and broadening of the basket of economic activities (goods and services) traded at the level of the international economy. Furthermore, the mobility of factors is also important, although this has an asymmetric pattern concentrated in capital (physical and financial) and in labor with a high human capital endowment. From the specialization point of view, this phenomenon is expressed in the process of fragmentation of production at the planetary level. The various stages making up the production of a given amount of economic activity —whether in the production of goods and/or services— have been distributed across the planet through numerous national jurisdictions in a vast array of organizational forms or modes of governance that are known, among other names, as global value chains (GVCs). This fragmentation of production is the modality that characterizes the internationalization of the production processes in many modern manufactured goods, but it has been spreading to a varied group of economic activities, notably the service sector.

Besides offering a novel explanation for EU’s decision to start PTA negotiations with Asian countries, two additional implications of our argument warrant attention. First, we contribute towards a more systematic understanding of the role of economic interests in the EU trade policy literature, which has so far focused primarily on the role of exporters and import- competitors. We are certainly not the first to look at import-dependent firms in trade politics. For instance, some work on US trade policy analyses importers as distinctive political and economic actors (e.g. Bernard et al., 2007; Maggi and Rodriguez-Clare, 2000). Yet, these analyses remain ambiguous as to the exact political role and extent of influence of importers and hardly any attention is paid to political systems other than that of the US (but see Eckhardt, 2013). Second, we shed light on the political economy of global value chains (GVCs). The increasing complexity of global production and the economic consequences of the emergence of GVCs has been studied widely (Gereffi et al., 2005; Neilson et al., 2014), but the implications of these developments for the changing face of firm mobilization and influence have remained under-researched (for notable exceptions see Eckhardt, 2015; Kim, 2014).

The analysis of GVCs 2 highlights the process of economic development (upgrading), the co-ordination of production along a chain, power relations involved (governance) and the influence of institutions (Dolan and Humphrey, 2000, Gereffi, 1994). GVC analysis has highlighted how powerful buyers such as food retailers and global clothing brands ‘govern from a distance’ using quality standards, which increasingly include social and environmental dimensions which have implications for how rents are distributed within chains and also shape the experience of suppliers (Dolan and Humphrey, 2004, Gibbon and Ponte, 2005, Ponte and Gibbon, 2005). Conventionally, GVC analysis focuses on the firm, but increasingly it is argued that it is important to open the ‘black box’ of the firm and examine how particular workers or communities benefit from integration in the global value chain (Barrientos, et al., 2003, Bolwig, et al., 2010). Several studies have highlighted the problems facing workers employed at the base of global value chains; some related to weak labour regulation or global processes of de-regulation associated with neo-liberalism (Barrientos and Dolan, 2003, Barrientos, et al., 2011, Barrientos and Kritzinger, 2004, Palpacuer, 2008) and others indirectly related to purchasing practices of global retailers and brands (Hale and Opondo, 2005, Hughes, et al., 2010, Oxfam, 2004, Raworth and Kidder, 2009). More recently researchers have asked about whether workers and communities benefit from efforts by producers at the bottom of the chain to integrate into GVCs, i.e. does global market access and product and process upgrading enhance ‘social upgrading’ (Barrientos et al., 2011, Bolwig et al., 2010).

I ncreasing access to financing for small and medium enterprises (SMEs) has been a long-standing G20 priority under the Global Partnership for Financial Inclusion (GPFI). Strengthening SMEs in global value chains (GVCs) was highlighted as a G20 goal at the Hangzhou Summit in 2016, where G20 leaders reaffirmed their intention to support the development of SMEs and linkages to GVCs. Under its presidency in 2017, Germany has underscored the importance of SME finance in sustainable GVCs by further aligning this agenda with the G20’s Sustainability Development Goals (SDGs), and by emphasizing the need for companies to adhere to basic labor, social and environmental standards. This report demonstrates how governments, financial institutions and businesses can work together to support financing models that encourage SMEs to upgrade their production processes to comply with sustainability standards in GVCs. Part 1 explores the importance of SMEs and GVCs for emerging economies. It also examines the rise of sustainability standards and the challenges and opportunities they pose for SMEs. A lack of financing is found to limit the ability of SMEs to meet these standards and realize their potential to spur growth, employment and innovation.

Some might wonder why we selected the chains we did; here are some of our motivations: First, we were interested in the impressive growth of employment and exports of the aerospace 1 industry and of software and IT services in comparison with the poor macroeconomic performance of the Mexican economy. Second, even though we don’t agree with some authors who speak of the Mexican aerospace industry as part of the knowledge economy (Ruiz Durán, 2007) because these firms do not engage in design and higher value-added activities, we were interested by the fact that they do employ a higher proportion of qualified labor and/or are capital intensive in comparison to other chains. Third, we were also interested by the degree by which both of these industries’ growth rates were determined by the close collaboration between government, private sector, and academia (Carrillo and Hualde, 2007); (Casalet, 2011); (Hualde and Mochi 2008); (Ruiz Durán, 2007). Finally, we discovered interesting initiatives by the stakeholders of these chains to develop and support clusters inserted in global value chains.

Understanding the complexities of global production is a challenging task. In a world of offshoring, outsourcing and vertical specialisation, activities of firms are spread across countries and national statistics cannot fully account for international production. Building on recent initiatives to provide new statistical and analytical tools on world trade and output, this paper provides indicators on the strength, length and patterns of global value chains (GVCs) across 56 economies. These indicators are calculated at the country and industry level using the recently developed OECD inter-country input-output (ICIO) model. The data are preliminary and tested with two case studies, one in the manufacturing sector (the motor vehicle industry) and one in the services industry (business services).