1. Global Value Chains as a
Driver for Upgrading and
Innovation
Gary Gereffi
Center on Globalization, Governance &
Competitiveness (CGGC)- Duke University
Local Economic Development
Brasilia, Brazil
March 7-8, 2012

2. Agenda
I Global Value Chain Framework
• Value Chain Mapping
• Geographic Scope
• Governance
• Institutional Context
II Upgrading-: Shifting Export Profiles and End Markets in
Global Value Chains
III Global Value Chains: New Dimensions
• Workforce Development
• Inclusion of Small & Medium Enterprises in the Value Chain
2
© 2012 Duke CGGC

3. 3 Website: www.cggc.duke.edu © 2012 Duke CGGC

4. The Global Value Chain Approach
Global value chain framework developed over the past decade
by a diverse interdisciplinary and international group of
researchers who have tracked the global spread of industries
and their implications for both corporations and countries
Global value chain analysis provides both conceptual and methodological tools
for looking at the global economy
– Top down – a focus on lead firms and inter-firm networks, using varied
typologies of industrial “governance”
– Bottom up – a focus on countries and regions, which are analyzed in
terms of various trajectories of economic and social “upgrading” or
“downgrading”
FOUR dimensions:
1) GVC mapping: raw materials  inputs  final product
2) Geographic scope
3) Analysis of lead firms and governance
4) Institutional framework (international and domestic)
4
© 2012 Duke CGGC

5. What is a value chain?
A value chain describes the full range of activities that firms and workers
carry out to bring a product from its conception to its end use and beyond.
5
Source: CGGC (http://www.cggc.duke.edu), More Information: Global Value Chains (www.globalvaluechains.org ) © 2012 Duke CGGC

6. 1. GVC GOVERNANCE
6
© 2012 Duke CGGC

7. Five GVC Governance Types
Market Modular Relational Captive Hierarchy
End Use
Customers Lead Lead
Integrated
Firm Firm
Lead Firm
Firm
Chain
Value
Full-package Relational
Turn-key
Price
Supplier Supplier
Supplier
Component and Component and
Suppliers Material Material Captive Suppliers
Materials Suppliers Suppliers
Degree of Explicit Coordination
Low High
Degree of Power Asymmetry
7
© 2012 Duke CGGC

8. Dynamics in Global Value Chain Governance
Complexity of Ability to codify Capabilities in the
transactions transactions supply-base
Governance
Type
Market Low High High
Modular  High  High High

Relational High  Low  High 
Captive High High Low
Hierarchy High Low Low
 increasing complexity of transactions (codifiable transactions; decrease in supplier competence)
 decreasing complexity of transactions (easier to codify transactions; high supplier competence)
 better codification of transactions (open or de facto standards; computerization)
 de-codification of transactions (new products; new processes)
 increasing supplier competence (technological learning)
 decreasing supplier competence (new technologies; high switching costs)
8
© 2012 Duke CGGC

9. Offshore Services Value Chain
9
© 2012 Duke CGGC
© 2010 Center on Globalization, Governance & Competitiveness

10. Mapping Selected Countries in the Offshore Services
Value Chain
10 12
© 2012 Duke CGGC
© 2010 Center on Globalization, Governance & Competitiveness

11. Multiple Governance Structures Within the
Offshore Services Value Chain
Past
Relational
Hierarchal Governance Structure
Governance
Structure
Multiple
Modular Governance Governance
Structure Structures
Captive
Governance
Structure Market Governance
Structure
11
© 2012 Duke CGGC

12. 2. ECONOMIC UPGRADING
12
© 2012 Duke CGGC

13. Economic Upgrading Strategies
Product upgrading
• better quality
• more features
• improved design
Process upgrading
• increase scale and speed
• improve efficiency and productivity (e.g., lean production)
• Introduce new technology
Functional upgrading
• acquiring new functions (or abandoning existing ones) to increase the
overall skill content of the activities.
Both upgrading and downgrading can occur in an industry, and
different types of firms (SMEs or large; local private, foreign or
state-owned) can be affected.
13 © 2012 Duke CGGC

14. Functional Upgrading:
Fruit & Vegetables Value Chain (simplified)
Chile
Kenya &
Morocco
Jordan &
Honduras
Production for Packing & Cold Distribution &
Inputs Processing
Export Storage Marketing
14
© 2012 Duke CGGC

15. Functional Upgrading:
Apparel Global Value Chain
Mapping upgrading in individual developing countries
TURKEY LESOTHO,
NICARAGUA
R&D Services
Value Added
Design Marketing
Purchasing Distribution
Production
Pre-Production Production: Tangible Post-Production
Intangible Activities Intangible
15
© 2012 Duke CGGC

16. Composition of China’s Exports to the World Market, 1990-2010
16 Source: UN Comtrade.
© 2012 Duke CGGC

17. Shifts in Top 10 Apparel Exporters: 1995-2008
MFA phase out
17 Source: WTO Interactive International Trade Statistics: Top 10 based on 2008 statistics (US$ billions).
© 2012 Duke CGGC

18. China’s Supply Chain Cities in Apparel
18
Source: David Barboza, “In roaring China, sweaters are west of socks city,” New York Times, Dec. 24, 2004.
© 2012 Duke CGGC

19. Composition of Brazil’s Exports to the World Market, 1990-2010
40
Primary Products
Resource Based Manufactures
Low Tech Manufactures
35 Medium Tech Manufactures
High Tech Manufactures
30
25
% Export Market
20
15
10
5
0
Total 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Exports 31 32 36 39 44 47 48 53 51 48 55 58 60 73 97 119 138 161 198 153 197
US $B
19 Source: UN Comtrade © 2012 Duke CGGC

20. Brazil's Top Export Categories, 2005-2010
35.0
30.0
25.0 2005 2010
US Bil.
20.0
15.0
10.0
5.0
-
20 Source: UN Comtrade © 2012 Duke CGGC

21. Brazil's Top Export Partners, 2005-2010
35.0
30.0
2005
25.0
2010
20.0
US Bil
15.0
10.0
5.0
-
21 Source: UN Comtrade
© 2012 Duke CGGC

22. 3. GLOBAL VALUE CHAINS:
NEW DIMENSIONS
A. GVCs and Workforce Development
B. Inclusion of SMEs in the Value Chain
22
© 2012 Duke CGGC

23. Social Upgrading:
Workforce
Development in
GVCs
Commissioned by RTI International
- Analyze labor force readiness for
industry upgrading
- Explore the alignment of education
institutions with industry needs
- Examine institutional arrangements
and initiative to overcome skills gaps
23
© 2012 Duke CGGC

24. Industry and Country Selection
Comparative Analysis on Relevant Industries for Developing Countries
FRUITS & APPAREL OFFSHORE TOURISM
VEGETABLES SERVICES
Chile
Chile Bangladesh Costa Rica
India
Jordan Lesotho Jordan
Philippines
Honduras Nicaragua Vietnam
Spanish
Kenya Sri Lanka
Speaking Central
Morocco Turkey
American and
Caribbean
Countries
24
© 2012 Duke CGGC

25. Fruits & Vegetables:
Upgrading Trajectories and Workforce Development
25
25
© 2012 Duke CGGC

26. Job Profiles and Upgrading:
Fruits and Vegetables GVC
Value Chain Production for Packing & Cold
Export Storage Processing
Segments
Skill Level
Job
Profiles
FARMING MANUFACTURING
Low Low-Medium Medium Medium – High High
Skill
26 Level No formal education;
experience
Literacy and numeracy
skills; experience
Technical
education/certification
Technical education
/undergraduate degree
University degree and
higher
26
© 2012 Duke CGGC

27. Inclusion of Small and Medium Enterprises (SMEs)
in the Value Chain
To participate in the value chain, SMEs needs to be competitive:
• Productivity level, product/service quality, standards and certifications,
produce/service image, packing, logistics, economies of scale, potential to add value to
the product/service , identify product/service suitable for SMEs?, etc.
Major SME Constraints to Participate in Value Chains
Research
commissioned
by FOMIN-IADB
27
© 2012 Duke CGGC

28. Opportunities for GVC Upgrading
in Latin America and the Caribbean
• Post-economic crisis  growth in South to South trade.
• Emerging economy domestic markets  key sources of growth and
upgrading.
• Latin America  add value to extractive, mfg. and service industries.
• Public- private partnerships  coordinated action among stakeholders
helps to drive upgrading.
• Educational institutions  align labor market needs for upgrading
• Sustainable inclusion of SMEs  increase impact of economic upgrading
in value chains
• Global standards and certifications  increase export potential
• Economic upgrading  promotes innovation & sustainable development
28
© 2012 Duke CGGC

29. Thank you
for your attention!
Gary Gereffi, Director, CGGC
Duke University
Center on Globalization, Governance & Competitiveness
ggere@soc.duke.edu
© 2012 Duke CGGC