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WTO - Supply Chain Perspectives and Issues: A Literature Review

WTO - Supply Chain Perspectives and Issues: A Literature Review

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Global value chains (GVCs) have become ubiquitous. The literature that attempts to understand and explain GVCs is vast, multi-disciplinary and no less complex than the phenomenon itself. This volume is an ambitious attempt at a fairly comprehensive review of literature on the subject

The many manifestations of international production sharing have become the organizing theme for practically any discussion on production, trade, investment, development and international economic cooperation more generally. GVCs are at the economic heart of globalization. Policies of governments are central to outcomes, influencing the establishment, configuration and operation of GVCs in numerous ways. Technological possibilities and firm behaviour are also crucial determinants of what happens in the supply chain world.

Co-published with the Fung Global Institute.
Global value chains (GVCs) have become ubiquitous. The literature that attempts to understand and explain GVCs is vast, multi-disciplinary and no less complex than the phenomenon itself. This volume is an ambitious attempt at a fairly comprehensive review of literature on the subject

The many manifestations of international production sharing have become the organizing theme for practically any discussion on production, trade, investment, development and international economic cooperation more generally. GVCs are at the economic heart of globalization. Policies of governments are central to outcomes, influencing the establishment, configuration and operation of GVCs in numerous ways. Technological possibilities and firm behaviour are also crucial determinants of what happens in the supply chain world.

Co-published with the Fung Global Institute.

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05/03/2014

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The Swedish National Board of Trade has undertaken some useful work in a number of

studies in recent years on the servicifcation of the Swedish economy and of Swedish

frms operating internationally (Kommerskollegium, 2010a, 2010b, 2012). Related work

based on the same idea of servicifcation makes reference to servicising (Reisken et al.,

2000) and the “manuservice” economy (Bryson and Daniels, 2010). As discussed in Ryu

et al. (2012), the term “servitisation” was frst used by Vandermerwe and Rada (1988). The

defnition of servifcation and similar derivatives of the word used to denote the same

phenomenon is not very precise but this captures important ideas about how the role of

services has evolved in recent years.

Essentially, servicifcation refers to the increased use of services in manufacturing, both

in terms of production processes and sales. This phenomenon may in part refect the

separation of services functions in manufacturing from core production functions.

In Sweden’s case (and no doubt elsewhere) this is linked to the development of

enterprise groups, where manufacturing enterprises comprise different frms, some of

which are dedicated to service production. Higher productivity growth in manufacturing

than in services, and shifting demand and production patterns, underlie the decline in

the share of manufacturing and the rise of services in economies like that of Sweden

(Kommerskollegium, 2010a).

Figure 1: A suit made in China and sold in the United States

Cost Breakdown by Country

Manufacturing Costs and Invisible Assets

Source: Fung Global Institute research

86%

5%

4%

4%

1%

Manufacturing

Labor

Shell fabric

Lining

Interlining

Buttons

Sleeve heads

Shoulder pads

Labels

Hangtag

91%

9%

Invisible Assets

• Services (retail, logistic, banking, etc.)
• Intellectual Property
• Pro ts
• Other Unknowns

$425

Supply chains and services

130Supply Chain Perspectives and Issues

A signifcant feature of servicifcation is the opportunity it offers for strategic frm behaviour

designed to move up the value chain. While some of the bundling or modularisation

occurring along supply chains as a result of servicifcation may be occasioned by the

exigencies of locational dispersion in production and consumption, or by regulatory

requirements, these tendencies are also likely to be fed by strategic motivations internal to

frms (Sundin et al., 2009; Kommerskollegium, 2012). Firms may seek to customise their

offerings so as to differentiate them in the market place and earn higher returns or to

spread risk by diversifying the output mix.

A case study of the Sweden-based multinational Sandvik Tooling (Kommerskollegium,

2010b) revealed that in order to manage the supply chain and deliver goods, the frm had

recourse to 40 discrete services. A further 12 services were required to handle customer

delivery (Table 7.1). The study does not specify whether these services were separately

supplied even if they could be separately identifed, or whether they were packaged

(modularised) into composite offerings.

Table 7.1: Services necessary to the Sandvik Tools supply chain

This wide array of services includes both high value-added and low value-added activities.

Some of the services are trade-able, others are not. Some may be produced in-house,

others at arm’s length. Arm’s-length services can be outsourced or offshored.

Among this large set of services associated with the production of machine tools, there

would doubtless be opportunities for product differentiation and higher average value-

added packages – in other words, for repositioning on the supply chain. Some of these

services could even be provided to customers of rival manufacturing frms in the same

market, or to rival frms themselves.

Finally, depending on the product in question, signifcant scope may exist for the provision

of after-sales services as an additional source of product differentiation and proft. These

services can take many forms, including technical assistance and training, maintenance,

provision of spare parts and repair services and a range of other customer care services

(Saccani et. al, 2007). The means of delivery of after-sales services by a lead frm will vary

from direct supply, sub-contracting arrangements, agency relationships and franchising.

Services for operating the supply chain

Legal services; Accounting, book-keeping etc.; Taxation services; Medical services; Computer services; Research
and development; Rental/Leasing; Advertising; Market research; Services incidental to manufacturing; Placement
of personnel; Maintenance and repair; Security services; Packaging; Printing; Publishing; Design; Building-cleaning
services; Photographic services; Courier services; Logistic services; Postal services; Telecommunications; Audio-Visual
services; Educational services; Environmental services; Banking services; Insurances; Health related services; Hotels
and restaurants; Travel agency services; Maritime transport – freight; Inland waterways – freight; Inland waterways –
freight; Air transport - freight/passenger; Road transport – freight/passenger; Cargo-handling services; Storage and
warehouse services; Freight transport agency services; Feeder services; Energy services.

Services for customer delivery

Computer services; Research and development; Rental/leasing; Maintenance and repair; Management consulting;
Technical testing and analysis services; Services incidental to manufacturing; Design; Environmental services;
Financial services; Logistics; Warehouse services.

131

Supply Chain Perspectives and Issues

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