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Global value chains

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Akshay Bansal

We discuss that while control and location are essential decisions for GVC enhancers, how long these settings are in put into effect also plays a critical but overlooked role in efficient value chain organization.

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Global Value Chains The temporal and dynamic nature of GVCs can be focused almost exclusively on two key decision dimensions – control and location. This relates to the length of time that control and location settings are chosen ex ante to remain in effect. We delve into this issue and assert that assignment durations are linked to activity type and discrepancy in durations can destroy value in even the most logically located GVC activities. We discuss that while control and location are essential decisions for GVC orchestrators, how long these settings are in put into effect also plays a critical but overlooked role in efficient value chain organization. Profits depends on how well firms are performing the activities of value chain. Firms that are brilliant in value chain activity are declared as competitive. Competitive advantage is achieved through cost advantage. Value addition efficiency, advancement in transport and telecommunication and cost efficiency overall have enabled division of labour globally. GVCs help in producing goods and services. These activities are divided among firms and further among countries. These activities are further spread over different geographical locations. There are two aspects: Backward Linkage- The countries import intermediate products to export them Forward Linkage- The countries provide input to export to other countries Countries like Costa rica have attracted companies to invest in it. Equifax became the first company to set up a contact center after realizing its potential to grow.
A Global Value Chain (GVC) breaks up the production process across countries. Firms have expertise in a specific task and do not produce the whole product. Interactions between firms typically involve durable relationships. Economic fundamentals, such as market size and geography drive countries’ participation in GVCs. However, policies are important to enhance participation and broaden benefits. GVC trade exhibits two features that distinguish it from traditional trade: Hyper specialization and durable firm-to-firm relationships. These unique qualities increase technology and knowledge transfer as well as access to capital which allows firms to raise productivity and income and renders GVC trade more powerful than traditional trade in supporting growth and poverty reduction. GVCs support productivity gains and income growth because of their two defining characteristics: long-term firm-to-firm relationships and hyper-specialization in specific tasks (world development report, 2020) Increased trade openness and GVC integration are contributing to better economic performance. GVCs deliver more and better jobs. Production is more capital intensive, perhaps because machines allow production on a large scale. GVC firms also tend to employ more women than other firms, improving their livelihoods and those of their families. With increased tax revenues, the governments can spend more on important public services such as health and education Factor endowments matter - countries mobilize capital labor and natural resources to attract GVCs Legal and regulatory environment conducive to business
Supplies of educated and skilled labor Good physical infrastructure Trade Agreements Lowering Tariffs and elimination of Non –tariff barriers Pro-active policies – SMEs linked to GVC Lead Fims through qualified supplier Programs Special Economic Zones There are clearly some benefits of increased production and economic growth, jobs creation and increased living standards as a result of country’s’ participation in GVCs. These benefits are most visible for low income countries. Productivity, jobs creation and increased living standards enable the possibility to deal with many serious problems of poverty, homelessness and lack of basic amenities.

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Global value chains

  • 1. Global Value Chains The temporal and dynamic nature of GVCs can be focused almost exclusively on two key decision dimensions – control and location. This relates to the length of time that control and location settings are chosen ex ante to remain in effect. We delve into this issue and assert that assignment durations are linked to activity type and discrepancy in durations can destroy value in even the most logically located GVC activities. We discuss that while control and location are essential decisions for GVC orchestrators, how long these settings are in put into effect also plays a critical but overlooked role in efficient value chain organization. Profits depends on how well firms are performing the activities of value chain. Firms that are brilliant in value chain activity are declared as competitive. Competitive advantage is achieved through cost advantage. Value addition efficiency, advancement in transport and telecommunication and cost efficiency overall have enabled division of labour globally. GVCs help in producing goods and services. These activities are divided among firms and further among countries. These activities are further spread over different geographical locations. There are two aspects: Backward Linkage- The countries import intermediate products to export them Forward Linkage- The countries provide input to export to other countries Countries like Costa rica have attracted companies to invest in it. Equifax became the first company to set up a contact center after realizing its potential to grow.
  • 2. A Global Value Chain (GVC) breaks up the production process across countries. Firms have expertise in a specific task and do not produce the whole product. Interactions between firms typically involve durable relationships. Economic fundamentals, such as market size and geography drive countries’ participation in GVCs. However, policies are important to enhance participation and broaden benefits. GVC trade exhibits two features that distinguish it from traditional trade: Hyper specialization and durable firm-to-firm relationships. These unique qualities increase technology and knowledge transfer as well as access to capital which allows firms to raise productivity and income and renders GVC trade more powerful than traditional trade in supporting growth and poverty reduction. GVCs support productivity gains and income growth because of their two defining characteristics: long-term firm-to-firm relationships and hyper-specialization in specific tasks (world development report, 2020) Increased trade openness and GVC integration are contributing to better economic performance. GVCs deliver more and better jobs. Production is more capital intensive, perhaps because machines allow production on a large scale. GVC firms also tend to employ more women than other firms, improving their livelihoods and those of their families. With increased tax revenues, the governments can spend more on important public services such as health and education Factor endowments matter - countries mobilize capital labor and natural resources to attract GVCs Legal and regulatory environment conducive to business
  • 3. Supplies of educated and skilled labor Good physical infrastructure Trade Agreements Lowering Tariffs and elimination of Non –tariff barriers Pro-active policies – SMEs linked to GVC Lead Fims through qualified supplier Programs Special Economic Zones There are clearly some benefits of increased production and economic growth, jobs creation and increased living standards as a result of country’s’ participation in GVCs. These benefits are most visible for low income countries. Productivity, jobs creation and increased living standards enable the possibility to deal with many serious problems of poverty, homelessness and lack of basic amenities.