GLOBAL VALUE CHAINS AND DEVELOPMENT

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Gary GereffiDuke University

October 17, 2016

Nazarbayev UniversityAstana, Kazakhstan

AGENDA

1. The New Global Economy

2. Clarifying GVC Concepts & Methods Value Chain Mapping

Value Chain Governance

Value Chain Upgrading

3. Kazakhstan: The Challenge of Industrial Diversification

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The New Global Economy

Old World of Trade (pre-1980)• Countries trade finished goods • Build national industries (ISI)

New World of Trade• Countries trade intermediate goods; imports needed to export• Join global industries (EOI)

Trends– GVCs 80% of world trade (UNCTAD, WIR 2013)– Rise of intermediate goods trade (import content of exports): 20% in

1990; 40% in 2010; 60% in 2030 (P. Lamy, WTO)– Consolidation within GVCs in fewer, larger suppliers– Concentration of production and consumption in relatively few large

emerging economies

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CLARIFYING GVC CONCEPTS

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TYPES OF CHAINS: Inter-Firm Networks in the Global Economy

• Global Supply Chains: LOGISTICS (1970s & 1980s)– Logistics (transportation focus: reduce time + costs)– Trade Facilitation (lower barriers at the border)

• Global Commodity Chains: LEAD FIRMS (1990s)– Producer-driven chains: Trade + FDI (e.g., aircraft, autos, mining,

oil)– Buyer-driven chains: Trade w/o FDI (retailers, global brands,

manufacturers without factories)• Global Value Chains: CREATING & CAPTURING VALUE-

ADDED (2000s)– Create, capture & sustain domestic value added

• Regional Value Chains: EMERGING ECONOMIES (2010s)– Growing in importance, esp. since 2008-09 and in emerging

economies.

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LINKING GLOBAL CHAINS AND LOCAL CLUSTERS

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GOVERNANCE & UPGRADING

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Global value chain analysis provides both conceptual and methodological tools for examining the global economy

• Top-down: a focus on lead firms and inter-firm networks, using varied typologies of industrial “governance”

• Bottom-up: a focus on countries and regions, which are analyzed in terms of various trajectories of economic, social and environmental “upgrading” (or “downgrading”)

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VALUE CHAIN MAPPING

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FRUIT & VEGETABLES VALUE CHAIN (SIMPLIFIED)

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.

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EXAMPLE 1: GEOGRAPHY OF THE ELECTRONICS GVC

Contract manufacturersGlobal brand leaders Product designers

Components & AssemblyDesignR&D & marketing

What role, if any, do African countries participate in the electronics GVC?

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EXAMPLE 2: OFFSHORE SERVICES GLOBAL SUPPLY AND DEMAND

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VALUE CHAIN GOVERNANCE

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Five GVC Governance Types

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G. Gereffi, J. Humphrey & T. Sturgeon, “The governance of global value chains,” Review of International Political Economy 12, 1 (2005), p. 89.

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GVC LEAD FIRMS & THEIR SUPPLY CHAINS

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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

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VALUE CHAIN UPGRADING

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TRIPLE BOTTOM LINE:Diversified, Inclusive and Green Growth

Economic Upgrading

Social Upgrading

Environmental Upgrading

Sustainable Growth

Development Outcomes:• Job creation• Exports• Income generation• Added value• Better use of

resources• Backward linkages

Development Outcomes:• Inclusion of

vulnerable groups

• Job creation• Improve working

conditions• Higher wages• Skills acquisition

Development Outcomes:• Soil preservation

and improvement• Water

conservation• Wildlife

conservation• Pollution and

waste reduction

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GENERIC VALUE CHAIN SMILE CURVE

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WHERE ARE THE HIGH-VALUE ACTIVITIES IN GVCs?

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Composition of China’s Exports to the World Market, 1990-2014

Source: UN Comtrade.

62 72 85 92 121 149 151 183 184 195 249 266 326 438 593 762 969 1.2T 1.4T 1.2T 1.6T 1.9T 2.0T 2.2T 2.3T

0

10

20

30

40

50

60

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

% E

xpor

t Mar

ket

Primary Products

Resource Based Manufactures

Low Tech Manufactures

Medium Tech Manufactures

High Tech Manufactures

TotalExportsUS $B

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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 inJune, 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

Video/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.

Source: Varian, Hal R. The New York Times, June 28, 2007. An iPod Has Global Value. Ask the (Many) Countries That Make It.

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U.S. Trade Balance with China for iPhone 4 (US$, 1 unit)

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Source: G. Gereffi and J. Lee, “Why the world suddenly cares about global supply chains,” Journal of Supply Chain Management (2012).

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VALUE CHAINS AND ECONOMIC DIVERSIFICATION IN KAZAKHSTAN

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KAZAKHSTAN’S INDUSTRIAL POLICIES IN THE 2000s

• Kazakhstan 2030 Strategy Initial push toward industry-focused diversification

• Strategy of Industrial Innovation Development (2003-2015) Sets official targets for various sectors

• Accelerated Industrial Innovation Development (2010-2014) 16 different sectors in 4 areas (traditional, domestic-demand, high export potential & “economy of the future”) / GOALS: productivity & value added

• Kazakhstan Strategy 2050 Shifts resources away from SOEs toward entrepreneurs & SMEs

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Kazakhstan: A Failing Quest for Economic Diversification

• Growth in the last decade has been impressive (Felipe and Rhee 2013)

– 10% annual GDP growth between 2000 and 2007

– Per capita income reached the World Bank threshold for high-income countries ($12,000), in 2012

• However, Kazakhstan’s growth remains exposed to volatile global commodity prices

• 8.7% of Kazakhstan's exports in 1995 were in crude/refined petroleum and natural gas. By 2010, the figure had reached 70%

• Apart from oil and gas, Kazakhstan remains dependent on primary commodities such as iron, copper, gold, uranium and silver among others

Kazakhstan Export Value 1995-2010: Focus on Mineral Products

Crude and Refined Petroleum, Natural Gas and other Mineral Products

Details: Trade data presented in Harmonized System (HS) 4-digit classificationSource: MIT’s Observatory of Economic Complexity

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Major Export Industries in Hungary, Romania, Latvia, Russia and Kazakhstan, 2000

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(% of total export in current USD) Resource- Capital- Capital and Labor-

based intensive basic skill-intensive intensive industries manufacturing complex manufacturing

manufacturing Hungary 14 9 50 24

Romania

25

16

15

42

Latvia

53

12

9

25

Russia

60

14

6

3

Kazakhstan

81

15

2

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Kazakhstan’s Oil & Gas Value Chain: Pyramid of Supporting Industries

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Source: Gereffi & Rodriguez, World Bank Mission Report, Sept. 2003

Global competition

Local competition

Labor intensive

Capital & knowledge

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Links Between Key Oil & Gas Players in Kazakhstan

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Source: Gereffi & Rodriguez, World Bank Mission Report, Sept. 2003

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VALUE CHAIN UPGRADING AND LOCAL DEVELOPMENT POLICIES

The GVC framework suggests ways to enhance the competitiveness of local economic clusters:• Focus on quality and high-value activities in order to

move up global value chains• Target MNCs that will strengthen country’s GVCs and

create dynamic local linkages • Strengthen the role of domestic suppliers and use

TNCs as learning platforms• Workforce development – skills for upgrading• Regional integration – for productive upgrading

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http://www.cggc.duke.edu

ggere@soc.duke.edu

Gary Gereffi

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