Global value chains
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Global value chains (GVCs) refer to the complex network of business activities that span across countries and regions to facilitate the production, delivery, and sale of goods and services. GVCs involve multiple organizations that are interconnected through the flow of resources, technologies, and knowledge. GVCs enable organizations to draw on specialized resources from around the world in order to develop, produce, and market their products and services. This allows businesses to benefit from the resources of multiple countries and regions, increase their efficiency and competitiveness, and develop new products and services. GVCs can also help organizations diversify their supply chains, reduce costs, and gain access to new customers and markets.
Example of global value chains
- The automotive industry is an example of a global value chain. Automobile manufacturers, such as General Motors and Toyota, rely on a complex network of suppliers around the world to produce parts and components for their vehicles. These suppliers are located in countries with access to specialized resources, such as cheap labor and low-cost materials. The suppliers then send the parts and components to the car manufacturers in other countries to be assembled into the final product. This allows the car manufacturers to benefit from the resources of multiple countries while ensuring that they have a steady supply of parts and components to meet their production demands.
- The fashion industry is another example of a global value chain. Fashion brands, such as Nike and Adidas, outsource the production of their products to factories located in countries with access to cheap labor and materials. These factories then produce the clothing and send it to countries where the fashion brand has retail stores. This allows fashion brands to benefit from the resources of multiple countries while ensuring that they have a steady supply of products to meet their demand.
- The electronics industry is a third example of a global value chain. Electronics companies, such as Samsung and Apple, rely on a complex network of suppliers around the world to produce components for their products. These suppliers are located in countries with access to specialized resources and technologies, such as advanced semiconductor manufacturing processes. The suppliers then send the components to electronics companies in other countries to be assembled into the final product. This allows the electronics companies to benefit from the resources of multiple countries while ensuring that they have a steady supply of components to meet their production demands.
Types of global value chains
Global value chains (GVCs) refer to the complex network of business activities that span across countries and regions to facilitate the production, delivery, and sale of goods and services. There are several types of GVCs, including:
- Upstream GVCs, which involve activities such as research and development, product design, procurement, and production;
- Downstream GVCs, which involve activities such as distribution, marketing, and sales;
- Horizontal GVCs, which involve activities such as logistics, warehousing, and transportation;
- Knowledge-based GVCs, which involve activities such as knowledge sharing and innovation;
- Financial GVCs, which involve activities such as financing, risk management, and currency exchange; and
- Regulatory GVCs, which involve activities such as policy-making, compliance, and dispute resolution.
Networks of global value chains
Global value chains are complex networks of business activities that span across countries and regions. The following steps are required to facilitate the production, delivery, and sale of goods and services:
- Design and Development: This involves the planning and development of products and services. Companies must determine the type of product or service they want to offer and decide how it will be designed, manufactured, and marketed.
- Production: This involves the actual production of the product or service. Companies need to identify and select suppliers, coordinate the manufacturing process, and ensure quality control.
- Delivery: This involves the transportation of the product or service from the production facility to the customer. Companies need to coordinate the logistics, manage inventory, and ensure safe and timely delivery.
- Marketing and Distribution: This involves the promotion and sale of the product or service. Companies need to create and implement marketing strategies, build relationships with distributors and retailers, and manage customer service.
- Evaluation and Improvement: This involves the continued assessment of the performance of the product or service. Companies need to collect data, analyze market trends, and identify ways to improve their products and services.
Advantages of global value chains
Global value chains offer many advantages for businesses, including:
- Cost savings: By sourcing from multiple countries, businesses can reduce their costs for raw materials, production, and labor.
- Increased efficiency: GVCs allow businesses to access specialized resources and technologies from around the world, enabling them to increase the efficiency of their production processes.
- Access to new markets: GVCs enable businesses to access new markets, customers, and suppliers that they may not have been able to access otherwise.
- Risk diversification: By sourcing from multiple countries, businesses can reduce their risk by diversifying their supply chains.
- Competitive advantage: By utilizing specialized resources and technologies, businesses can gain a competitive advantage over their competitors.
- Innovation: GVCs enable businesses to draw on resources from around the world to develop new products and services.
Limitations of global value chains
Global value chains (GVCs) have certain limitations that should be taken into consideration when using them. These include:
- Lack of transparency and visibility between participants in the chain, which can lead to misaligned incentives and lack of accountability.
- Dependence on unreliable suppliers, which can lead to supply chain disruptions and reduced efficiency.
- Complexity and high costs associated with managing global value chains, which can reduce profitability.
- High risk of fraud, counterfeiting, and intellectual property theft, which can result in significant financial losses.
- Increased environmental impact due to increased transportation of goods across multiple countries and regions, which can damage the environment.
- Risk of over-dependence on a single supplier, which can lead to disruption of the chain and potential loss of market share.
Suggested literature
- Antràs, P., & Chor, D. (2021). Global value chains.
- Gereffi, G., Humphrey, J., & Sturgeon, T. (2005). The governance of global value chains. Review of international political economy, 12(1), 78-104.
- Humphrey, J., & Schmitz*, H. (2001). Governance in global value chains. IDS bulletin, 32(3), 19-29.
