Value Chains and Development
Center for Strategic and International Studies
Washington, D.C., 30 October 2013
UNDERSTANDING GLOBAL VALUE
CHAINS
Dirk Pilat, Deputy Director
Directorate for Science, Technology and
Industry
dirk.pilat@oecd.org
1
Outline
– OECD work on global value chains – measuring Trade
in Value Added (TiVA)
– The engagement and positioning of countries in GVCs
– Benefiting from GVCs
– Key policy issues
– Conclusions and further work
2
Global Value Chains
• Growth of international production networks, leading to the
dispersion of production stages across countries and
corresponding (intra-industry) trade
• Networks of activities, firms (MNEs and local firms), industries
and countries
• Reallocation of resources across a growing number of countries:
e.g. low skilled labour
• More specialisation and complex production relationships,
changes in competitiveness
• Global flows of goods (final and inputs), services, capital, people,
technology
Case studies of GVCs
Wing box: Mitsubishi Heavy Industries (Japan)
Wing ice protection: GKN Aerospace (UK)
Centre fuselage: Alenia Aeronautica (Italy)
Escape slides: Air Cruisers (USA)
Rear fuselage:
Boeing South Carolina (USA)
Vertical Stabiliser: Boeing
Commercial Airplanes (USA)
Forward fuselage:
Kawasaki Heavy Industries (Japan)
Spirit Aerosystems (USA)
Lavatories:
Jamco (Japan)
Doors & windows:
Zodiac Aerospace (USA)
PPG Aerospace (USA)
Flight deck seats:
Ipeco (UK)
Raked wing tips: Korean Airlines
Aerospace division (Korea)
Horizontal Stabiliser:
Alenia Aeronautica (Italy)
Centre wing box:
Fuji Heavy Industries (Japan)
Aux. power unit: Hamilton
Sundstrand (USA)
Passenger doors:
Latécoère Aéroservices (France)
Cargo doors: Saab (Sweden)
Prepreg composites:
Toray (Japan)
Landing gear: Messier-Dowti (France)
Electric brakes: Messier-Bugatti (France)
Tires: Bridgestone Tires (Japan)
Engines: GE Engines (USA),
Rolls Royce (UK)
Engine nacelles: Goodrich (USA)
Tools/Software: Dassault Systemes (France)
Navigation: Honeywell (USA)
Pilot control system: Rockwell Colins (USA)
Wiring: Safran (France)
Final assembly: Boeing
Commercial Airplanes (USA)
Sources: Rivoli (2005), WTO (1998), Feenstra (1998), www.newairplane.com, Linden et al. (2009)
4
Measurement of GVCs is a challenge
• When a good (or service) crosses borders several times at
different stages of processing, conventional trade
statistics record each time the full value of the good,
including embodied (imported) intermediate inputs.
• Three issues:
1. Multiple counting of intermediate goods and services
2. Tends to conceal the actual patterns of trade &
beneficiaries
3.Income and knowledge flows are not measured.
5
A well-known example: the iPhone
10 million units exported
from China to the US
Components
229
207
TWN
161
800
CHN
USA
DEU
Upstream
input
suppliers
?
KOR
413
Assembly
65
ROW
Final good
1,875
US trade balance
CHN
Gross
-1,646
0
0
0
0
-1,646
-65
-207
-161
-800
-413
-1,646
Value added
TWN
DEU
KOR
ROW
World
The analysis takes only into account the direct suppliers of
the Chinese assembler
6
From case studies to statistics:
Measuring Trade in Value Added
Decomposition
of gross
exports
Final
consumption
Final
assembly
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
7
6
5
4
3
2
1
5
1
4
2
Trade in
inputs (first
tier suppliers)
3
Value added
by second
tier suppliers
Value added
by first tier
suppliers
Value added
in the
country of
final
production
6
Trade in inputs
(second tier
suppliers)
7
7
Trade in value added: approach
•
To disentangle domestic and foreign value-added in global value chains, we
rely on an Inter-Country Input-Output (ICIO) table.
• The value of a final product can be decomposed according to the country where the
value is added.
• Trade flows in value-added terms can be estimated (from the point of view of a given
exporter)
•
Gross exports can be decomposed into:
Direct domestic
value-added in
the export
industry
Indirect domestic
value-added
generated via
purely domestic
transactions,
broken down by
all domestic
industries.
Domestic value added
Indirect imported
value-added
(broken down by
producing
country and
industry).
Foreign value-added
Indirect domestic
value-added
embodied in
imports (broken
down by all
domestic
industries)
8
Measuring Trade in Value Added
• Global Input-Output Model: national IO tables linked by bilateral trade
statistics
• Based on official statistics
• Large and growing coverage
– 57 countries (all 34 OECD countries, BRIICS, 9 economies in SE Asia)
– > 95% of GDP, > 90% of world trade
– China; distinction between processing and non-processing trade
• First release (of results) on 16 January 2013 – latest release at OECD
Ministerial Meeting (May 2013)
• Trade flows in value added and applied indicators
• Further work: more countries (e.g. Colombia, Costa Rica), employment
and skills, income, firm heterogeneity…
9
Foreign value-added content of exports (1)
OECD countries
2009
1995
60%
50%
40%
30%
20%
10%
0%
10
Source: OECD-WTO, Trade in Value Added database, April 2013,
Foreign value-added content of exports (2)
Emerging economies
2009
1995
60%
50%
40%
30%
20%
10%
0%
11
Source: OECD-WTO, Trade in Value Added database, April 2013,
Regional or global value chains?
Dominant links between economies, exports of intermediates, 2005
Dominant links between countries, exports of intermediates
Australia
New Zealand
East Asia
NAFTA
Korea
Mexico
Canada
China
United States
Japan
Israel
Brazil
ASEAN6
Indonesia
Philippines
Argentina
Norway
EU15+CHE
Ireland
Malaysia
Thailand
Singapore
UK
Czech Rep.
Hungary
Poland
Slovak Rep.
Germany
Austria
Viet Nam
France
Switzerland
South Africa
Netherlands
Russian Fed.
Estonia
Romania
Sweden
Finland
Spain
Italy
Belgium
Turkey
Denmark
Portugal
Luxembourg
Export share is more than 20%
Export share is more than 15%
Source: Calculations based on
OECD Input-Output Database (September, 2010) and OECD STAN BTD (March, 2010)
12
Participation of countries in GVCs (1)
OECD countries
Backward participation
Forward participation
80%
70%
60%
50%
40%
30%
20%
10%
0%
13
Source: OECD-WTO, Trade in Value Added database, April 2013,
Participation of countries in GVCs (2)
Emerging economies
Backward participation
Forward participation
80%
70%
60%
50%
40%
30%
20%
10%
0%
14
Source: OECD-WTO, Trade in Value Added database, April 2013,
Services now account for a large share
of value creation in GVCs …
Services value added, as a % of total exports, 2009
%
Domestic content
Foreign content
90
80
70
60
50
40
30
20
10
0
15
Source: OECD-WTO, Trade in Value Added database, April 2013,
… also in the manufacturing sector
Services share of value added in manufacturing exports, world, 2009
Distribution and repair
Transport and storage
Finance
Business services
Other
40%
35%
30%
25%
20%
15%
10%
5%
0%
Mining
Machinery,
equipment
Textile
Transport
equipment
Food products
Chemicals
16
Source: OECD-WTO, Trade in Value Added database, April 2013,
Value creation is a concern in many
emerging economies …
Total domestic value added, processing and non-processing exports, China
Domestic
1997
2002
Foreign
2007
2011
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
17
Source: Koopman, et al. (2008) and Chinese Academy of Sciences (2012).
… as only little value is added in some
industries
Domestic and foreign value added in final demand, Mexico, 2009
18
Source: OECD-WTO, Trade in Value Added database, April 2013,
Measuring trade in value added also
changes bilateral trade balances
Bilateral trade balances for Mexico, 2009
19
Source: OECD-WTO, Trade in Value Added database, April 2013,
Implications of GVCs for trade & investment
policies
•
No mercantilistic approach: GVCs are about imports and exports;
•
Barriers to import = taxes on exports; trade barriers are cumulative in
GVCs
•
Trade facilitation + efficient services
•
Trade and investment liberalisation:
– Multilateral vs regional vs bilateral agreements
– Broad coverage
•
The efficient functioning of GVCs (hence the participation of countries in
GVCs) depends on the easy/smooth circulation of productive resources
within GVCs: goods (final and intermediate), services, capital, people, human
capital, technology;
20
Implications of GVCs for competitiveness
•
Competitiveness is increasingly about activities instead of industries: in
GVCs, what you do matters more than what you sell.
•
Competitiveness increasingly depends on exports and imports;
offshoring/outsourcing can reinforce competitiveness.
•
The manufacturing of goods remains a core activity in GVCs, but is
increasingly dependent on efficient services that enable customisation
to demand.
•
Competitiveness in GVCs involves strengthening production factors that
are "sticky’ and not susceptible to movement across borders - importance
of knowledge based capital
21
In several industries, value creation is closely
linked to investment in intangible capital
The smile curve, electronics
Value added
R&D
Global Value Chain in the 2000s
Services
Design
Marketing
Logistics:
purchase
Logistics
Production
Pre-production
Intangible
Pre-production
Tangible activities
Source: based on Shih (1992), Dedrick and Kraemer (1999) and Baldwin (2012)
Value Chain in the 1970s
Post-production
Intangible
Value chain
activities
22
Intangible (or knowledge based capital) –
adding value and enabling differentiation
SPORT SHOES: 100 EURO (final retail price)
Source: Trudo Dejonghe (Lessius)
Source: IMD (2000) Innovation and Renovation: The Nespresso Story, IMD046,
03/2003. © Nespresso
A SUIT… MADE IN CHINA, SOLD IN UNITED STATES
Source: Fung Global Institute
© General Motors, Chevy Volt
23
Creating and retaining value: the importance of
“sticky” factors …
• Increasingly important to make value ‘stick’ to a location (or
country), e.g. through:
– Improving the quality of institutional and policy frameworks
– A sound business environment, including strong links between
firms (large and small) and with universities and knowledge
institutions
– Investment in education, skills, research, infrastructure
– Strengthening of domestic capabilities, including the strength
of the SME supplier base and young, innovative firms
– Links between stages of the value chain, e.g. R&D, design,
production, etc – leading to the co-location of activities
– Services, services, services
24
GVCs and economic development
•
GVCs can help countries integrate in the global economy: joining instead
of building a value chain (China, Costa Rica, Czech Republic, etc.)
•
Participation in GVCs: border policies are key
•
Creating/capturing value in GVCs: competitiveness, innovation,
skills...
•
Adjusting to GVCs: important effects on national economies due to
reallocation of productive resources
•
Addressing risks: interconnectedness between economies means also
higher interdependency and vulnerability
25
Example of a national policy agenda for GVCs and
development
26
Conclusions
•
Growing interconnectedness with the global economy:
–
–
–
•
Growing importance of knowledge capital for future
competitiveness
–
–
•
Openness in all dimensions of GVCs, not just trade
Imports are just as important for competitiveness than exports
Competitiveness is about what you do, not about what you sell.
Requires (public and private) investment in research, skills, and
policies to foster innovation
A sound and stable business environment is key
Services increasingly important: enable differentiation
–
–
Building a productive and high-quality services sector
Need for regulatory reform and innovation
27
Further OECD work on GVCs/TiVA
• Improving/extending the TiVA database – more countries,
more industries, ….
• Jobs and skills – where is employment generated in GVCs
• Exploring the link to investment – role of MNEs, income
flows within GVCs
• Link between GVCs and global innovation networks
• Moving up the value chain – participation and upgrading by
emerging economies
• Exploring future trends - back-/re-/near-shoring – the future
of manufacturing
28
New work: Demand in one country sustains
jobs in another …
Jobs in the business sector sustained by foreign final demand, 1995 and 2008
As a percentage of total business sector employment
%
2008
1995
40
30
20
10
0
Source: OECD Science, Technology and Industry Scoreboard 2013.
http://dx.doi.org/10.1787/888932904469
… with different regions affecting
countries
Jobs sustained by foreign final demand, by region of demand, 2008
As a percentage of total jobs embodied in foreign final demand
%
NAFTA
EU12
EU15
East Asia
ASEAN
100
80
60
40
20
0
Source: OECD Science, Technology and Industry Scoreboard 2013.
http://dx.doi.org/10.1787/888932904507
Rest of the World
More on the OECD work on Trade in Value
Added and Global Value Chains
Key urls:
oe.cd/tiva
oe.cd/gvc
www.oecd.org/sti/scoreboard
Thank you
Contact
dirk.pilat@oecd.org
32