Global Value Chains (GVCs)
for
Building National Productive Capacities
Fiorina Mugione, Chief, Enterprise Policies and
Capacity Building Section
Division on Investment and Enterprise
Fiorina.mugione@unctad.org
PRESENTATION OUTLINE
• Importance of Global Value Chains
• How can small and medium
enterprises improve their positioning in
global value chains and reap benefits?
• Best practices and policy options
GLOBAL VALUE CHAIN: TEXTILE AND GARMENTS
Raw materials
Wool
Raw cotton
Apparel
Textile
Spinning
Weaving
Knitting
Dyeing,
Printing,
Finishing
Component network
Brand-name
apparel
companies
Overseas
buying
offices
Retail Outlets
Cutting
Sewing
Finished
Garments
Production network
Trading
companies
Export networks
Marketing networks
VALUE ADDED FORMATION IN THE TEXTILE AND
GARMENTS SUPPLY CHAIN
Raw
Cotton
Textile
Yarn
11.3% 11.3% 6.9%
Source: Gherzi
Finishing
16.0%
Garment
production
54.5%
MAPPING THE VALUE CHAIN
1.
2.
3.
4.
Identify final markets
Identify key functions/ activities
Identify participants
Map participants according to functions
they perform
5. Map inter-relationships between
participants
GLOBAL VALUE CHAIN:THE AUTOMOTIVE
INDUSTRY
Interior &
Electrics
Transmission &
Gearboxes
Engine
Finance
Service
Energy
Breaks and
suspension
Glasses
Aftermarket
PartsTyres
Chassis
UPSTREAM
DOWNSTREAM
COLOMBIA: SUPPLY CHAIN FOR THE
AUTOMOTIVE INDUSTRY
Source: Departamento Nacional de Planeación
GOVERNANCE STRUCTURES OF VALUE
CHAINS
Buyers
Integrated
• Producer driven
Firm
Buyers
Lead
Firm
price
– Large firm or TNC controls
production network
– Upstream and downstream linkages
– Capital and technology intensive
industries (i.e. automobiles, aircraft)
• Buyer driven
Suppliers Suppliers
Suppliers
Lead firms coordinate the
value chain : innovate,
create brands, control the
whole production process
– Decentralised production network
– Labour intensive industries (large
retailers and branded manufactureres,
i.e. GAP, Nike)
UPGRADING IN GLOBAL VALUE CHAINS
– Improving Process
Introduction of better quality control systems
or new production equipment.
– Improving Products
A footwear producer shifts from mass
produced low-cost shoes to more fashionintensive footwear sold for higher prices
– Specialising in new
functions
Moving from a manufacturing to a design
function.
– Moving to a new VC
Move from TV to computer monitor
production
CASE STUDY: SOFTWARE INDIA
• Challenges
– Moving up the value chain, away from low cost
services:
• Understand what the client wants
• Long term relationship (know how,
investment, trust)
• Retention of trained and experienced people
(high rotation)
– Provide whenever possible niche solutions in
new « open » areas such as security, biometrics,
system integration)
Source: UNCTAD, forthcoming.
IMPACT OF VALUE CHAIN UPGRADING
 Increased growth in incomes and employment
 Increased efficiency in the linkages between
buyers and sellers
 Improved delivery in the quantity and quality of
supporting services
 Increased cooperation and coordination among
stakeholders
 Improved and accelerated learning and benefit
flows
POLICY MEASURES
Improving the investment climate
Providing strategic guidance and policy
coordination
Specific linkage
policies
Strategic FDI
attraction
Source: Altenburg, 2005.
Strengthening
absorptive
capacity
SUPPLY CAPACITY BUILDING
• South Africa
 The Workplace Challenge
 The Competitiveness Fund
 The Sector Partnership Fund
 Overcoming the information gap
 Encourage investment in local manufacturing
 Reduce imports and logistic costs
 Enhance technology, skills and managment of local
suppliers
CLUSTER DEVELOPMENT
• Based on specialised skills and networking
dynamics
– Electronics in Malaysia
– Electronics in Mexico
– Automotive industry in Thailand
CLUSTER DEVELOPMENT IN THAILAND
 Automotive industry in Thailand
 Cost competitiveness based on low
factor input costs, which are raising now.
 Challenge: improve productivity and
lower costs or move up to the next tier
within the GVC.
 Opportunity: subregional coordinated
strategy to involve neighboring countries to
become lower tier suppliers.
Source: Thailand Automotive Institute
PUBLIC-PRIVATE PARTNERSHIPS
• Czech Republic Supplier Development Programme
 Matchmaking, seminars, fairs, capacity building
• Business Linkage Programme Uganda
 Supported by UNCTAD and its local EMPRETEC centre
• Projecto Vínculos Brazil
 i.e. linkage partnership between Petrobas and Sebrae under
the National Mobilization Programme for the Oil and Natural
Gas Industry
 Managment training
 Enhancing technical level (quality, health safety and CSR management
systems)
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EMPRETEC
Click on the orange dots to get some examples.
Business Linkages: Uganda
• Six firms have teamed up
with 26 local businesses to
streamline their supply
chains.
• For example, Uganda
Breweries assists over 2,000
farmers with supply chain
management and guarantees
barley supplies locally. In
Western Uganda, Kinyara
Sugar Works Limited has
introduced a new credit
scheme enables farmers to
save and access small loans.
Signing of partnership agreements
in Uganda
Business Linkages: Brazil
Projeto Vinculos: 11 large
corporations are helping over
80 local partners upgrade in
order to meet quality and
environmental standards. For
example, following a
successful pilot phase, BASF
has decided to extend its
supplier upgrading
programme to all its Brazilian
operations, covering 100 per
cent of the costs.
Projeto Vinculos in Brazil
Business Linkages: Vietnam
• Unilever
Viet Nam plans to
step up domestic production
by 59 per cent.
• Unilever Viet Nam supports
the training and development
of SMEs in total productive
maintenance (TPM) in safety,
hygiene, performance
monitoring and a
manufacturing sustainability
improvement programme.
• Domestic producers became
exporters
IN CONCLUSION
• Global value chains which operate in a transparent
and accountable way can be engines for economic
growth and sustainable development
• Innovative policies to favour business upgrading
essential for sustainable development and SME
support
• Important to include in the Aid for trade initiative
the enterprise dimension in building productive
capacities, to unleash enterpreneurial talents and
skills in developing countries
• Dynamics effects of regional integration and
South-South co-operation
• Public Private Partnerships deliver good results