CII_Global Value Chain.Global supply chain managementpptx

Global supply chain management

1. Global value chain

2. What is a value chain? A value chain describes the 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 its end use and beyond.

3. Textiles & Apparel: Interactive Value-Chain with Supporting Industries

4. Characteristics of a value chain Can produce goods or services, Can be contained within a single firm or divided among different firm, Can be contained within a single geographical location or spread over globe.

5. T Y PE S O F C H AINS 7 G loba l S uppl y C ha ins Logistics (transportation focus: reduce time + costs) Trade Facilitation (lower barriers at the border) G loba l C ommodit y C hains P r o d u c e r - d ri v e n c h a i n s : T r ad e + FDI ( e . g . , a irc r a f t , a u t o s , m i n i n g , o il) Buy e r - d ri v e n c h a i n s : T r ad e w / o F D I ( e . g . , c o n s u m e r g oo d s) ; g l o ba l subcontracting by retailers, brands & supermarkets G loba l V a lu e C ha ins Rise of intermediate goods trade (import content of exports: 20% in 1990; 40 % i n 2010; 60 % i n 203 – P . La m y ) C r e a t e , ca p t u r e & s u sta i n d o m e sti c v a l u e add e d ( e . g . , Ch i n e s e i - Phone example; build capabilities of domestic suppliers) R e g iona l V a lu e C ha ins G r o w i n g i n i m p o r ta n c e , e s p . si n c e 200 8 - 9 a n d i n e m e rg i n g e c onom i e s ; b e y ond f r ag m en t a t i on a nd EO I d e v e l o p me n t mo d e l .

6. L I NK I N G G L O B A L C HA I N S AN D L OCA L CL U S T E RS 1 1

7. G O V E RNANCE & U P GRADING 1 2 Global value chain analysis provides both conceptual and methodological tools for examining the global economy T o p - d o w n : a f o c u s on lea d fi r ms a n d i n t e r - fi r m networks, using varied typologies of industrial “governance” B o tt o m - u p : a f o c u s on c o u n t ries a n d re g ion s , w h i c h are analyzed in terms of various trajectories of economic, social and environmental “upgrading” (or “downgrading”)

8. DIMENSIONS OF GLOBAL VALUE CHAIN ANALYSIS 1 3 1. V al u e C h ai n M a p p i n g 2. G e og r a ph i c S c ope G o v e r n a n c e Str u c t u r e : L e ad F i r m s & I n du st r y O r g a n i z a ti o n L o c a l I n stit u ti o n a l C on t e xt 5. I n du st r y Sta k e ho l d e r s 6. U p g r a d i n g T r aje c t o r ie s G L O B A L L OC A L

9. E X A M P L E 1 : Analyzing the position of different countries in the value chain can allow you to identify countries that have successfully upgrading & then examine the policies and changes they implemented to successfully achieve that functional upgrading. 11

10. U P GR AD I N G TR A J EC T O R Y : P R O DU C T I O N T O P A C KI NG AND C O L D S T O R A GE Pack i n g & C o l d S t o r a ge (Functional Upgrading) Typ i ca ll y w o m e n a r e h i r e d t o w o r k i n t h e pack i ng p l an t s . The y m us t f o l l o w s tr i c t p r ocedu r e s t o pack the products and prevent losses as well as protect aga i ns t san i t a r y p r ob l e m s. S k ill s P re p ara t i o n S ho rt t r aining, c e r t i f i c a t ion , and / or on - t he - jo b t r aining Institutions G o v e r n m en t s, p r i v a t e s e c t o r, bu y e rs, t r ainin g in s t i t u t ions 12

11. JOB P R O F ILE S AN D U P G R A D IN G Pr odu c t i o n f or E xpo r t P a ck ing & C old Sto r a g e Pr oce s s i ng S k ill L e v e l J ob Pr of il e s V a lue C h a in Segments 13

12. EXAMPLE 2 -- OFFSHORE SERVICES: A Si mp l ifi ed V i e w of Upg r a d i ng 1 9 ITO – Information technology outsourcing BPO – Business process outsourcing KPO – Knowledge process outsourcing ITO  BPO  KPO

13. What is a Global value chain? the global value chain ( GVC ) describes the people and activities involved in the production of a good or service and its supply, distribution, and post-sales activities (also known as the supply chain ) when activities must be coordinated across geographies.

14. The first references to the GVC concept date from the mid-1990s and were enthusiastic about the upgrading prospects for developing countries that joined them. Global value chain framework developed over the past decade by a diverse interdisciplinary and international group of researchers who have tracked the global spread of industries and their implications for both corporations and countries

15. Example of Global Value Chain https://youtu.be/owQzo82ac_M

16. EVOLUTION OF GLOBAL VALUE CHAIN 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

17. EVOLUTION OF GLOBAL VALUE CHAIN

18. WHAT MAKES GLOBAL VALUE CHAIN DIFFERENT? 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. Complexity of transactions Codifiability of transactions Competence of suppliers

19. GVCs make a significant contribution to international development. Value-added trade contributes about 30% to the GDP of developing countries, significantly more than it does in developed countries (18%) furthermore the level of participation in GVCs is associated with stronger levels of GDP per capita growth. GVCs thus have a direct impact on the economy, employment and income and create opportunities for development. They can also be an important mechanism for developing countries to enhance productive capacity, by increasing the rate of adoption of technology and through workforce skill development, thus building the foundations for long-term industrial upgrading. WHY “GLOBAL” VALUE CHAIN VALUE

20. WHY “GLOBAL” VALUE CHAIN VALUE GDP Contribution from Value Added Trade: 30% In Developing Countries 18%In Developed Countries Stronger GDP per capita growth! Enhanced productive capacity Employment, income and development opportunities Long-term industrial upgrading

21. limitations to the GVC approach Their contribution to the growth may be limited if the work done in-country is relatively low value adding (i.e. contributes only a small part of the total value added for the product or service). In addition there is no automatic process that guarantees diffusion of technology, skill-building and upgrading. Developing countries thus face the risk of operating in permanently low value-added activities. Finally, there are potential negative impacts on the environment and social conditions, including: poor workplace conditions, occupational safety and health, and job security. The relative ease with which the Value Chain Governors can relocate their production (often to lower cost countries) also create additional risks.

22. China assembles all iPods, but it only gets about $4 per unit – or just over 1% of the US retail price of $300 451 parts that go into the iPod The retail value of the 30-gigabyte video iPod that the authors examined was $299 in June, 2007 The bulk of the iPod’s value is in the conception and design of the iPod. That is why Apple gets $80 for each of these video iPods it sells, which is by far the largest piece of value added in the entire supply chain. Apple figured out how to combine 451 mostly generic parts into a valuable product. Hard Drive by Toshiba  Japanese company, most of its hard drives made in the Philippines and China; it costs about $73 - $54 in parts and labor -- so the value that Toshiba added to the hard drive was $19 plus its own direct labor costs V ideo/multimedia processor chip by Broadcom  American company with manufactures facilities in Taiwan. This component costs $8. Controller chip by Portal Player  American company with manufactures .This component costs $5 . Final assembly  done in China, costs only about $4 a unit The unaccounted-for parts and labor costs involved in making the iPod came to about $110 The largest share of the value added in the iPod goes to enterprises in the United States  $163 of the iPod’s $299 retail value in the United States was captured by American companies and workers, breaking it down to $75 for distribution and retail costs, $80 to Apple, and $8 to various domestic component makers.

23. E X A M P L E 2 : O FFS H O R E S E R V I CES G L O B AL S UP P L Y AND D E M AND 2 1

24. P R O DU C E R - D R I V E N AN D B U Y E R - D RI V E N G L O B A L COM M OD IT Y C H A I N S Producer-driven Commodity Chains Manufacturers Distributors R et ai l e rs and Dealers Domestic and Foreign Subsidiaries and Subcontractors U.S. MARKET Buyer-driven Commodity Chains OVERSEAS Branded Mar ket e rs Retailers Branded Manu f ac t u r er s Traders O v erseas Buyers Factories Notes : Solid arrows are primary relationships; dashed arrows are secondary relationships. Retailers, branded marketers, and traders require full-package supply from overseas factories. Branded manufacturers ship parts for overseas assembly and re-export to the manufacturer’s home market Source: Gary Gereffi, “The organization of buyer-driven global commodity chains: How U.S. retailers shape overseas production networks,” in G. Gereffi & M. Korzeniewicz (eds.), Commodity Chains and Global Capitalism (Praeger, 1994), p. 98.

25. G V C L EAD FI R M S & THE I R S U PP L Y C H AI NS 2 6 Giant Retailers: Wal-Mart Largest retailer in the world directs the biggest supply chain > 60,000 suppliers worldwide and over 80% are in China Global Brands: Nike Nike, the largest sportswear company in the world, does not own any factories. Nike products made in 930 factories (subcontractors) in 50 countries >1 million workers in supply chain, but just 38,000 direct employees in U.S. Manufacturers w/o Factories: Apple Apple, the top smartphone company in the world, designs and markets its products but owns no factories Foxconn, the largest electronics contract manufacturer in the world, makes Apple products and employs >1 million workers in mainland China

26. WHERE ARE THE HIGH-VALUE ACTIVITIES IN GVCs? 3 5

27. A pp l e ’ s S m ili n g C u r v e a n d G V C f o r i Phon e s 31

28. T R IPL E B O T T O M LINE: D i v e rsifie d , I nc l us i v e a nd G r een G r o wth Economic U pg r ad i ng Social U pg r ad i ng E n v i r on m e n t al Upgrading Sustainable Growth Development Outcomes: D e v e l o pm e n t Outcomes: D e v e l o pm e n t Outcomes: Job creation Exports Income generation Added value Better use of resources Backward linkages Inclusion of vulnerable groups Job creation Improve working conditions Higher wages Skills acquisition Soil preservation and improvement Water c o n se r v a t i o n Wildlife c o n se r v a t i o n Pollution and waste reduction

29. G V C U pg r ad i ng: E mp i r i c al I nd i c a t ors Product Upgrading  Unit price of goods Process Upgrading  Productivity measures Functional Upgrading  Backward/forward links Chain Upgrading  Economic diversification into new or related industries Social Upgrading  Wage rates, working conditions Environmental Upgrading  Carbon footprint

30. Conclusions Countries need to carefully assess the pros and cons of GVC participation and the costs and benefits of proactive policies to promote GVCs or GVC-led development strategies. Promoting GVC participation implies targeting specific GVC segments and GVC participation can only form one part of a country's overall development strategy.

31. Conclusions Before promoting GVC participation, policymakers should evaluate their countries’ trade profiles and industrial capabilities in order to select strategic GVC development paths. Achieving upgrading opportunities through CVCs requires a structured approach that includes: embedding GVCs in industrial development policies (e.g. targeting GVC tasks and activities); enabling GVC growth by providing the right framework conditions for trade and FDI and by putting in place the needed infrastructure; and developing firm capabilities and training the local workforce.