Global Value Chains 1

Global Value Chains-Current Profiles And Anticipated Changes :

A Study Of Global Values Chains And The Environment

Mannat Dutt

Global Economy and Public Policy

Semester IV

Flame University
Global Value Chains 2

Global Value Chains-current profiles and anticipated changes :

A study of Global Values Chains and the environment

Introduction

One of the most affordable and selling transport in the world, a Motorcycle, was first

invented in Germany. But, Germany doesn’t manufacture it independently; it is assembled in France

with the import of essential parts from Germany, Italy, Malaysia, and then later is exported to

Egypt. This process of production of a product in a series of stages is called a Global Value Chain

(GVC). According to the World Bank, "GVC is the stages of series in the production of a product or

a service for sale to consumers. Each stage adds some value, and at least two steps are in different

countries"("Global Value Chain - Chronicleindia", 2020). GVC has proven to be a revolution in the

world, which has transformed businesses and economies at large. It is responsible for more than

two-thirds of world trade today. The dealing of GVC with intermediate goods and raw materials

more than the finished products makes it invisible in the eyes of a customer. For example, ‘The

Airbus A380, the world’s largest passenger aircraft, consists of 4 million individual parts produced

by 1,500 companies from 30 countries around the world’(Kearney, 2019). The GVCs are evolving

with time and technology, but the evolution of the world started from the origin of the GVCs.

The paper is going to cover the history of the GVCs, along with the disruptors in the chain.

Focusing on the environment as the biggest disruptor and how GVC impacts the environment. A

few suggestions will be made regarding the same as to what can be done next or in future.

Origin and History

• Steam Revolution
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Transportation wasn't as convenient in the older times as it is today. Earlier, people were

consuming their production due to inefficient transport systems. The steam revolution took place,

which made it feasible to separate production and consumption of goods, which benefitted the trade

at large from the 1830s to the 1870s. The time was a boon in the business in the trade, wherein the

“North” (Europe, North America and Japan) industrialised while the South de-industrialised,

especially India and China. The North industries’ innovation, production and income gain lead to

the path of development and growth. The revenues of the North and the South started diverging,

where North was making a massive profit as compared to the South. The low transport costs led to

freer trade, wherein locally produced was reaching the world.

• Information and Communication Technology (ICT)

The ICT made complex coordination from a distance very convenient. ‘ICT facilitated

control that reduced the costs and risks of combining developed-economy technology with

developing-nation labour.4 For this reason, technology became more internationally

mobile.’(Baldwin, 2013). The introduction of ICT saw a boom in the emerging powers in the 1990s,

when the offshoring of manufacturing produced raised the international mobility of the technology,

which benefitted the emerging market's growth and led to its rapid industrialisation. This led to the

role reversal as the South started getting industrialised. The offshoring Labour benefitted massively

in the economic reforms.

Participation in GVC

Reliable communication, better information technology, cutting down transportation costs

made it easy for companies to outsource their manufacturing at lower prices. The trade

liberalisation led to a decline in the tariffs and encouraged the supply of cheap labour. This led the

Multinational Companies to emerge due to lower cost of production, access to technology and
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greater availability of resources. The developed countries were a part of this chain since the

beginning. Still, for the developing countries, GVC expansion opened a variety of opportunities to

take part in the global markets. This has, in turn, created jobs for a lot of people across the world.

‘The share of the developing countries’ exports in total merchandise trade almost doubled over the

three decades from 1990 onwards, increasing from 24% in 1990 to 45% in 2018. More than half of

developing countries’ exports take place within the context of GVCs.’ (Kearney, 2019)

For example, Vietnam’s electronic sector has emerged rapidly and has made Vietnam the

second largest exporter of smartphones in the world. Overall, only a handful of countries has

increased production in the GVC. ‘The top contributors to GVC intensification were Germany, the

United States, Japan, Italy, and France, which began using more imported inputs in their exports. By

contrast, China’s contribution to the expansion of GVC worldwide was predominantly through an

increase in its share of world trade, although its GVC intensification remains significant’ (World

Bank, 2020).
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The participation of the countries in the GVC impacts their development. Some countries

like Vietnam experience the biggest boom in their economies due to GVC. This can be said so, due

to benefits countries gain from the International division of labour. It also gives countries a chance

to specialise in a specific part escaping the domestic supplying and demanding constraints. This

break up in the complex system of production gives the countries more openness and better quality

products. However, the gains from the GVCs are not equally distributed amongst the countries as

the geographical locations, skilled and unskilled labour, female and male workers, distribution of

capital and labour act as the deciding factors for distribution of gains in this chain. Along with this,

GVC nowadays faces disruption from a large number of factors.

Disruptors of the Global Value Chain

A large number of economic, social and environmental factors are reshaping the production

in GVCs.

• Modern Technologies

Technological advancements have shaped the world, have made communication more

accessible and better. It has given immense rise to a rational number of opportunities in every field.

However, the impact of technology hasn't been all good. It has given rise to several challenges such

as equalities in the income, shift in market power and also made data privacy vulnerable. The

introduction of Artificial intelligence, robotics in the production of goods has eliminated a need for

highly skilled labour, hence decreasing job options for the people. For example, how the assembly

line production in the past made people jobless, the use of computers and new technology is causing

a shift in the same pattern. This would make companies self-sufficient and would altogether

eliminate the reliance of stakeholders, which are scattered all over the world.

• Self Sufficiency
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The customers' demand for goods has changed over the years. They require enhanced

transparency, greater choice and quick service, which suits their needs. This has led the companies

to manufacture the products closer to the customers. As the production moves closer to the

customers, the world will witness the elimination of the need for mediators from work. ‘Companies

like amazon, google are introducing the connecting to dots logic where the customer's demands are

met with a supply suiting their needs the best.’(Kearney, 2019)

• Increase of demand and supply in the South

The progress of the developing countries as emerging economies has created opportunities

for business expansion. The developing countries account for a significant share of manufacturing

products. ‘Recent studies show that developing countries excluding China are projected to represent

35% of global consumption by 2030 while emerging markets overall will represent nearly 60% of

global demand for manufactured goods in 2025.’(Kearney, 2019). This has the countries to move

the finished goods closer to them. These shifts in demand and supply reduce the trade intensity in

the world.

• Environmental factors

The environmental factors come as a challenge to the GVCs as it does to the entire world at

this point. As society becomes more conscious of the environment and climate change, it has

undoubtedly reflected in the precautions taken by the government. The clean air taxes in the cities

push up the costs for transport, guidelines to improve the utilisation for factories. As a result of

which, the supply chain tends to become shorter as to cut down on the costs of production. The

thought of recycling has emerged where instead of destroying, people have reconsidered a circular

economy where one can use the waste innovatory till the life end and then dispose of it. This

requires the recycling of every product intensively at every stage. for example, ‘Zara, has partnered
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with the Massachusetts Institute of Technology to and new or more feasible ways to recycle textile

fibres.’ (Kearney, 2019) As far as the consumers are concerned, they have become increasingly

cautious about what they consume. Environment friendly is a famous term these days, which

matters to a lot of people. The environment has started affecting the GVCs, but the GVCs have been

depleting the environment for a very long time.

Global Value Chains and the Environment

‘The World Economic Forum’s Global Risk Report identifies extreme weather events,

natural disasters and the failure of climate change mitigation and adaptation as among the top five

risks the world has faced since 2018.’ The Global Value Chains have continued to disrupt the

environment since the time it began in various ways. The environment is embedded in the GVCs

through its existence, for producing raw material, to produce waste. The longer value chain has a

deeper trade along with more significant impacts on the environment. The environmental costs are

much more of GVCs, which is worsened by the manufacturing of a single product. It leads to the

exploitation of natural resources and harms the countries more with weak policies. The emission of

greenhouse gases and the discharge of physical waste from the factories might affect the

environment in ways that can’t be reversed.

The major problem with the GVCs are the extremely long chains require unnecessary

transportation. A raw product is shipped in a country after the assembly has to be sent again. This

continuous use of natural resources not only causes pollution but also depletion of the resources,

which adds to climate change—the transportation by the sea a grave impact on the environment. ‘In

2016, CO2 emissions from international shipping were about 2.0 percent of global CO2

emissions’ (World Bank, 2020).

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The maritime transport accounts for the worse air pollution caused in the environment. Ships

burn the heavy oil fuel, which is the dirtiest fuel and causes the maximum pollution through

nitrogen and sulphur dioxide. The International Monetary Fund (IMO) has decided to limit the

sulphur from 3.5% to 0.5% in the year 2020 for maritime fuels to reduce pollution. It isn't limited to

this as water pollution, and Maritime litter are two big reasons to worry. The plastic waste is usually

originated from the land and transported to the ocean through rivers, but a considerable amount

comes from the ships. This can also be in the form of oil spills, sewage disposal and bilge water.

Nevertheless, sea transport is not the only culprit here, but even road transport has to be blamed for

pollution. The truck industry has left a carbon footprint of GVCs.

The extraordinary demand for electronic items has led to the generation of E-waste in the

countries. ‘The United Nations calls it a tsunami of e-waste’(Betti & Hong, 2020). E-waste is

undoubtedly the fastest growing waste in the world, which accounts for the maximum percentage of

landfills. The most amount of waste ends up in landfills, and soon the time will come when the
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existing recycling technologies would not be able to handle the increasing quantity of waste. ‘For

many years, China was accepting a large share of the world’s plastic waste, but eventually, the

environmental costs of recycling “dirty” plastics became formidable, and China raised the import

standards in 2017, all but cutting off the acceptance of plastic waste’(World Bank, 2020). A

tremendous impact of all the given problems is seen in the developing countries whose policy

regimes aren't as strong as the developed countries. As much as GVC is exploiting the environment,

more than this, it has given solutions to the environment too.

What can be done?

Global Value Chains in the world gave an opportunity to support the environment and its

sustainable production models. That effort will require a combination of appropriate pricing,

regulations, and cooperative arrangements. For example, the International Maritime Organisation

(IMO) has committed to an energy transition in shipping to zero-emissions fuels (World Bank,

2020). The developing countries are the emerging economies of the Global Value Chains, which

have climbed up and benefited from the same. In spite of this, they lack the policies or laws to

protect their environment from the impact of the GVCs. On the other hand, developed economies

have somewhat been successful in the implementation and formation of policies that affect the

environment. Here are some suggestions from the developed countries, and otherwise which can go

a long way in protecting the environment.

A person would always think twice before buying something from which has gone from a

minimal to a higher price until they need it, and this strategy can help to save the environment. If

we price what harms the environment, then the consumption of the same will decrease

automatically. For example, pricing petroleum would lead to the birth of innovative alternatives

such as CNG. As an option, the government can also focus on reducing the consumption of goods,
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which are pollution intensive. For example, ‘both imported and domestically produced alcohol are

taxed alike when they are consumed within the country, but alcohol headed for export is exempt

from the tax. This way, corrective taxes can be applied unilaterally without harming external

competitiveness’ (World Bank, 2020).

Countries can make use of sustainable goods in many ways, such as reducing the

overfishing by the quote system to avoid water pollution. It can also be seen in the use of plastic as

only single-use plastics add a huge amount of waste to the environment. ‘The European Union

announced in March 2019 that single-use plastics will be banned as of 2021 and has implemented a

target to recycle 90 percent of plastic beverage bottles by 2029’(World Bank, 2020). The

introduction of the solar panels is one significant contribution by the GVCs to sustainable goods.‘

The solar value chain relies on innovation and complex production systems. Countries may be part

of the value chain through producing silicon, manufacturing solar cells, or assembling modules,

inverters, mounting systems, combiner boxes, and other components, but the solar cell production is

majorly based in China and parts of Asia. Europe and the United States lead upstream service

provision, including shipping, distribution, installation, and recycling.’(World Bank, 2020) This has

been seen as a positive contribution of the global value chains to the world.

The government of several countries has to focus on consumer awareness as, at times,

consumers get used to particular habits without knowing the available alternatives, which are

environment friendly. Before raising awareness in the consumers, the government needs to focus on

better policy formations and implementation of the same. For example, India has raised awareness

against single-use plastic in the country, but still, it has been widely consumed. India consumes

about 14 million tonnes of plastic annually, still lacks an organised system for the management of

that waste (Reuters). This has to be done voluntarily by us to save our environment. This leads me
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to an example of a company GVC holding, the world’s largest sports betting and gaming groups,

operating both online and in the retail sector (MGM, 2018). They monitor the impacts of

greenhouse gases, physical wastes and other things that affect the environment each year and have

objectives and targets set to reduce them. Their target is to reduce greenhouse gas emissions by 15%

over the period 2018 to 2021. According to their metrics in the year 2018, the key finds were as

stated below:

‘We used almost 149 million kWh of energy (electricity, gas and fuel oil), a reduction from almost

171 million kWh (13%) compared to 2017. Our net carbon footprint reduced by around 24%

between 2017 and 2018. The transport we use released a total of approximately 5,900 tonnes of

CO2. On average, each of our colleagues used 467 kWh of electricity per month.

Our approach to the environment and the community goes beyond our own business. Our suppliers’

corporate responsibility agenda relating to the environment is also assessed before we enter into

contractual arrangements. We believe that by aligning our interests, we can make a contribution

towards sustaining our environment’(Responsibility & Impact, 2020).

Global Value Chains and Environment are co-existing, and we need both of them in order to

survive. We have to look at alternatives to keep our businesses and the environment alive.

Impact of Coronavirus on GVCs

Coronavirus is disrupting our lives daily; with its impact all over the world, it is impacting

the global economies by disrupting the global value chain too. The enormous effect of which is on

manufacturing in China. As per the United Nations Conference on Trade and development, it can

lead to a loss of more than $50 US billion dollars. Due to China becoming the major manufacturing

hub, a slow down in the process can have unwanted outcomes. WTO economists believe the decline

will likely exceed the trade slump brought on by the global financial crisis of 2008-09. The
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recovery from these crises is improbable to even in the next year. Nearly all the regions in the world

tend to suffer double-digit declines in their economies. This impact of the environment is not in our

hands, but will lead to a fall in the Trade. Hence, affecting the global value chains massively.

Conclusion

Global value chains have benefitted the world in many ways. However, it has made the

world face challenges. The history of the GVCs shows how the world revolutionised

simultaneously, and the power shifted. As the power shifted and the world revolutionised, there

were many disrupters in the way of GVCs, in terms of technology and environment. The

environment has been the biggest one of them all, which is impacted by, and itself affects GVCs. As

mentioned above, there are so many alternatives that exist in order to sustain both peacefully. The

solutions suggested are in favour of both as they both co-exist in this world. Due to the Pandemic,

the GVCs have been impacted even more, which makes the condition of the trade worse. The future

of GVCs in a precarious situation, which is not in our hands now. We need to understand one thing

that the environment and GVC are dependent on each other. For one to survive, we need to save the

other.
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References

Baldwin, R. (2013). Global supply chains: why they emerged, why they matter, and where they are going. In

D. Elms & P. Low, Global value chains in a changing world. WTO Secretariat. Retrieved 24 April

2020, from https://www.wto.org/english/res_e/booksp_e/aid4tradeglobalvalue13_part1_e.pdf.

Betti, F., & Hong, P. (2020). Coronavirus is disrupting global value chains. Here's how companies can

respond. World Economic Forum. Retrieved 24 April 2020, from https://www.weforum.org/agenda/

2020/02/how-coronavirus-disrupts-global-value-chains/.

Dasgupta, N. (2019). India shelves plan on countrywide ban on single-use plastic products. U.S. Retrieved

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MGM. (2018). MGM GVC Interactive Announces Sportradar As An Exclusive Supplier Of U.S. Sports Data.

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Responsibility, C., & Impact, E. (2020). Environmental Impact. GVC Holdings PLC :: Corporate Website.

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