global value chains and industrial clusters

© 2015 CGGC, Duke University

GLOBAL VALUE CHAINS

AND INDUSTRIAL CLUSTERS

1

Gary GereffiDuke University

October 30, 2016

iBEGIN conference

Fox School of Business, Temple University

Philadelphia, PA

© 2014 Duke CGGC

AGENDA

1. GVCs and Industrial Clusters: Co-evolution of

Knowledge Networks and Economic Upgrading

2. Costa Rica’s High Tech GVCs

– Medical Devices

– Electronics

– Offshore Services

3. Initial Takeaways

© 2014 Duke CGGC

One Country, 3 GVCs

How can a small developing country access and upgrade within global innovation networks?

• Costa Rica case

– Small country -- <5 million pop

– Technology focus and export oriented (govt strategy)

– Limited human capital and local supplier base

• Research strategy: compare Costa Rica’s upgrading experience in 3 high-tech, knowledge-oriented GVCs from late 1990s to the present

3


Components

Manufacturing

Plastics extrusion

& molding

Precision metal

works

Electronics

development

Software

Development

Weaving/Knittin

g Textiles

Assembly

Packaging

Sterilization

Assembly /

ProductionDistribution &

Marketing

Resin Metals

Chemicals Textiles

Input Suppliers

Disposables

US$575.5 millionInstruments

US$270.5 million

Capital Equip.

US$32.5 million

Therapeutics

US$301 million

Main Segments: Exports

Post-Sales

Services

Consulting

Maintenance,

Repair

Training

Research &

Product

Development

Regulatory

Approval

Process

Development

Sustaining

Engineering

Prototype

Local firms are mainly in packaging & support services (12 of 19) versus 4 in limited

role in plastics molding & metal finishing and 1 OEM with exports under $2 million.

Number of Firms

0 - 5

6 - 10

11 - 15

16 - 20

COSTA RICA IN THE MEDICAL DEVICES GLOBAL VALUE CHAIN, 2012

Wholesale

distributors

Individual Patients

Doctors & Nurses

Hospitals

(Public/Private)

4


0

200

400

600

800

1,000

1,20019

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

Exp

ort

Valu

es (

$U

S M

ilio

n)

Year

Costa Rica's Medical Exports by Product Category: 1998-2011

Disposables Therapeutics Instruments Capital Equipment

EVOLUTION OF MEDICAL DEVICES EXPORTS FROM COSTA RICA,

1998-2011

• Disposables still the largest product category exported, but no longer a

strong growth area.

• Exports in surgical instruments have grown steadily since 2005.

• Therapeutics has become 2nd largest category since 2008; likely to increase

as newly established firms complete transfer of new product lines.

• Limited export of highest value capital equipment (eg. Electronic/software

devices)5


Entry Year Firm

Characteristics

Main Product

Export Category

Core Market

Segments

Product

Examples

Select

Firms

Up to 2000

24 firms:

8 US

15 CR

1 German

4 OEMs

8 Components

1 Input distributor

7 Packaging

1 Finishing

3 Support services

Disposables

Drug delivery;

Women’s health

Intravenous tubing (I)

Mastectomy bra (I)

Hospira;

Baxter;

Amoena;

Corbel

2001–2004

13 firms:

9 US

3 CR

1 Colombian

3 OEMS

6 Components

1 Finishing

1 Logistics provider

2 Support services

Instruments Endoscopic surgery Biopsy forceps (II)

Arthrocare;

Boston Scientific;

Oberg Industries

2005–2008

8 firms:

7 US

1 Puerto Rico

2 OEM

4 Components

1 Packaging

1 Finishing

Therapeutics

Cosmetic surgery;

Women’s health &

urology

Breast implants (III)

Minimally invasive

devices for uterine

surgery (II)

Allergan;

Tegra Medical;

Specialty Coating

Systems

2009–2012

21 firms:

16 US

1 CR

1 Ireland

1 Japan

2 Joint ventures

(US-CR)

5 OEMS

7 Components

2 Non-OEM

assemblers

1 Input Distributor

2 Sterilization

2 Packaging

Therapeutics

Disposables

Instruments

Cardiovascular

Drug delivery

Heart valves (III)

Dialysis catheters (III)

Guide wires (III)

Compression socks (I)

Abbott Vascular

St. Jude Medical

Covidien

Moog

Synergy Health

Volcano Corp.

FIRMS IN THE COSTA RICA MEDICAL DEVICES SECTOR

6

© 2015 CGGC, Duke University© 2015 CGGC, Duke University

UPGRADING SUCCESS:

A LEADING MEDICAL DEVICES MNC

2010

Initial plant reopens after restructuring

• 2004: Manufacturing functions

• 2012: Engineering for process improvements Focused on cardiology segment; strategy – to alleviate R&D costs in the US.

Functional Upgrading

• Biopsy forceps Labor intensive, basic metal works & extrusion.

• Urethral stent Thermoforming, laser marking, coating capabilities.

• Guide Wires Sophisticated Laser cutting & welding.

• Today – CR facilities cover 42 manufacturing processes.

Product & Process Upgrading

• Gastroenterology segment Urology CardiovascularMarket

Diversification

• Recent co-location of sterilization vendors will allow the firm to export directly to global distribution centers

Forward Linkages

2004

First production plant

opens in Costa Rica

(10,000m2)

2008

Second plant opens.

(32,000m2)

First plant restructuring

2005 2011

Exports:

US$18 million

Exports:

US$120 million

7

© 2015 CGGC, Duke University© 2015 CGGC, Duke University

Costa Rica’s Electronics Exports, 2005-2015

8

$1.8

$2.1

$2.5

$2.3

$1.6

$1.9

$2.1

$2.3

$2.6

$0.3

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2015

Exp

ort

Val

ue

($U

S,

Bil

lio

ns)

Integrated Circuts (8542) Computer Parts (8473) Medical Equipment (901819) Other

Intel represented >80% of exportsIntel left CR

during 2014; 88%

decline in exports

(2013-15)


© 2013 Duke CGGC

OFFSHORE SERVICES GLOBAL VALUE CHAIN

Infrastructure

Software

Network Management

Applications Management

Applications Development

Applications Integration

Desktop management

CRM (Customer

Relationship Management)

HRM(Human Resource

Management)

ERM (Enterprise Resource

Management)

Marketing & Sales

Finance & Accounting

Procurement, Logistics and Supply Chain Management

Training

Payroll

Recruiting Contact Centers/Call

Centers

Talent Management

Content/Document

Management

ITO Information Technology Outsourcing

BPOBusiness Process Outsourcing

KPOKnowledge Process Outsourcing

Horizontal ActivitiesVertical Activities a

Industry specific bBanking, Financial

Services and Insurance (BFSI)

Ex. Investment research, private equity research, and risk management

analysis

TelecommunicationsEx. IP transformation,

Interoperability testing and DSP and multimedia

ManufacturingEx. Industrial Engineering and sourcing and vendor

management

Retail eComerce and Planning,

merchandising and demand intelligence

Health/Pharma

Ex. R&D, clinical trials, medical transcript

Others

Travel & Transportation

Revenue management systems, customer loyalty

solutions

Business ConsultingBusiness Analytics

Market IntelligenceLegal Services

EnergyEx. Energy Trading and Risk Management , and Digital

oil field solutions

ERP (Enterprise Resource Planning): manufacturing/operations, supply chain

management, financials & project management

Infrastructure Management

IT Consulting

Software R&D

Va

lue

Ad

de

d

LOW

HIGH

9


COSTA RICA: LEAD OFFSHORE SERVICES COMPANIES

ITOGeneral Business Activities Industry Specific

Activities

Va

lue

Ad

de

d

Broad Spectrum

(ITO, BPO & KPO)

d

Cal

l & C

on

tact

C

en

ters

Cal

l Ce

nte

rs IT

Bac

k O

ffic

e

BPO

KPO

10


COSTA RICA IN THE OFFSHORE SERVICES GVC, 2011

KPO

General Business Activities Industry Specific Activities

Va

lue

Ad

de

d

Broad Spectrum

(ITO, BPO & KPO)

d

$638m

$223m

$186m

$141m

Cal

l& C

on

tact

Ce

nte

rsC

allC

en

ters

ITB

ack

Off

ice

$51m

$66m

$85m

10,472

6,034

BPO

7,753

6,106

792

1,123890

11

ITO


COSTA RICA: AVERAGE EXPORTS PER EMPLOYEE

BY VALUE CHAIN SEGMENT, 2011

$94,907

$83,522

$60,943

$45,671

$27,658

890 792

10,472

1,123

19,893

0

5000

10000

15000

20000

25000

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

$100,000

Nu

mb

er o

f Em

plo

yees

Exp

ort

s U

S$

Average exports per employee (LH) Number of employees (RH)

(govt policy)


INITIAL TAKEAWAYS

13

• GVC governance structures (role of lead firms) differ significantly across the 3 sectors

• Nature of local “clusters” (supply base) in CR varies in density, ownership and knowledge spillover potential

• GVC lead firm strategies and local clusters co-evolve – global & national factors

• Costa Rica’s state policies matter a lot

• Close relationship between high-value goods & services activities in GVC is critical to upgrading


http://www.cggc.duke.edu

[email protected]

Gary Gereffi

14

http://www.cggc.duke.edu/

global value chains and industrial clusters

Economy & Finance