global value chains and development - concepts and methodologies
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GLOBAL VALUE CHAINS AND DEVELOPMENTConcepts and Methodologies
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Gary GereffiDuke UniversityJune 17, 2016
World Bank Group, Trade & CompetitivenessGVC workshop on technical tools and operations
Washington, DC
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AGENDA
1. The New Global Economy
2. Origins of the GVC Framework3. Clarifying GVC Concepts & Methods Value Chain Mapping
Value Chain Governance
Value Chain Upgrading
4. Small Countries and High Tech: Medical Devices GVC in Costa Rica
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2016 Duke CGGC
WHERE DO GVCS COME FROM?
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The New Global Economy
Old World of Trade (pre-1980) Countries trade finished goods Build national industries (ISI)
New World of Trade Countries trade intermediate goods; imports needed to export Join global industries (EOI)
Trends GVCs 80% of world trade (UNCTAD, WIR 2013) Rise of intermediate goods trade (import content of exports): 20% in
1990; 40% in 2010; 60% in 2030 (P. Lamy, WTO) Consolidation within GVCs in fewer, larger suppliers Concentration of production and consumption in relatively few large
emerging economies
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Where does the idea of Value Chains come from?
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Google Scholar Publications Referencing GVC/GCC/GPN Frameworks
0
500
1000
1500
2000
2500
3000
3500
4000
4500
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
GVC & GVCs
GCC & GCCs
GPN & GPNs
GVC: 4090 Publications in 2014
GPN: 1680 Publications in 2014
GCC: 692 Publications in 2014)
Google Scholar search results that mention a framework in their titles, abstracts, keywords, or full texts: global value chain (GVC), global production network (GPN), and global commodity chain (GCC). Source: Google Scholar, https://scholar.google.com/. Retrieved Feb. 11, 2015.
https://scholar.google.com/
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MAJOR STEPPING STONES
GCCs (global commodity chains) GVCs (global value chains) (1990s-2000s)
Rockefeller Foundations Global Value Chain Initiative (2000-2005) -- https://globalvaluechains.org/
Duke Center on Globalization, Governance & Competitiveness (Duke CGGC) (2005-present) -- http://www.cggc.duke.edu/
Adoption and Elaboration by International Organizations of GVC Approach to Development (ca. 2009-2016) --https://dukegvcsummit.org/
E.g., World Trade Organization, OECD, World Bank, Inter-American Development Bank, African Development Bank, Asian Development Bank, ILO, UNCTAD, UNIDO, USAID, DFID, GIZ, etc.
https://globalvaluechains.org/http://www.cggc.duke.edu/https://dukegvcsummit.org/
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LANDMARK PUBLICATIONS
The organization of buyer-driven global commodity chains: How U.S. retailers shape overseas production networks, Gereffi (in Commodity Chains & Global Capitalism, 1994) 2544 google scholar citations*
International trade and industrial upgrading in the apparel commodity chain, Gereffi (J of Internatl Economics, 1999) 3256 google scholar citations*
The governance of global value chains, Gereffi, Humphrey & Sturgeon (Review of Internatl Political Economy, 2005) 4259 google scholar citations*
*As of 06/16/2016.
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CLARIFYING GVC CONCEPTS
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TYPES OF CHAINS
Global Supply Chains Logistics (transportation focus: reduce time + costs) Trade Facilitation (lower barriers at the border)
Global Commodity Chains Producer-driven chains: Trade + FDI (e.g., aircraft, autos, mining, oil) Buyer-driven chains: Trade w/o FDI (e.g., consumer goods); global
subcontracting by retailers, brands & supermarkets Global Value Chains
Rise of intermediate goods trade (import content of exports: 20% in 1990; 40% in 2010; 60% in 2030 P. Lamy)
Create, capture & sustain domestic value added (e.g., Chinese i-Phone example; build capabilities of domestic suppliers)
Regional Value Chains Growing in importance, esp. since 2008-09 and in emerging
economies; beyond fragmentation and EOI development model.
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LINKING GLOBAL CHAINS AND LOCAL CLUSTERS
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GOVERNANCE & UPGRADING
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Global value chain analysis provides both conceptual and methodological tools for examining 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, social and environmental upgrading (or downgrading)
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DIMENSIONS OF GLOBAL VALUE CHAIN ANALYSIS
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1. Value Chain Mapping
2. Geographic Scope
3. Governance Structure: Lead Firms & Industry Organization
4. Local Institutional Context
5. Industry Stakeholders
6. Upgrading Trajectories
GLOBAL
LOCAL
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VALUE CHAIN MAPPING
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EXAMPLE 1: FRUIT & VEGETABLES VALUE CHAIN
Analyzing the position of different countries in the value chain can allow you to identify countries that have successfully upgrading & then examine the policies and changes they implemented to successfully achieve that functional upgrading.
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UPGRADING TRAJECTORY: PRODUCTION TO PACKING AND COLD STORAGE
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Pac
king
& C
old
Stor
age
(Fun
ctio
nal U
pgra
ding
)
Typically women are hired to work in the packing plants. They must follow strict procedures to pack the products and prevent losses as well as protect against sanitary problems.
Skills Preparation Short training, certification, and/ or on-the-job training
Institutions Governments, private sector, buyers, training institutions
Packing & Cold Storage
(Functional Upgrading)
Typically women are hired to work in the packing plants. They must follow strict procedures to pack the products and prevent losses as well as protect against sanitary problems.
Skills Preparation
Short training, certification, and/ or on-the-job training
Institutions
Governments, private sector, buyers, training institutions
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WORKFORCE DEVELOPMENT AND UPGRADING
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JOB PROFILES AND UPGRADING
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Production for Export Packing & Cold Storage Processing
Skill Level
Value Chain Segments
Job Profiles
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EXAMPLE 2 -- OFFSHORE SERVICES: A Simplified View of Upgrading
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ITO Information technology outsourcing
BPO Business process outsourcing
KPO Knowledge process outsourcing
ITO BPO KPO
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OFFSHORE SERVICES GLOBAL VALUE CHAIN
Infrastructure
Software
Network Management
Applications Management
Applications Development
Applications Integration
Desktop management
CRM (Customer
Relationship Management)
HRM(Human Resource
Management)
ERM (Enterprise Resource
Management)
Marketing & Sales
Finance & Accounting
Procurement, Logistics and Supply Chain Management
Training
Payroll
Recruiting Contact Centers/Call
Centers
Talent Management
Content/Document
Management
ITO Information Technology Outsourcing
BPOBusiness Process Outsourcing
KPOKnowledge Process Outsourcing
Horizontal ActivitiesVertical Activities aIndustry specific b
Banking, Financial Services and
Insurance (BFSI) Ex. Investment research, private equity research, and risk management
analysis
TelecommunicationsEx. IP transformation,
Interoperability testing and DSP and multimedia
ManufacturingEx. Industrial Engineering and sourcing and vendor
management
Retail eComerce and Planning,
merchandising and demand intelligence
Health/Pharma
Ex. R&D, clinical trials, medical transcript
Others
Travel & Transportation
Revenue management systems, customer loyalty
solutions
Business ConsultingBusiness Analytics
Market IntelligenceLegal Services
EnergyEx. Energy Trading and Risk Management , and Digital
oil field solutions
ERP (Enterprise Resource Planning): manufacturing/operations, supply chain
management, financials & project management
Infrastructure Management
IT Consulting
Software R&D
Va
lue
Ad
de
d
LOW
HIGH
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EXAMPLE 2: OFFSHORE SERVICES GLOBAL SUPPLY AND DEMAND
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MAPPING SELECTED COUNTRIES OFFSHORE SERVICES GVC, 2008
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OFFSHORE SERVICES UPGRADING: INDIA, PHILIPPINES & CHILE
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India 1990s 2010 Early 2000s Mid to late 2000s
Philippines
Early 2000 Mid 2000s Late 2000
Chile
2000-2008 2007-2010 2010
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VALUE CHAIN GOVERNANCE
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PRODUCER-DRIVEN AND BUYER-DRIVEN GLOBAL COMMODITY CHAINS
Source: Gary Gereffi, The organization of buyer-driven global commodity chains: How U.S. retailers shape overseas production networks, in G. Gereffi & M. Korzeniewicz (eds.), Commodity Chains and Global Capitalism (Praeger, 1994), p. 98.
Producer-driven Commodity Chains
Manufacturers DistributorsRetailers and
Dealers
Domestic and Foreign Subsidiariesand Subcontractors
Retailers, branded marketers, and traders require full-package supply from overseas factories.
U.S. MARKETBuyer-driven Commodity Chains
OVERSEAS
BrandedMarketers
Retailers
BrandedManufacturers
Traders
OverseasBuyers
Factories
Notes: Solid arrows are primary relationships; dashed arrows are secondary relationships.
Branded manufacturers ship parts for overseas assembly and re-export to the manufacturers home market
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GVC LEAD FIRMS & THEIR SUPPLY CHAINS
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Giant Retailers: Wal-Mart Largest retailer in the world directs the biggest supply chain > 60,000 suppliers worldwide and over 80% are in China
Global Brands: Nike Nike, the largest sportswear company in the world, does not own any
factories. Nike products made in 930 factories (subcontractors) in 50 countries >1 million workers in supply chain, but just 38,000 direct employees
in U.S.
Manufacturers w/o Factories: Apple Apple, the top smartphone company in the world, designs and
markets its products but owns no factories Foxconn, the largest electronics contract manufacturer in the world,
makes Apple products and employs >1 million workers in mainland China
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Five GVC Governance Types
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G. Gereffi, J. Humphrey & T. Sturgeon, The governance of global value chains, Review of International Political Economy 12, 1 (2005), p. 89.
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Determinants of GVC Governance
GovernanceType
Complexity oftransactions
Ability to codifytransactions
Capabilities inthe supply-base
Degree ofexplicit
coordination andpower
asymmetry
Market Low High High
Modular High High High
Relational High Low High
Captive High High Low
Hierarchy High Low Low
Low
High
Network org.
forms
Gereffi at al, The governance of global value chains, RIPE (2005), p. 87.
Governance Type
Complexity of transactions
Ability to codify transactions
Capabilities in the supply-base
Degree of explicit coordination and power asymmetry
Market
Low
High
High
Modular
High
High
High
Relational
High
Low
High
Captive
High
High
Low
Hierarchy
High
Low
Low
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Dynamics in Global Value Chain Governance
GovernanceType
Complexity oftransactions
Ability to codifytransactions
Capabilities in thesupply-base
Market Low High High
Modular High
Relational High Low High
Captive High High Low
Hierarchy High Low Low
increasing complexity of transactions (harder to codify transactions; effective decrease in supplier competence) decreasing complexity of transactions (easier to codify transactions; effective increase in supplier competence) better codification of transactions (open or de facto standards, computerization) de-codification of transactions (technological change, new products, new processes) increasing supplier competence (decreased complexity, better codification, learning) decreasing supplier competence.(increased complexity, new technologies, new entrants)
High High
Gereffi at al, The governance of global value chains, RIPE (2005), p. 90.
GovernanceType
Complexity of transactions
Ability to codify transactions
Capabilities in the supply-base
Market
Low
High
High
Modular
(High (
High
(
High
Relational
High
(Low
(High (
Captive
High
High
Low
Hierarchy
High
Low
Low
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Multiple Governance Structures in UK-African Fresh Vegetable Value Chains
Dolan, Catherine, and John Humphrey. 2004. "Changing Governance Patterns in the Trade in Fresh Vegetables between Africa and the United Kingdom." Environment and Planning A 36:491-509.
(2000s)
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Multiple Governance Structures Within the Offshore Services Value Chain
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Relational Governance Structure
Modular Governance Structure
Market Governance Structure
HierarchalGovernance
Structure
CaptiveGovernance
Structure
Past
Multiple Governance Structures
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VALUE CHAIN UPGRADING
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ECONOMIC UPGRADING
Strategies used by firms, clusters, and countries to improve their positions in global and regional value chains Product upgrading - moving into more sophisticated product lines
Process upgrading - transforms inputs into outputs more efficiently by reorganizing the production system or introducing superior technology
Functional upgrading - acquiring new functions (or abandoning existing ones) to increase the overall skill content of the activities
Chain upgrading entry or diversification into a new value chain by leveraging the knowledge and skills acquired in the current chain
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Functional Upgrading in GVCs: Linear View
Upgrading refers to the strategies that stakeholders (countries, regions and firms) can take to improve their position within the global economy.
Gereffi, Gary and Jennifer Bair. 2001. Local Clusters in Global Chains: The Causes and Consequences of Export Dynamism in Torreons Blue Jeans Industry. World Development. Vol. 29 No. 11
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WHERE ARE THE HIGH-VALUE ACTIVITIES IN GVCs?
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Apples Smiling Curve and GVC for iPhones
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Source: Grimes & Sun, Chinas evolving role in Apples GVC, Area Development & Policy, 2016.
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The Smile Curve in GVCs: Variations
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TRIPLE BOTTOM LINE:Diversified, Inclusive and Green Growth
Economic Upgrading
Social Upgrading
Environmental Upgrading
Sustainable Growth
Development Outcomes: Job creation Exports Income generation Added value Better use of
resources Backward linkages
Development Outcomes: Inclusion of
vulnerable groups
Job creation Improve working
conditions Higher wages Skills acquisition
Development Outcomes: Soil preservation
and improvement Water
conservation Wildlife
conservation Pollution and
waste reduction
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GVC Upgrading: Empirical Indicators
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Product Upgrading Unit price of goods Process Upgrading Productivity measures Functional Upgrading Backward/forward links Chain Upgrading Economic diversification
into new or related industries
Social UpgradingWage rates, working conditions
Environmental Upgrading Carbon footprint
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COSTA RICAS MEDICAL DEVICES GVC
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Components Manufacturing
Plastics extrusion & molding
Precision metal works
Electronics development
Software Development
Weaving/Knitting Textiles
Assembly
Packaging
Sterilization
Assembly / Production
Distribution & Marketing
Resin Metals
Chemicals Textiles
Input Suppliers
DisposablesUS$575.5 million
InstrumentsUS$270.5 million
Capital Equip.US$32.5 million
TherapeuticsUS$301 million
Main Segments: Exports
Post-Sales Services
Consulting
Maintenance, Repair
Training
Research & Product
Development
Regulatory Approval
Process Development
Sustaining Engineering
Prototype
Local firms are mainly in packaging & support services (12 of 19) versus 4 in limited role in plastics molding & metal finishing and 1 OEM with exports under $2 million.
Number of Firms
0 - 5
6 - 10
11 - 15
16 - 20
COSTA RICA IN THE MEDICAL DEVICES GLOBAL VALUE CHAIN, 2012
Wholesale distributors
Individual Patients
Doctors & Nurses
Hospitals(Public/Private)
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0
200
400
600
800
1,000
1,20019
98
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Expo
rt V
alue
s ($
US
Mili
on)
Year
Costa Rica's Medical Exports by Product Category: 1998-2011
Disposables Therapeutics Instruments Capital Equipment
EVOLUTION OF MEDICAL DEVICES EXPORTS FROM COSTA RICA, 1998-2011
Disposables still the largest product category exported, but no longer a strong growth area.
Exports in surgical instruments have grown steadily since 2005. Therapeutics has become 2nd largest category since 2008; likely to increase
as newly established firms complete transfer of new product lines. Limited export of highest value capital equipment (eg. Electronic/software
devices)42
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Entry Year Firm Characteristics
Main Product Export Category
Core Market Segments
Product Examples
Select Firms
Up to 200024 firms:8 US15 CR1 German
4 OEMs8 Components1 Input distributor7 Packaging1 Finishing3 Support services
DisposablesDrug delivery;Womens health
Intravenous tubing (I)Mastectomy bra (I)
Hospira;Baxter; Amoena;Corbel
2001200413 firms:9 US3 CR1 Colombian
3 OEMS 6 Components1 Finishing1 Logistics provider2 Support services
Instruments Endoscopic surgery Biopsy forceps (II)Arthrocare;Boston Scientific;Oberg Industries
200520088 firms:7 US1 Puerto Rico
2 OEM4 Components1 Packaging1 Finishing
TherapeuticsCosmetic surgery;Womens health & urology
Breast implants (III)Minimally invasive devices for uterine surgery (II)
Allergan;Tegra Medical;Specialty Coating Systems
2009201221 firms:16 US 1 CR1 Ireland1 Japan2 Joint ventures (US-CR)
5 OEMS7 Components2 Non-OEM assemblers1 Input Distributor2 Sterilization2 Packaging
TherapeuticsDisposablesInstruments
CardiovascularDrug delivery
Heart valves (III)Dialysis catheters (III)Guide wires (III)Compression socks (I)
Abbott Vascular St. Jude MedicalCovidienMoogSynergy HealthVolcano Corp.
FIRMS IN THE COSTA RICA MEDICAL DEVICES SECTOR
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UPGRADING SUCCESS: A LEADING MEDICAL DEVICES MNC
2010
Initial plant reopens after restructuring
2004: Manufacturing functions 2012: Engineering for process improvements Focused on cardiology
segment; strategy to alleviate R&D costs in the US.
Functional Upgrading
Biopsy forceps Labor intensive, basic metal works & extrusion. Urethral stent Thermoforming, laser marking, coating capabilities. Guide Wires Sophisticated Laser cutting & welding. Today CR facilities cover 42 manufacturing processes.
Product & Process Upgrading
Gastroenterology segment Urology CardiovascularMarket Diversification
Recent co-location of sterilization vendors will allow the firm to export directly to global distribution centersForward Linkages
2004
First production plant opens in Costa Rica
(10,000m2)
2008
Second plant opens.(32,000m2)
First plant restructuring
2005 2011
Exports:US$18 million
Exports:US$120 million
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BRAZIL AND MEXICO: MEDICAL DEVICE EXPORTS, 1998-2011
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
1998 2000 2002 2004 2006 2008 2010Ex
port
Val
ue (U
S$ M
illio
n)
MEXICO
Disposables: largest product category & growing Brazilian government & private sector actors working to promote price-competitive, mid-tech exports.
Stabilizing disposables exports Strong focus in instruments Growing gains in capital equipment
participation in electronics value chains
0
50
100
150
200
250
300
350
400
450
500
1997 1999 2001 2003 2005 2007 2009 2011
Expo
rt V
alue
(U
S$ M
illio
n)
Year
BRAZIL
45
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http://www.cggc.duke.edu
ggere@soc.duke.edu
Gary Gereffi
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http://www.cggc.duke.edu/
GLOBAL VALUE CHAINS AND DEVELOPMENTConcepts and MethodologiesAGENDAWHERE DO GVCS COME FROM?The New Global EconomyWhere does the idea of Value Chains come from?Google Scholar Publications Referencing GVC/GCC/GPN FrameworksMAJOR STEPPING STONESLANDMARK PUBLICATIONSCLARIFYING GVC CONCEPTSTYPES OF CHAINSLINKING GLOBAL CHAINS AND LOCAL CLUSTERSGOVERNANCE & UPGRADINGDIMENSIONS OF GLOBAL VALUE CHAIN ANALYSISVALUE CHAIN MAPPINGEXAMPLE 1: FRUIT & VEGETABLES VALUE CHAINUPGRADING TRAJECTORY: PRODUCTION TO PACKING AND COLD STORAGEWORKFORCE DEVELOPMENT AND UPGRADINGJOB PROFILES AND UPGRADING EXAMPLE 2 -- OFFSHORE SERVICES: A Simplified View of UpgradingOFFSHORE SERVICES GLOBAL VALUE CHAINEXAMPLE 2: OFFSHORE SERVICES GLOBAL SUPPLY AND DEMANDMAPPING SELECTED COUNTRIES OFFSHORE SERVICES GVC, 2008OFFSHORE SERVICES UPGRADING: INDIA, PHILIPPINES & CHILE VALUE CHAIN GOVERNANCEPRODUCER-DRIVEN AND BUYER-DRIVEN GLOBAL COMMODITY CHAINSGVC LEAD FIRMS & THEIR SUPPLY CHAINSFive GVC Governance TypesDeterminants of GVC GovernanceDynamics in Global Value Chain GovernanceMultiple Governance Structures in UK-African Fresh Vegetable Value ChainsMultiple Governance Structures Within the Offshore Services Value ChainVALUE CHAIN UPGRADINGECONOMIC UPGRADINGFunctional Upgrading in GVCs: Linear ViewWHERE ARE THE HIGH-VALUE ACTIVITIES IN GVCs?Apples Smiling Curve and GVC for iPhones The Smile Curve in GVCs: VariationsTRIPLE BOTTOM LINE: Diversified, Inclusive and Green GrowthGVC Upgrading: Empirical IndicatorsCOSTA RICAS MEDICAL DEVICES GVCCOSTA RICA IN THE MEDICAL DEVICES GLOBAL VALUE CHAIN, 2012EVOLUTION OF MEDICAL DEVICES EXPORTS FROM COSTA RICA, 1998-2011FIRMS IN THE COSTA RICA MEDICAL DEVICES SECTORUPGRADING SUCCESS: A LEADING MEDICAL DEVICES MNC BRAZIL AND MEXICO: MEDICAL DEVICE EXPORTS, 1998-2011Slide Number 46
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