This article builds a theoretical framework to help explain governance patterns in global value chains It draws on three streams of literature ‐ transaction costs economics, production networks, and technological capability and firm-level learning ‐ to identify three variables that play a large role in determining how global value chains are governed and change These are: (1) the complexity of transactions, (2) the ability to codify transactions, and (3) the capabilities in the supply-base The theory generates five types of global value chain governance ‐ hierarchy, captive, relational, modular, and market ‐ which range from high to low levels of explicit coordination and power asymmetry The article highlights the dynamic and overlapping nature of global value chain governance through four brief industry case studies: bicycles, apparel, horticulture and electronics

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The governance of global value chains

Recent literature concerning regional development has placed significant emphasis on local institutional structures and their capacity to ‘hold down’ the global. Conversely, work on inter-firm networks – such as the global commodity chain approach – has highlighted the significance of the organizational structures of global firms’ production systems and their relation to industrial upgrading. In this paper, drawing upon a global production networks perspective, we conceptualize the connections between ‘globalizing’ processes, as embodied in the production networks of transnational corporations, and regional development in specific territorial formations. We delimit the ‘strategic coupling’ of the global production networks of firms and regional economies which ultimately drives regional development through the processes of value creation, enhancement and capture. In doing so, we stress the multi-scalarity of the forces and processes underlying regional development, and thus do not privilege one particular geographical scale. By way of illustration, we introduce an example drawn from recent research into global production networks in East Asia and Europe. The example profiles the investments of car manufacturer BMW in Eastern Bavaria, Germany and Rayong, Thailand, and considers their implications for regional development.

Globalizing regional development: aglobal production networks perspective

This book opens a fresh chapter in the debate on local enterprise clusters and their strategies for upgrading in the global economy. The authors employ a novel conceptual framework in their research on industrial clusters in Europe, Latin America and Asia and provide new perspectives and insights for researchers and policymakers alike.

Governance in global value chains

In this article, we apply global value chain (GVC) analysis to recent trends in the global automotive industry, with special attention paid to the case of North America. We use the three main elements of the GVC framework—firm-level chain governance, power and institutions—to highlight some of the defining characteristics of this important industry. First, national political institutions create pressure for local content, which drives production close to end markets, where it tends to be organized nationally or regionally. Second, in terms of GVC governance, rising product complexity combined with low codifiability and a paucity of industry-level standards has driven buyer–supplier linkages toward the relational form, a governance mode that is more compatible with Japanese than American supplier relations. The outsourcing boom of the 1990s exacerbated this situation. As work shifted to the supply base, lead firms and suppliers were forced to develop relational linkages to support the exchange of complex uncodified information and tacit knowledge. Finally, the small number of hugely powerful lead firms that drive the automotive industry helps to explain why it has been so difficult to develop and set the industry-level standards that could underpin a more loosely articulated spatial architecture. This case study underlines the need for an open, scalable approach to the study of global industries.

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Value chains, networks and clusters: reframing the global automotive industry

The global value chain (GVC) concept has gained popularity as a way to analyze the international expansion and geographical fragmentation of contemporary supply chains and value creation and capture therein. It has been used broadly in academic publications that examine a wide range of global industries, and by many of the international organizations concerned with economic development. This note highlights some of the main features of GVC analysis and discusses the relationship between the core concepts of governance and upgrading. The key dynamics of contemporary global supply chains and their implications for global production and trade are illustrated by: (1) the consolidation of global value chains and the new geography of value creation and capture, with an emphasis on China; (2) the key roles of global supermarkets and private standards in agri-food supply chains; and (3) how the recent economic crisis contributes to shifting end markets and the regionalization of value chains. It concludes with a discussion of the future direction of GVC analysis and a potential collaboration with supply chain researchers.

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Why the World Suddenly Cares About Global Supply Chains

The paper uses the global value chain framework to explain the transformations in production, trade and corporate strategies that altered the apparel industry over the past decades and changed the conditions for innovation and learning in the industry. The apparel industry is identified as a buyer-driven value chain that contains three types of lead firms: retailers, marketers and branded manufacturers. With the globalization of apparel production, competition between the leading firms in the industry has intensified as each type of lead firm has developed extensive global sourcing capabilities. While "de-verticalizing" out of production, these firms are fortifying their activities in the high value-added design and marketing segments of the apparel chain, leading to a blurring of the boundaries between them and a realignment of interests within the chain. Innovation in the global apparel value chain is primarily associated with the shift from assembly to full-package production. Full-package production changes fundamentally the relationship between buyer and supplier giving more autonomy to the supplying firm and creating more possibilities for innovation and learning. The paper distinguishes between three new models of competition in the North American market namely the East Asian, Mexican and Caribbean Basin model. Each model presents different perspectives and challenges for industrial innovation and learning.

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The Global Apparel Value Chain: What Prospects for Upgrading by Developing Countries?

The paper opens by mapping the changes in the global auto industry in the 1990s, showing how the rapid growth in sales and production between 1990 and 1997 came largely from the emerging markets rather than the Triad regions (North America, the European Union and Japan). However, for some of these markets the downturn that followed was substantial and prolonged. The emergence of regional production systems resulted in regional integration. This created opportunities for industrial upgrading in developing countries with links to one of the Triad regions, where a major part of production still takes place. The paper then describes how the relationship between assemblers and suppliers has changed. There is a growing preference for using the same suppliers in different locations (follow sourcing), which limits the possibilities for component supplying by local producers in developing countries. However, opportunities in second-tier sourcing, where a global reach is not required, do exist. The paper shows that developing countries can increase the possibility of integration into the global value chains of transnational automotive companies by opening up their domestic markets. It concludes with emphasizing the importance of fostering networks of small firms in developing countries as a means of entering new markets.

The Global Automotive Industry Value Chain: What Prospects for Upgrading by Developing Countries?

Over the last decades, changes in the global economy and the emergence of Global Value Chains (GVCs) have raised the interest in understanding the specific conditions and cross-company interactions within and across locations. For companies, the need to choose the right location for specific activities moved from an operational to a strategic issue. For countries, regions and cities, competition raised the stakes of understanding how to improve productivity and attract firms in specific fields beyond providing low factor costs and subsidies. Many countries, from natural-resource-rich, to transition economies, and to developed countries have launched competitiveness policies and cluster initiatives involving various stakeholders. The paper addresses how clusters can be leveraged for economic policy and what the role of different stakeholders in this process is. This paper summarises the cluster concept, focusing on the main theoretical framework and on recent empirical findings, and discusses key pillars of a cluster-based economic policy approach. The paper concludes with an application of the concept to resource-rich, oil-dependent economies.

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From clusters to cluster-based economic development

This paper lays out the main features of the global automotive industry and identifies several important trends. A boom in developing country sales and production has not yet overshadowed the importance of existing markets in developed regions. Regional integration is very strong at an operational level, yet the industry has recently developed a set of global-scale value chain linkages, and retains national and local elements as well. The paper highlights how global, regional, national and local value chains are nested to create a pattern of global integration that is distinctive to the industry. We use global value chain analysis to help explain the limits of build-to-order in the industry, the role of regional and global suppliers, the shifting geography of production and how the characteristics of value chain linkages in the industry favour tight integration and regional production. We describe how industry concentration focuses power in the hands of a few large lead firms and discuss the implications of this for value chain governance and the geography of production.

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Globalisation of the automotive industry: main features and trends

This paper discusses agriculture and poverty reduction in the context of globalisation. Taking the global value chain perspective (GVC), it analyses the trends in agribusiness and their consequences for strategies to eradicate poverty through increasing export growth. The paper looks at inter-firm linkages in global agribusiness, thereby placing agricultural production and processing in developing countries in the context of broader agribusiness and agrifood systems. The paper focuses on two issues, the first being the importance of standards, which, by definition, operate at multiple points along the GVC and are created, adopted, applied and verified by different actors. They impact in two particularly direct ways: the extent and codification of information required to sustain transactions their impact on supplier competence. The second issue is the importance of increasing concentration, relating to input supplier concentration; production concentration; processing; and consumer outlet concentration. In terms of the value chain, concentration matters for two reasons: concentration at one point of a value chain, often leads to concentration at other levels concentration at particular points in the value chain creates oligopolies and inequalities in market power. A value-chain analysis of the impacts of global concentration and the evolving global-standards environment highlights a number of challenges and opportunities for multiple actors involved in value-chain development. These challenges raise a number of policy issues for developing country governments and other agencies concerned with export agribusiness, which have been grouped in three broad areas: ensuring the continued access of agribusiness producers to global markets and supporting the competitiveness of the sector increasing revenues from agribusiness, particularly through adding value to exports enhancing the poverty alleviation impact of export agribusiness.

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Olga Memedovic

Papers

The Global Apparel Value Chain: What Prospects for Upgrading by Developing Countries?

The Global Automotive Industry Value Chain: What Prospects for Upgrading by Developing Countries?

From clusters to cluster-based economic development

Globalisation of the automotive industry: main features and trends

Global value chains in the agrifood sector