GLOBAL VALUE CHAIN

Introduction:

According to the World Bank” a GVC is a series of stages in production of a product or

service for sales to consumers. Each stage adds value and at least two stages are in
different countries.”

Now a days, production of a goods or services involves an increasingly complex process

with intermediate inputs and supporting activities sourced globally to different countries
wherever it is most efficient to do the specific task and these complex international
production arrangements is known as global value chains (GVCs), and the project report
discusses about the needs to have an understanding on how Global Value Chain works,
how it affects economic performance of the various countries and organizations, and how to
take advantage of the same.

Value Chain

Value chain is known as a series of activities of a firm to bring a product/service from its
inception to the final destination through different process of production. These set of
process involves a combination of concept development of product, raw material
transformation to final product, delivery to the end user, and finally the disposal of used
products.

On the other hand, in some perspectives value chain is considered as a combination of

businesses, relationships and activitives done to make the final product or service which
further tells us that only few of the products are only used in in its raw form but rather it is
transformed or combined with other by products, packaged, marketed and transported etc.,
until it reaches its end user. In this sense, the term value chain is used to describe how
even after being separated by time and distance different producers and sellers add value
to the product.

In layman terms, value chain is a concept in which raw material or services are grown or
transformed, or manufactured into a product; it answers how the product then moves
physically from the producer to the consumer; and how value of the product increases along
the way at each stage. It requires resources like - money, labour, materials, equipment land,
administration and management to transform inputs to outputs of final product.

Value Chain Activities

The concept of value chain was introduced by Michal porter for the first time in 1985 as a
basic tool of examining the way of interaction and performance of various activities of a firm
and for analyzing the firm’s competitive advantage. In porter's his value chain model,
production process was related to as primary activities and value additive process to as
supportive activities.

In the present world both private companies as well as the government and development
agencies use value chain approach to find options for global industrial development and to
find new business environment.

Global Value Chain

A value chain recognizes various steps taken by the firms’ to bring a product or a service
from its initail stage to its end use by final consumers, and these processes have become
very much fragmented across the world and between corporates which allows the various
tasks to be done on the product to be carried out in different locations, depending on their
respective advantages and it is known as global value chains.

It’s a network of interrelated producers and consumers that are engaged on a global stage
in processes of value creation/addition as products pass across countries and between
different stakeholders in the chain. And the need of global value chains will continue to
grow in our interdependent economic sphere, and it is essential to have a better
understanding of all of all its implications, including particularly; trade policy, is a critical task
for lawmakers to improve the competitiveness of their country in the global value chain

The Evolution of GVCS

The global economy has undergone significant transformation over the past few decades.
And the traces of evolution of global value chains can witnessed since 1970s where shifting
of national economy was taking place from Import substituting industrialization (ISI) to
export-oriented industrialization (EOI).

In the 1960s and 1970s the prevailing development strategy was import-driven, where the
manufacturing sectors in import driven countries were simply importing intermediate goods
rather than reducing imports altogether and it was well established in Europe, Latin
America, Eastern and parts of Asia. But in the later half of 1970, there has been a
widespread shift in national development strategies from import-driven economy (ISI) to
export-oriented economy throughout the developing countries with some work done on the
“commodity chain” and it first came to be known as regional supply chains in East Asia,
introduced by Japanese investors, who starting this as a pilot project and testing is impact
on overall performance and in continuation to the same GVC came into picture removing all
trade barriers, the setup of the World Trade Organization (WTO), further opened global
trade doors in order to be successful.

Nowadays, most production activities are vertically framed worldwide, i.e., goods and
services are produced in different stages located in different countries and finally are
assembled either in a sequence along the supply chain or at the final location. The rise of
GVCs open doors the strong growth in international trade, especially of parts and
components, and FDI flows, mostly by MNCs, which are the key actors in the operation of
these networks. As a consequence, Global value Chains produced a deep and lasting
impact on the world economy, affecting competitive nature and macro-economic
developments and strongly increasing the economic interdependency among different
countries.

Main Features of Global Value Chain

In global value chains (GVCs), each link in important actor and it performs an activity which
may or may not be different, and various firms add diverse/different value at each stage of
the production/services where they can be more economical or have better competative
advantage.
Due to the flow of product, finances, knowledge each stakeholder in the GVCs get to learn
and have competitive advantage in their respective field

Developed countries’s Compaanies mostly outsource an increasing share of their non-core

manufacturing and service activities both local and global from where they get the
competitiveness advantage and mostly firms/companies in developing countries are the
providers of the non-core manufacturing activities.

Value Chain Mapping

The best way to start the value chain analysis is to ‘map the players in the chain’, to build an
understanding of different players in the input and product output chains and the
relationships among them, along with the factors that determine how good or badly the
chains are performing. The below mentioned figures show a value chain mapping where the
inputs and the outputs are indicated with the intermediate value adding actors.

Global Value Chain Governance

The most dynamic feature of GVCs is Governances, it refers to the relationships among the
value chain players (buyers, sellers, service providers) which operate within or influence the
various activities required to bring a product or service from initial stage to its end product.
It's about power and the abilityto lead key players in the value chain to exert control in the
chain at any point under which other players in the chain operate with the key parameters
and specifications.

This concept was introduced in 1990s and it is currently a central core concept for global
value chain approach to determine an healthy relationship in the global value chain that
determines how various resources are allocated and follows within the chain, and to set key
parameters on: ‘what to produce’ or ‘how to produce’ a product/service and also ad ‘when’,
‘how much’ and even ‘at what price’.

Basically there are two types of chains: (a) producer-driven chains where the lead
company is the producer and (b) buyer-driven chains where the lead company is the
retailer. But depending on the governance's typology , whether it is producer oriented or
buyer oriented, basically there are five types of value chains governance in which the
‘Hierarchy’ and ‘Captive’, value chains are demand-driven/oriented; the ‘Relation’ and
‘Modular’ chains are producer-driven chains and the ‘Markets’ chain type is the least driven.

Developing Countries in Global Value Chain

Recently there has been an increasing integration of developing countries into global value
chains (GVCs). And this accelerated participation in global value chains has raised hopes
for economic and social upliftment within developing countries value chains. However, it is
not an hidden fact that the consequences of participating in GVCs are not always positive.
 There are different stages of value creation in GVCs starting from concept development to
final product consumption and countries can participate at any level depending on their
advantage to add value in the process . Mostly, the high-end and intangible production
activities (such as R&D, design, brand building in the pre-fabrication stages and after-sales
services and marketing in the post-fabrication stages)are taken care by the developed
countries, and they outsourced the manufacturing jobs from low technology, low-wage
nations. The low-end and tangible production activities such as manufacturing and
assembly are outsourced to developing countries. These difference the worries of the
countries involved in the upgrading process.

INDIA & GVC

Among all the G-20 countries India’s Integration with GVC is the least.

Compared to the ASEAN countries too India’s Integration in quite lower in both backward &
forward GVC linkages.

Reasons for Low GVC Integration

 Poor trade Infrastructure

 Weak Global Share
 Small Size of small basket products.

Ref : https://www.chronicleindia.in/current-news/277-global-value-chain