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Research Methodology for Global Business Clusters &
Global Value Chain Networks
Dr. Emanuela Todeva Director of Research Centre for Business Clusters, Networks and Economic Development
University of Surrey
Multilateralism & Global Integration‘The world has become a Hum of Interconnected voices
and a Hive of interlinked lives.’ Christine Lagarde, 4/2/2014
• In 1950 – the emerging markets and developing economies accounted for hardly 25% of the Global GDP – now it is 50%, and in 2020 it is likely to be 2/3
• More then half of manufacturing output are intermediate products
• More then 70% of integrated services (imports) are intermediate services
• MNCs control 2/3 of global trade • 12 MNCs 31 Global cities sit among the top 100 global
bodies in terms of size
The Value Chain Describes the Full Range of Activities That Firms and Workers Do to Bring a
Product From its Conception to its End Use
value co-creation
value measurement
valuediffusion
value-in-context
value-in-exchange
valuecreation
value extraction
© Todeva, 2014
Network Approach to Value Management
GVC – Interconnected Input-Output Markets for- resources (supply networks & trade of intermediate products)- skills (outsourcing networks)- capital (shareholder networks)- production technology (R&D alliances)
GVC – Interconnected Organised Production Capabilities and Country Resources- Agents boundaries- Location boundaries- Activities - Costs- Value added- Transfers, transactions
GVC – Organisation & Coordination of production and value added activities across borders and firm boundaries
Value Chains
Value Added Along the GVC (OECD, 2013)
apparel supply chain: Forstater, 2010
Methodology as a Step-by-Step Approach
• Revealing actors & activities
• Revealing linkages• Visualising / Mapping
linkages• Developing linkages• Upgrading linkages &
Position
• Cluster Mapping• Cluster Development
(enhancement of capabilities)
• Cluster Internationalisation
UPGRADING through innovation to increase value added
Different forms of upgrading:
of processes
of products
functional
inter-sectoral
Process Upgrading
Firms can upgrade processes – transforming inputs into outputs more efficiently by re-organising the production system or introducing superior technology (i.e. footwear producers in the Synos Valley – Schmitz, 1999).
Product Upgrading
Firms can upgrade by moving into more sophisticated product lines (which can be defined in terms of increased unit values).
Example: the apparel commodity chain in Asia upgrading from discount chains to department stores (Gereffi, 1999).
Functional Upgrading
Firms acquire new functions (or abandon existing functions) so that they increase the overall skill content of their activities. They might complement production with design or marketing, or move out of low-value production activities.
Example: Torreon’s blue jeans industry upgrading from maquila to “full-package” manufacturing (Bair & Gereffi, 2001).
Upgrading
Upgrading refers to the acquisition of technological capabilities and market linkages that enable firms to improve their competitiveness and move into higher-value activities. Analyses of upgrading from a value chain perspective pay particular attention to the ways in which value chain linkages facilitate or obstruct upgrading.
Product & Process
Upgrading
Functional
Upgrading
Inter-Chain
Upgrading
Intersectoral Upgrading
Firms may apply the competence acquired in a particular function to move into a new sector.
For example, in Taiwan competence in producing TVs is used to make monitors and thus move into the computer sector (Humphrey & Schmitz, 2002, Guerrieri & Pietrobelli, 2004).
The Value Chain Describes the Full Range of Activities That Firms and Workers Do to Bring a
Product From its Conception to its End Use
- The Use of complementary databases comprising of the entire population of firms and funded research projects
- Developed a Multi-Stage Cluster Methodology for Cluster mapping and analysis
- Investigating Brokerage, Intermediation, & Information sharing across firm / regional / country boundaries
Amadeus 2008
Diagnostics
240
Medical Care
4902
Social Care
3208
Medical Care Support Services
1154
Technical Support
265
Dental Practice
478
Telecare
63
Drug Development Support
376
Bio-pharma R&D
387
Integrated Pharma& Biotech
115
Health products & cosmetics
677
MedicalDevices
719
Bio-PharmaManufacturing
286
Bio-Pharma Support
496
TradePharmaceutical& bio-products
611
Pharmacies & Drug Stores
1161
Fitness & Wellbeing
309
TradeMedical & Optical
Products
813Universities / centres of excellence
in research
61
© Todeva, 2008
Activities &Transactions
Database Firms ‘Concentration of firms in the Value Chain in the Region’ Greater South East, UK
Bio-Medical & Health, Greater South East,
2008
Amadeus 2008
Diagnostics
240
Medical Care
4902
Social Care
3208
Medical Care Support Services
1154
Technical Support
265
Dental Practice
478
Telecare
63
Drug Development Support
376
Bio-pharma R&D
387
Integrated Pharma& Biotech
115
Health products & cosmetics
677
MedicalDevices
719
Bio-PharmaManufacturing
286
Bio-Pharma Support
496
TradePharmaceutical& bio-products
611
Pharmacies & Drug Stores
1161
Fitness & Wellbeing
309
TradeMedical & Optical
Products
813Universities / centres of excellence
in research
61
© Todeva, 2008
Cluster Value Chain: SURGICAL & MEDICAL INSTRUMENTS MANUFACTURING(198 firms, ties between firms based on 5 or more shared industry codes)
(87% of firms have the core industry codes: 334510 Electro-medical and Electrotherapeutic Apparatus Manufacturing; 334517 Irradiation Apparatus Manufacturing; 39112 Surgical and Medical Instrument Manufacturing; 339113 Surgical Appliance and Supplies Manufacturing)
© Todeva (2007)
Holding companies
All other personal care stores
Wholesale
Misc. metal products
Electro-medical, electro-therapeutic, irradiation apparatus; surgical & medical instruments;
surgical supplies manufacturing
R&DPlastic
products
198 firms87% in 4 coreindustries
Misc electrical equip & component
manuf.
Computer systems sPublishing
Telecom operations
Electronic hardware
Motion picture
Business services
Publishing
© E. Todeva (2004)
The Global Information Sector, 2002
The Emergence /Recognition of GVCs and Major Paradigm Changes (Cattaneo et al
2013)
• Change of relevant strategic framework, from countries to firms and GVCs. – A country cannot develop a competitive offer of goods or services in isolation. – Imports are a means for firms to access the most efficient inputs and free
resources to focus on core competences. – Following business practices, policy should treat trade and FDI, both inward
and outward, in an integrated framework. • Change of the relevant economic framework, from industries to tasks and
business functions. The objective is not to develop domestic industries that would capture all the segments of production or the whole value chain, but to develop value added services and inputs for the GVC– Acknowledge that an efficient manufacturing sector requires efficient and
competitive services as well as a skilled workforce and continuous innovation in products, processes and business models. Services such as financial intermediation, R&D, logistics, and marketing are necessary to produce higher value added manufactures.
The Global Value Chain (GVC) • Outward-looking development model driven by trade and
competitiveness. – Countries / Regions / Firms do not need to develop vertically
integrated industries to participate in global trade; it is enough to develop capacities in specific segments (stages of production, tasks or business functions) of the value chain. (Cattaneo et al., 2013)
• Trade in Value-Added (TiVA) indicators (OECD/WTO, 2013)– Focus on the estimation of the source(s) of value (domestic vs.
foreign and/or by country and industry) that is added in producing goods and services for export.
– Still involves misleading classifications such as in the chemical sector in the TiVA tables can combine both base chemicals and pharmaceutical products. These subsectors differ in their use of intermediate products as well as their skill intensity.
• The GVC Participation Index – The higher the foreign value-added embodied in gross exports and
the higher the value of inputs exported to third countries and used in their exports, the higher the participation of a given country in the value chain.
Louis Brennan , 2014
Moving Up the Value Chain • (1) Upgrading
Process upgradingProduct upgradingFunctional upgradingChain or inter-sectoral upgrading
• (2) Task bundling• (3) Workforce development and innovation• (4) Ensuring cost competitiveness• (5) Improving the connectivity with international markets• (6) Improving business and investment climates• (7) Fostering innovation and building capacity
28
Composition of Mexico’s Exports to the World Market, 1986-2006
Source: UN Comtrade.
2502141881651611581661361171109680615246272623202119
0
10
20
30
40
50
60
1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
% E
xpor
t M
arke
t
Primary Products
Resource Based Manufactures
Low Tech Manufactures
Medium Tech Manufactures
High Tech Manufactures
TotalExportsUS $B
Composition of China’s Exports to the World Market, 1987-2006
Source: UN Comtrade.
96976259343832626624919518418315114912192857262534839
0
10
20
30
40
50
60
1987 1989 1991 1993 1995 1997 1999 2001 2003 2005
% E
xpor
t M
arke
tPrimary Products
Resource Based Manufactures
Low Tech Manufactures
Medium Tech Manufactures
High Tech Manufactures
TotalExportsUS $B
Africa’s Share of World Exports Has Been Declining
Source: USITC http://dataweb.usitc.gov downloaded Feb 22, 2008
Main Competitors in the U.S. Market for Automatic Data Processing Machines and Units(SITC 752)
0%
10%
20%
30%
40%
50%
60%
2000 2001 2002 2003 2004 2005 2006 2007
Year
Pe
rcen
t o
f U
.S.
Mar
ket
China
Malaysia
Mexico
Thailand
Singapore
Japan
32
Source: USITC http://dataweb.usitc.gov downloaded Feb 22, 2008
Main Competitors in the U.S. Market for Telecommunication Equipment and Parts (SITC 764)
0%
10%
20%
30%
40%
2000 2001 2002 2003 2004 2005 2006 2007
Year
Per
cen
t o
f U
.S.
Mar
ket
China
Mexico
Korea
Japan
Malaysia
Canada
33
Source: USITC http://dataweb.usitc.gov downloaded Feb 22, 2008
Main Competitors in the U.S. Market for Furniture and Parts (SITC 821)
0%
10%
20%
30%
40%
50%
2000 2001 2002 2003 2004 2005 2006 2007
Year
Per
cen
t o
f U
.S.
Mar
ket
China
Canada
Mexico
Vietnam
Italy
34
Source: USITC http://dataweb.usitc.gov downloaded Feb 22, 2008
Main Competitors in the U.S. Market for Articles of Apparel and Clothing (SITC 84)
0%
10%
20%
30%
40%
2000 2001 2002 2003 2004 2005 2006 2007
Year
Pe
rcen
t o
f U
.S.
Mar
ket
China
Mexico
Vietnam
Indonesia
India
What kinds of work are Chinese, Indian, and American engineers actually doing?• Answer: Not just product
adaptation, but cutting-edge research & commercialization
China: More than 1,000 MNC R&D Centers• GE’s China Technology Center:
Advanced research in energy storage, environmental management
• Microsoft Research Asia: Cutting-edge graphics & multimedia research
MNC R&D Centers in China, How are engineers being used?
Global Value Chains
The focus of analysis of global value chains is on the relationships among the different actors that are part of the chain.
The concept of ‘governance’ ( = coordination) is fundamental to understand such relationships;
Governance may occur thorugh:1. Market relations (Arm’s-length)2. Network relations, that is cooperation among
firms with the same level of power;3. Quasi-hierarchy, with relations among
enterprises that are legally independent, but one is hierarchically subordinate to the other;
4. Hierarchy, when a firm is owned by another (external) firm.
• R&D expenditures by business, government, higher
education, and private non-profit organizations • Source of funds for R&D, by type of costs, by type
of economic activity (NACE), by enterprise size class, by type of R&D (basic, applied, and experimental research) (Timothy J. Sturgeon, May 2013)
• Schmitz (1995) - ‘‘collective efficiency’’ (CE) - defined as the competitive advantage derived from local external economies and joint action
• Ricardo’s static concept of ‘‘Comparative Advantage’’ (CA) - registers ex-post gaps in relative productivity which determine international trade flows
• success in firm-level upgrading enables the dynamic acquisition of competitiveness in new market niches, sectors, or phases of the productive chain (Pietrobelli, 1997;Lall, 2001;).
• From innovation, to upgrading, to the acquisition of firm-level competitiveness (i.e., competitive advantage).
Competing products
Scientific and knowledge fields
Research laboratory
Research laboratory
Governmentinnovation policyagencies
MNC MNC
InternationalStandardisationagency
Scientific Association
Competing technologies
subcontractor
Governmentstandardisation agency
RESEARCHCONSORTIUM
R&D Alliance Networks
© Todeva, 2005
RELATIONSHIPS
STRUCTUREACTORS
culturalapproach
relationalapproach
structuralapproach
The Network Diamond
Emanuela Todeva (2006) Business Networks: Strategy and Structure, New York: Taylor & Francis.
Conclusions – Supporting Cluster Development & Its Integration into Global Value Chains Through
Intermediation & Facilitation• prioritising and balancing between competition and cooperation• bridging to enhance information transparency of suppliers and contracts • creating effective institutions and intermediation practices• New policy framework that provides incentives for networking & decision support• Contract management support (platform governance & legal representation /
protection)• Strategic alliance management• Market access management
Intermediationtheory
Types ofIntermediariesInstitutional
Intermediaries
IntermediationActivities/ Practices
FinancialIntermediaries
IntermediationServices
Intermediation Channels
IntermediationMechanisms