global value chains and manufacturing

GLOBAL VALUE CHAINS AND

MANUFACTURING Koen de Backer

2012 International Forum on Changes in Industrial Landscape and the Future of Service Economy

Seoul, 22 October 2012

The main messages

• A new episode of economic globalisation: Global Value Chains

• Shift of manufacturing eastwards; growing importance of emerging economies; the rise of Factory China

• GVCs as a fast industrialisation track …

• …but less meaningful: ‘what you do matters more than what you sell’.

• Lower (labour) costs ànd large/growing markets

• A trend to backshoring on the horizon?

• Developed economies still important in global manufacturing…

• … but growing focus on knowledge based assets and services.

• OECD work on Global Value Chains and Trade in Value Added

2

What is a Global Value Chain? (1)

3

Final consumption

3

7

5

6

2

Final assembly

1

4

Trade in inputs

(first tier

suppliers)

Trade in inputs

(second tier

suppliers)

What is a Global Value Chain? (2)

4

Escape slides: Air Cruisers (USA)

Horizontal Stabiliser:

Alenia Aeronautica (Italy)

Centre fuselage: Alenia Aeronautica (Italy)

Final assembly: BoeingCommercial Airplanes (USA)

Vertical Stabiliser: Boeing

Commercial Airplanes (USA)

Landing gear: Messier-Dowti (France)

Electric brakes: Messier-Bugatti (France)

Tires: Bridgestone Tires (Japan)

Doors & windows:

Zodiac Aerospace (USA)

PPG Aerospace (USA)

Tools/Software: Dassault Systemes (France)

Navigation: Honeywell (USA)

Pilot control system: Rockwell Colins (USA)

Wiring: Safran (France)

Centre wing box:

Fuji Heavy Industries (Japan)

Engines: GE Engines (USA),

Rolls Royce (UK)

Wing box: Mitsubishi Heavy Industries (Japan)

Wing ice protection: GKN Aerospace (UK)

Engine nacelles: Goodrich (USA)Aux. power unit: Hamilton

Sundstrand (USA)

Flight deck seats:

Ipeco (UK)

Lavatories:

Jamco (Japan)

Cargo doors: Saab (Sweden)

Forward fuselage:

Kawasaki Heavy Industries (Japan)

Spirit Aerosystems (USA)

Raked wing tips: Korean Airlines

Aerospace division (Korea)

Passenger doors:

Latécoère Aéroservices (France)

Prepreg composites:

Toray (Japan)

Rear fuselage:

Boeing South Carolina (USA)

Source: Rivoli (2005), WTO (1998), Feenstra (1998), www.newairplane.com, Linden et al. (2009)

The rise of global value chains

• International production networks; dispersion of production stages across countries

• Networks of activities, firms (MNEs and local firms), industries and countries

• Especially in manufacturing: electronics, automotive, etc…

• More specialisation and complex production relationships, profound changes in countries’ competitiveness

• Global flows of goods (final and inputs), services, capital, people, technology…

5

Manufacturing shifting to the east (1)

6

Outward FDI flows from EU, Japan, US to BRICS,

average 2003-2009

(USD billion at current exchange rates)

40

50

60

70

0

5

10

15

Ex

po

rt m

ark

et

sha

re -

OE

CD

(%

)

Ex

po

rt m

ark

et

sha

re B

RII

CS

(%

)

OECD (right axis)

China

Russian Fed.

India

Brazil

Indonesia

South Africa

Export market shares (goods and services)

7

0

5

10

15

20

25

30

35

40

East Asia excl. China

China South Asia South East Asia

Latin America excl. Mexico

Mexico Middle East and North

Africa

Sub-Saharan Africa excl.

South Africa

South Africa

% 1990 2000 2009

Manufacturing shifting to the east (2)

Shares in global manufacturing

Value added

Employment

0

2

4

6

8

10

12

14

16

18

20

East Asia excl. China

China South Asia South East Asia

Latin America excl. Mexico

Mexico Middle East and North

Africa

Sub-Saharan Africa excl.

South Africa

South Africa

% 1990 2000 2010

China as the factory of the world? (1)

8

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8United States Japan Germany United KingdomFrance

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5China Brazil India South AfricaIndonesia Russian Federation

Export competitiveness

(revealed comparative advantage)


9

Food

Textiles, clothing

Wood

Paper, printing

Coke, refined petroleum

Other chemicalsPharmaceuticals

Rubber & plastics prod.

Non-metallic mineral products

Iron & steel

Non-ferrous metals

Fabricated metal products

Other machinery

Computers

Electrical machinery

Radio, TV and communication eq. (incl.

electronic components)

Instruments

Motor vehicles

Aircraft & spacecraft

Other transport eq.

Other manufacturing

0

0.5

1

1.5

2

2.5

0 0.5 1 1.5 2

RC

A t

otal

exp

orts

RCA imported intermediates

Total exports value Exports of intermediates2.4

3.7

Export competitiveness and GVCs, China 2000


10

Food

Textiles, clothing

Wood

Paper, printingCoke, refined

petroleum

Other chemicals

Pharmaceuticals



Iron & steel

Non-ferrous metals


Other machinery

Computers




Instruments

Motor vehicles

Aircraft & spacecraft

Other transport eq.

Other manufacturing

0

0.5

1

1.5

2

2.5

3

0 0.5 1 1.5 2 2.5

RC

A t

otal

exp

orts


Total exports value Exports of intermediates

Export competitiveness and GVCs, China 2010

Costa Rica is another ‘success’ GVC story

11

Food

Textiles, clothing

Wood

Paper, printing

Coke, refined petroleum

Other chemicals

Pharmaceuticals



Iron & steelNon-ferrous metals


Other machinery

Computers(7.1)




Instruments

Motor vehicles

Aircraft , spacecraft

Other transport eq.

Other manufacturing

0

0.5

1

1.5

2

2.5

3

3.5

4

0 0.5 1 1.5 2 2.5

RC

A t

otal

exp

orts


Total exports value Exports of intermediates

Export competitiveness and GVCs, Costa Rica, 2010

Low labour costs…

12

Direct employment

(millions)

% of national employment

World Asia & Pacific Americas Western-Europe CEECs and Central Asia MENA Sub-Saharan Africa

68,441 61,089 3,084 0.179 1,590 1,458 1,040

0.21 2.30 1.15 0.00 0.00 1.59 0.20

Countries with export

processing zones

Source: WTO and IDE/JETRO (2011)

‘What you do matters more than what

you sell’

13

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Domestic Foreign

1997 2002 2007 2011

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Domestic Foreign

2000 2006

Domestic value added in exports (%)

China

Mexico

Source: Koopman et al. (2008), De La Cruz et al. (2011), Chinese academy of Sciences (2012)

A trend of backshoring on the horizon?

14

Average hourly wages in emerging/developing economies

Source: Deloitte analysis, Economist Intelligence Unit Data; published in World Economic Forum (2012)

… and large and growing markets

15

Economic centre of gravity, 2000-2050 (GDP at current prices)

Source: Kharas (2010)

Developed economies in manufacturing

16

GVC income (= value added) in global

manufacturing

Source: Timmer et al. (2012)

Upgrading in the manufacturing value chain

17

• Being stuck in the middle? Value created upstream and downstream – what does ‘moving up the value chain’ means?

• Emerging economies: making sure that value ‘sticks’

• Developed economies: retaining value creation

• Importance of knowledge based assets

Source: Presentation G. Gereffi , GVC workshop ‘GVCs and emerging countries’ workshop , Paris (2010)

Services content of manufacturing

18

0

10

20

30

40

50

60

70

China UnitedStates

Germany Japan UnitedKingdom

France Italy Canada Rest ofWorld

1995 2009

Gross flows%

0

10

20

30

40

50

60

70

China UnitedStates

Germany Japan UnitedKingdom

France Italy Canada Rest ofWorld

1995 2009

Value-added flows %

Number of jobs in global production

of manufactured goods

Services content of exports

Korean manufacturing in GVCs

19

Export competitiveness and GVCs, Korea, 2010


20

0

2

4

6

8

10

12

US UK Japan Korea

Computerized information

IP(Scientific R&D)

IP(Non-scientific R&D)

EC(Brand equity)

EC(Firm-specific resources)

Value added by industry, 2008

Investment in knowledge based assets,

early 2000s (in % of GDP)


• Continue to develop ‘own’ value chains or join foreign ones?

• Excellent geography: supply and demand

• From cost to quality/differentiation: importance of knowledge based assets

• Manufacturing ànd services; especially knowledge intensive business services important in GVCs

• De-industrialisation? (in terms of employment)

• Is there a role for government: industrial policy?

21

OECD work on Trade in Value Added

22

Final consumption

3

7

5

62

Final assembly

1

4

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1

23

4

5

67

Value added in the country of final production

Value added by first tier suppliers

Value added by second tier suppliers

Trade in inputs (first

tier suppliers)

Trade in inputs(second tier

suppliers)

Decomposition of gross exports

Forthcoming OECD publication – Meeting

of the Council at the Ministerial level 2013

• The rise of GVCs

• Emerging economies within GVCs

• GVCs and Trade in Value Added

• GVCs and trade policy

• National competitiveness and GVCs

• Knowledge based assets as new source of growth within GVCs

• GVCs and global systemic risk

23

The main messages

• A new episode of economic globalisation: Global Value Chains

• Shift of manufacturing eastwards; growing importance of emerging economies; the rise of Factory China…

• …but ‘what you do matters more than what you sell’!

• Lower (labour) costs ànd large/growing markets

• Developed economies still important in global manufacturing…

• … but growing focus on knowledge based assets and services

• A trend to backshoring on the horizon?

• OECD work on Global Value Chains and Trade in Value Added

24

For more information: [email protected]

global value chains and manufacturing

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