International managementProf. Stefano Micelli

Academic year 2019-2020

Global Value Chains

Agenda

§What is a value chain?

§Meaning and use of value chain analysis

§Value chain global strategy

• Gereffi, G., Humphrey, J. and R. Kaplinsky. (2001). "Introduction: globalisation, value chains and development", IDS Bulletin, 32 (3), 1-8.

• Gereffi, G., Humphrey, J. and Sturgeon, T. (2005). “The governance of global value chains”, Review of International Political Economy 12(1): 78-104

Readings:

iPod economics

• Model: Ipod 5th

generation, 30

GB (Video Ipod)

• Final price: 299$

Inside an iPod

Decomposing the product

Fonte: Linden et al., 2007

Key components

-299 $

144.40 $=

154.60 $

Distributor

Apple

Retailer

Value distribution

A complex geography

Apple & Foxconn – Foxconn Technology Group, the largest electronics contract manufacturer in the world, has HQ in Taiwan and employs over 1 million workers in mainland China. It is the main supplier for Apple and other brand-name MNCs.

Wal-Mart – The largest retailer in the world and largest private sector employer in USA; it has more than 60,000 suppliers worldwide and over 80% are in China (Gereffi & Christian,2009).

Nike – Nike’s products are made in 930 factories (subcontractors)in 50 countries, with over 1 million workers. Nike has just 38,000 direct employees, mainly in U.S. (Locke,2013).

Lead firms and their supply chains

Producer-diven and buyer-driven global value chainsProducer-driven Commodity Chains

Manufacturers DistributorsRetailers and

Dealers

Domestic and ForeignSubsidiaries and Subcontractors

U.S. MARKETBuyer-driven Commodity Chains OVERSEASBranded Marketers

Retailers

Branded Manufacturers

Traders

Overseas 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’shome 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.

“Competitive advantage can’t be understood bylooking at a firm as a whole.It stems from the many discrete activities a firmperform in designing , marketing, delivering andsupporting its production.”

(Michael Porter, 1985)

Flow of inputs and information

Design Components Assembly Distribution Retail

Value chain and global strategy

In the global reconfiguration of the firm, managers shouldretain in-house those activities in which the company hasits distinctive capabilities and should outsource to externalpartners the peripheral, non-core activities

The fragmentation and dispersion of economic activitiesentail more complexity and more costs in terms of addedmanagement and communication efforts

Which are the most suitable governance models for complex value chains?

The smile curve

The smile curve /2

21

Initial distinctions

Global Supply ChainsLogistics (transportation focus: reduce time + costs); Trade Facilitation (lower barriers at the border)

Global Commodity ChainsProducer-driven chains: Trade + FDI (e.g., aircraft, autos, mining, oil)Buyer-driven chains: Trade without FDI (e.g., consumer goods); global subcontracting by retailers, brands & supermarkets

Global Value ChainsRise of intermediate goods trade (import content of exports: 20% in 1990; 40% in 2010; 60% in 2030 – P. Lamy)

Regional Value ChainsGrowing in importance, esp. since 2008-09 and in emerging economies; beyond fragmentation and EOI development model.

How to govern offshoring

1. Each relocation involves additional search costs –i.e. searching for external vendors, searching in unfamiliar foreign locations

2. The interface or coordination costs increase withgeographical and organizational distance

3. The greater the number of discrete slices into which thefirm’s value chain is divided, the greater the complexityand overall coordination overheads

The GVCs model

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

How do we manage complexity

The interaction of 3 transaction variables:

• complexity of transactions

• ability to codify transactions

• suppliers’ capabilities

5 types of governance

Determinants of global value chains governance

The GVCs model

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

Captive

• High ability to codify transactions (well known products and processes)

• Low suppliers capabilities (limited production know how, unsolved quality problems, no proactive behaviour)

Captive relationships; suppliers are dependent on the lead firm for complementary activities (e.g. design, logistic)

Modular

• High ability to codify transactions complex products and processes

• High level competences in manufacturing processes, timely deliveries, top quality standards)

The degree of explicit coordination tends to increase

Relational

• Product specifications cannot be codified in advance (on off products, prototypes)

• High suppliers capabilities in dealing with technical innovation as regards products and processes

Management of tacit knowledge is a key aspect of the client supplier relationship.

Mutual dependence can be regulated through reputation; social and special proximity is usually a relevant factor

Determinants of global value chains governance

Determinants of global value chains governance

Determinants of global value chains governance

The GVCs model: upgrading

• Strategies used by countries, regions, and firms to maintain or improvetheir positions in the global economy

Upgrading refers to the acquisition of technological capabilities and marketlinkages that enable firms to improve their competitiveness and move intohigher-value activities.

Diverse mixes of government policies, corporate strategies, technologydevelopment, and worker skills improvement are associated with upgradingsuccess

In general, a country upgrades when a critical mass of firms located within its borders achieves upgrading.

Upgrading: levels of analysis

• Within a firm

• A group of firms in a particular geographic area

• Critical mass of firms in a country

• Critical mass of firms in aregion

CLUSTER

FIRMS

COUNTRY

REGION

Reshoring