An introduction to the concept of global value chain and its implications. Comments and suggestions are most welcome. For queries: ryanfardinsakib@gmail.com

1. GLOBAL VALUE CHAIN
An Introduction

2. RAW
MATERIAL
FINISHED
PRODUCT
WHAT TRANSFORMS RAW MATERIALS
INTO A FINISHED PRODUCT ?
VALUE CHAIN

3. RAW
MATERIAL
FINISHED
PRODUCT
VALUE CHAIN
A process that includes many
activities, such as…
Design Production Distribution Marketing Support
… AND
MORE
Full range of activities
aka
“Value chain”

4. VALUE CHAIN
“Full range of activities that are required to
bring a product from its conception, through its
design, its sourced raw materials and
intermediate inputs, its marketing, its distribution
and its support to the final consumer”
Source: http://www.globalvaluechains.org/concepts.html

5. Can produce goods or services.
Can be contained within
a single firm or
divided among different firms.
Can be contained within a single
geographical location or
spread over the globe.
VALUE CHAIN3 CHARACTERISTICS OF A
divided among different firms
spread over the globe.
and

6. VALUE CHAINGLOBAL
divided among different firms
and
GLOBAL VALUE CHAIN
A value chain that is
spread over the globe.

7. VALUE CHAINGLOBAL
Source: Banga, R. (2013). MEASURING VALUE IN GLOBAL VALUE CHAINS. UNCTAD
GLOBAL VALUE CHAIN
“GLOBAL VALUE CHAIN CAN BE SIMPLY UNDERSTOOD
AS THE SEQUENCE OF ALL FUNCTIONAL ACTIVITIES
REQUIRED IN THE PROCESS OF VALUE CREATION
INVOLVING MORE THAN ONE COUNTRY.”

8. VALUE CHAINEXAMPLE OF GLOBAL
Credit: Karen Matalabos

9. EVOLUTION OF GLOBAL VALUE CHAIN
“Commodity Chains”
(Hopkins and Wallerstein, 1977)
1977
1985
Porter’s
“Value Chain”
1994
Global Commodity
Chain
(Gereffi, 1994)
2000
Global VALUE
Chain
2007
Global VALUE
NETWORK
(Coe and Hess, 2007)
Source: MAPPING GLOBAL VALUE CHAINS. OECD, 2012
The basic idea of the Commodity Chain concept was to trace all the sets
of inputs and transformations that lead to an “ultimate consumable”. The
concept of “global commodity chain” was later introduced for describing
the apparel commodity chain spread across the globe. In the 2000s, there
was a shift in terminology from the “global commodity chain” to the
“global value chain”, combining the analysis of trade and industrial
organization as a value-added chain. A more recent strand of research
prefers to put the emphasis on the concept of “network” rather than
“chain” because businesses are more interconnected

10. WHAT MAKES GLOBAL VALUE CHAIN DIFFERENT?
Complexity of transactions
Codifiability of transactions
Competence of suppliers
Source: http://www.globalvaluechains.org/concepts.html
More complex transactions require greater interaction
among actors in GVCs and thus stronger forms of
governance is required rather than simple price-based
markets
Some industries codify complex information so that data
can be handed off between GVC partners with relative
ease, often using advanced information technologies. GVC
partners must have access and expertise for dealing with
such codified information
The ability to receive and act upon complex information or
instructions from lead firms requires a high degree of
competence on the part of suppliers.

11. GDP Contribution from
Value Added Trade
30%In Developing Countries
18%In Developed Countries
Stronger GDP per capita
growth!
Enhanced productive
capacity
Long-term industrial
upgradingEmployment, income
and development
opportunities
WHY “GLOBAL” VALUE CHAINVALUE
Source: UNCTAD, 2013

12. VALUE CREATED BY GLOBAL VALUE CHAIN
iPod 4
US Product
Caters to local and international market
481 components
Market Price $299
as of June 2007, without tax
Source: Varian, Hal R. The New York Times, June 28, 2007. An
iPod Has Global Value. Ask the (Many) Countries That Make It.

13. Hard Drive by Toshiba $73
$54 in parts and labor
$19 value added by
Toshiba
Video/multimedia processor
chip by Broadcom $8.
Controller chip by
Portal Player $5 .
Final assembly in
China $4
The unaccounted-for parts and labor costs involved in
making the iPod came to about $110
VALUE CREATED BY GLOBAL VALUE CHAIN
Source: Varian, Hal R. The New York Times, June 28, 2007. An
iPod Has Global Value. Ask the (Many) Countries That Make It.

14. For the a product with 481
components, mostly produced offshore
and assembled in China…
American Value Addition
$163 (54% of retail price)
Domestic component makers $8
Distribution and retail costs $75
Apple’s Value Addition $80
VALUE CREATED BY GLOBAL VALUE CHAIN

15. Apple’s Value Addition $80
Apple has the biggest value share,
because it figured out a way to turn
481 generic components into a $299
lifestyle marvel
…and they don’t even have to make
it themselves
VALUE CREATED BY GLOBAL VALUE CHAIN

16. THE WORLD WE LIVE IN
Trade in intermediate products is growing faster than trade in finished products
2/3rd of EU’s export is intermediate products & raw materials

17. THE WORLD WE LIVE IN
$
Trillion
1990-91
0.98
2009-10
4.5
Global Network Trade

18. OECD & GLOBAL VALUE CHAIN
These countries
contribute
67%
of total global value
created
Source: OECD-WTO database on Trade
in Value Added (May 2013)
The OECD provides
a forum in which
governments can
work together to
share experiences
and seek solutions to
common problems.

19. THE WORLD WE LIVE IN
Total value-added
created by GVCs
NIC 1
8%
NIC 2
3%
BRICS
14%
Rest of the
world
8%
OECD
67%

20. THE WORLD WE LIVE IN
Total value-added
created by GVCs UK
4%
Japan
4%
Korea
5%
France
4%
China
9%
Other BRICS
Countries
5%
LDCs, rest of
the world
8%
NIC 1
8%
NIC 2
3%
Other OECD
Countries
32%
USA
9%
Germany
9%

21. FOREIGN VALUE ADDED CONTENTS
THE WORLD WE LIVE IN

22. FOREIGN VALUE ADDED CONTENTS
THE WORLD WE LIVE IN

23. THE WORLD WE LIVE IN

24. VALUE CHAINPARTICIPATION IN GLOBAL
Forward linkage
the country provides
inputs into exports
of other countries
Backward linkage
the country imports
intermediate products to
be used in its exports

25. VALUE CHAINPARTICIPATION IN GLOBAL
 In low-wage labor-intensive production, the principal
profits are not realized in manufacturing itself
 Majority of the profit is generated in the corporate
coordination and control of the entire 'global assembly
line
 Especially: design, marketing and retailing

26.  Contribution to the growth may be limited if the work
done in-country is relatively low value adding
 Risk of operating in permanently low value-added
activities.
 Potential negative impacts on the environment and
social conditions
PITFALLS OF GLOBAL VALUE CHAIN
Source: UNCTAD, 2013

27. TYPES OF GOVERNANCE IN GLOBAL VALUE CHAIN
Materials
Customers
Suppliers
Price
End Use
Market Modular
Lead
Firm
Component
and Material
Suppliers
Relational
Captive
Suppliers
Captive
Lead
Firm
Component
and Material
Suppliers
Value
Chain Hierarchy
Integrated
Firm
Low High
Degree of Explicit Coordination
Degree of Power Asymmetry
Lead
Firm
Relational
Supplier
Full-
package
Supplier

28. (GARY GEREFFI, JOHN HUMPHREY, AND TIMOTHY STURGEON, “THE OF GLOBAL VALUE CHAINS,” REVIEW OF INTERNATIONAL POLITICAL ECGOVERNANCEONOMY,
VOL. 12, NO. 1, 2005)
Governance
Type
Complexity of
transactions
Ability to codify
transactions
Capabilities in
the supply-base
Degree of explicit
coordination & power
asymmetry
Market Low High High
Modular High High High
Relational High Low High
Captive High High Low
Hierarchy High Low Low
Low
High
TYPES OF GOVERNANCE IN GLOBAL VALUE CHAIN

29. OECD POLICY DOMAINS FOR
GLOBAL VALUE CHAIN
Trade Policy
• Tariff barriers as
well as the
burden of
non-tariff
measures
Investment Policy
• Generation of
investment
incentives
Development
Policy
• The “Home” and
“Host” conflict
Competitiveness
Policy
• National Policies
• International
competition
Risk Management
• Greater
interdependence
• Greater risk
SOURCE: HTTP://WWW.OECD.ORG/INDUSTRY/IND/GLOBAL-VALUE-CHAINS.HTM
The OECD is preparing a broad range of work to help policy makers to understand the effects of
GVCs on a number of policy domains:

30. THANK YOUFOR QUERIES AND COMMENTS:
RYANFARDINSAKIB@GMAIL.COM