Global value chain

In development studies, 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. GVC is similar to Industry Level Value Chain but encompasses operations at the global level. In development studies, 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. GVC is similar to Industry Level Value Chain but encompasses operations at the global level. The concept of a value chain has been used to analyse international trade in global value chains and comprises “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 the final consumer”. 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. In his early work based on research on East Asian garment firms, the pioneer in value chain analysis, Gary Gereffi, describes a process of almost ‘natural’ learning and upgrading for the firms that joined GVCs. This echoed the ‘export-led’ discourse of the World Bank in the ‘East Asian Miracle’ report based on the East Asian ‘Tigers’ success. This encouraged the World Bank and other leading institutions to encourage developing firms to develop their indigenous capabilities through a process of upgrading technical capabilities to meet global standards with leading multinational enterprises (MNE) playing a key role in helping local firms through transfer of new technology, skills and knowledge. Wider adoption of open source hardware technology used for digital fabrication such as 3D printers like the RepRap has the potential to partially reverse the trend towards global specialization of production systems into elements that may be geographically dispersed and closer to the end users (localization) and thus disrupt global value chains. Global value chains are networks of production and trade across countries. The study of global value chains requires inevitably a trade theory that can treat input trade. However, mainstream trade theories (Heckshcer-Ohlin-Samuelson model and New trade theory and New new trade theory) are only concerned with final goods. It need a New new new trade theory. Escaith and Miroudot estimates that the Ricardian trade model in its extended form has 'the advantage' of being better suited to the analysis of global value chains. The lack of appropriate tool of analysis, the studies of GVCs have been conducted mainly by sociologists like Gary Gereffi and management science researchers. See for a genealogy Jennifer Bair (2009). Studies by means of global Input-Output Table is starting. GVCs become a major topic in development economics especially for middle-income countries, because the 'upgrading' within GVCs became the crucial condition for the sustained growth of those countries. GVC analysis views “upgrading” as a continuum starting with “process upgrading” (e.g. a producer adopts better technology to improve efficiency), then moves on to “product upgrading” where the quality or functionality of the product is upgraded by using higher quality material or a better quality management system (QMS), and then on to “functional upgrading” in which the firm begins to design its own product and develops marketing and branding capabilities and begins to supply to end markets/customers directly - often by targeting geographies or customers (which are not served by its existing multinational clients). Subsequently, the process of upgrading might also cover inter-sectoral upgrading.