Dr. Gary Gereffi, Director
Center on Globalization, Governance & Competitiveness
Duke University
www.cggc.duke.edu
American Antitrust Institute
Invitational Symposium on Systems Competition
National Press Club,
Club Washington,
Washington DC
June 17, 2009
`
What
Wh t is
i a system?
t ?
`
How are systems conceptualized?
`
How does competition occur within and
between systems?
`
What are the tradeoffs?
Based on an article by:
Gary Gereffi (Duke University), John Humphrey (Institute of Development Studies,
Sussex), and Timothy Sturgeon (MIT), “The governance of global value chains,”
Review of International Political Economy, 12(1) 2005: 78-104.
A summary of the GVC approach with related literature can be found at the
Global Value Chains Initiative website:
www.globalvaluechains.org
1.
1 Complexity of information required for a
transaction
2. Extent to which this information can be
codified
3. Supplier capabilities in relation to a
transaction’s requirements
q
Complexity of
transactions
Ability to codify
transactions
Capabilities in
the supply-base
supply base
M k
Market
L
Low
Hi h
High
Hi h
High
Modular
High
High
High
Relational
High
Low
High
Captive
High
High
Low
Hierarchy
High
Low
Low
Governance
Type
Network
org.
forms
Degree of
explicit
coordination and
power
asymmetry
Low
High
Five GVC Governance Types
Chain
Value
End Use
Market
Modular
Relational
Customers
Lead
Fi
Firm
Lead
Fi
Firm
Price
Full-package
Supplier
Relational
Turn-key
Supplier
Supplier
Suppliers
Component
and Material
Suppliers
Component
and Material
Suppliers
Materials
Low
Captive
Lead
Firm
Hierarchy
Integrated
teg ated
Firm
Captive
Suppliers
D
Degree
off Explicit
E li it C
Coordination
di ti
High
Degree of Power Asymmetry
Governance
Type
Complexity of
transactions
Market
Modular
c
Ability to codify
transactions
Capabilities in the
supply-base
Low
High
High
High d
High
High
e
Low
g
Relational
High
High
Captive
High
High
Low
Hierarchy
High
Low
Low
h
c increasing complexity of transactions (harder to codify transactions; effective decrease in supplier
competence)
d decreasing complexity of transactions (easier to codify transactions; effective increase in supplier
competence)
e better codification of transactions (open or de facto standards, computerization)
f de-codification of transactions (technological change, new products, new processes)
g increasing supplier competence (decreased complexity, better codification, learning)
h decreasing supplier competence.(increased complexity, new technologies, new entrants)
`
Codification vs innovation
`
Increasing supplier competence vs new suppliers
and new requirements
`
Stable value chain roles (process upgrading) vs.
competitive bundling and re-bundling (functional
upgrading)
9
Figure 1: Shifts in the Regional Structure of
US Apparel Imports from 1996 to 20081
The rings indicate the share of
total U.S. imports in U.S.
dollars by partner country:
North/South
America
South
Korea
Canada
5
Peru
4
Northeast
Asia
3
Mexico
Macau
Central
America and
the Caribbean
El
Salvador
1The
Honduras
1
Nicaragua
China
Malaysia
Philippines
Indonesia
Vietnam
Italy
Thailand
Cambodia
Bangladesh
India
J d
Jordan
Southeast
Asia
Pakistan
Sri Lanka
Coming on Strong
Egypt
South
Asia
Total value of U.S. clothing
imports was $41.5 billion in
1996 and $78.8billion in 2008.
Costa
Rica
Guatemala
2
Hong
Kong
Taiwan
Jamaica
Dominican
Republic
1. 10% +
2 6
2.
6.0%
0% - 9.9%
9 9%
3. 4.0% - 5.9%
4. 2.0% - 3.9%
5. 1.0% - 1.9%
Turkey
Europe
and the
Middle
East
2008 position
corresponds to the ring
where the country’s name
is located; the 1996
position, if different, is
indicated by a small circle.
The arrows represent the
magnitude and direction
of change over time.
N.B.: From 1996 to 2008,
China’s import share of
the United States apparel
market grew from 15.2%
15 2%
to 34.5%.
Source: Compiled from
official statistics of the
U.S. Department of
Commerce, U.S. imports
for consumption, customs
value.
SITC code: 84
http://dataweb.usitc.gov
Figure 2: Shifts in the Regional Structure of European1
Apparel Imports from 1996 to 20072
The rings indicate the share of
total European imports in U.S.
dollars by partner country:
1. 10% +
2. 6.0% - 9.9%
3. 4.0% - 5.9%
4. 2.0% - 3.9%
5. 1.0% - 1.9%
USA
Other Europe &
North America
5
Northeast Asia
Eastern Europe
4
Total value of extra-regional
European clothing imports was
$45.5 billion in 1996 and
$103.3 billion in 2007.
Poland
Hungary
3
Hong
Kong
2
Turkey
Romania
1
China
Southeast
Asia
Indonesia
Bulgaria
Malaysia
Bangladesh
Thailand
India
Sri Lanka
Vietnam
Pakistan
Tunisia
South Asia
Africa
Morocco
1This
chart excludes intraEuropean trade among the 15
member states of the EU
(Austria, Belgium, Denmark,
Finland,, France,, Germany,
y,
Greece, Ireland, Italy,
Luxembourg, Netherlands,
Portugal, Spain, Sweden and
the United Kingdom). Total
apparel imports are for the EU
countries.
2The 2007 position
corresponds to the ring where
the country’s name is located;
the 1996 position, if different,
is indicated by a small circle.
The arrows represent the
magnitude and direction of
change over time
time.
Source: UNComtrade,SITC
84, Rev 3, imports to EU15
Mexico vs. China
ƒ
ƒ
ƒ
ƒ
Head-to-head competition in U.S. market
China
exporter
Chi is
i world’s
ld’ leading
l di
t off many
manufactures, esp. consumer goods
China and Mexico are typically among the top
three exporters to the U.S. market in many
product categories
China is moving ahead of Mexico with
dominant market shares in the United States,,
especially in 2000-2008 period
12
Composition of Mexico’s Exports to the World Market, 1986-2007
60
Primary Products
Resource Based Manufactures
Low Tech Manufactures
50
Medium Tech Manufactures
High
g Tech Manufactures
% Export Market
40
30
20
10
0
Total
1986
1988
1990
1992
1994
1996
Exports
US $B 19 21 20 23 26 27 46 52 61 80 96
1998
2000
2002
2004
2006
110 117 136 166 158 161 165 188 214 250
Source: UN Comtrade.
13
Composition of China’s Exports to the World Market, 1987-2006
60
Primary Products
Resource Based Manufactures
Low Tech Manufactures
50
Medium Tech Manufactures
High Tech Manufactures
% Export M
Market
40
30
20
10
0
Total
p
Exports
US $B
1987
39
1989
48
53
1991
62
72
1993
85
92
1995
1997
1999
2001
2003
2005
121 149 151 183 184 195 249 266 326 438 593 762 969
Source: UN Comtrade
14
Low Tech: Apparel
High Tech: Computers
Why is China Gaining U.S.
M
k t Sh
i ?
Market
Share over M
Mexico?
ƒ
ƒ
ƒ
ƒ
ƒ
China is a lower
lower-cost
cost producer overall (labor
costs lower, but not transport & tariffs)
China has huge scale and scope economies
(
(supply-chain
l
h i cities)
iti )
China has a coherent and multidimensional
upgrading strategy – diversify and add high
value activities
China is using direct foreign investment to
promote “fast
fast learning
learning” in new industries
China uses access to its domestic market to
attract TNCs and promote knowledge spillovers
16
`
`
Moving from low-technology to hightechnology
manufactured
t h l
f t
d goods
d
Moving from manufacturing to high value
services
◦ R&D, design, marketing of national brands (autos,
appliances telecom)
appliances,
telecom), logistics,
logistics finance
`
Moving from inward FDI (joint ventures &
technology transfer) to outward FDI (primary
commodities, computers, shipping)
BUT BEWARE …
-High tech exports don’t necessarily mean
high value added production
CASE: China and the iPod
-Export dependence has economic growth
and employment risks
451 parts that go into the iPod
The retail
value of the
30-gigabyte
video iPod
that the
authors
examined
was $299 in
June, 2007
Hard Drive by Toshiba Æ Japanese company, most of its hard drives made in
the Philippines and China; it costs about $73 - $54 in parts and labor -- so the
value that Toshiba added to the hard drive was $19 plus its own direct labor costs
Video/multimedia processor chip by BroadcomÆ American company
with manufactures facilities in Taiwan. This component costs $8.
Controller chip by Portal PlayerÆ American company with
manufactures
f t
.This
Thi componentt costs
t $5 .
-Final assemblyÆ done in China, costs only about $4 a unit
The unaccounted-for parts and labor costs involved in making
the iPod came to about $110
The largest share of the value added in the iPod goes to
enterprises
t
i
in
i the
th United
U it d StatesÆ
St t Æ $163 off the
th iP
iPod’s
d’ $299 retail
t il
value in the United States was captured by American companies
and workers, breaking it down to $75 for distribution and retail costs,
$80 to Apple, and $8 to various domestic component makers.
The bulk of the iPod’s value is in the conception and design of the iPod. That is why Apple gets $80
for each of these video iPods it sells, which is by far the largest piece of value added in the entire
supply chain. Apple figured out how to combine 451 mostly generic parts into a valuable product.
Source: Varian, Hal R. The New York Times, June 28, 2007. An iPod Has Global Value. Ask the (Many) Countries That Make It.
x A new global governance structure is emerging
x More multilateralism, with greater US leadership
x Growing role for large emerging economies (G20 instead of G8)
x National development models are shifting
x Export
Export-oriented
oriented industrialization in decline
x Domestic markets will become more important
x Industrial policy will re-emerge in varied forms
x Global
Gl b l value
l chains
h i are becoming
b
i more consolidated
lid t d
x Fewer, larger, and more qualified suppliers
x Regionalism
R i
li
iis on th
the rise
i
x Consolidation among leading global suppliers
x Regional sourcing networks will become more important
x Upgrading in all industries requires higher skills
Gary Gereffi, Director, CGGC
Duke University
Center on Globalization, Governance & Competitiveness
[email protected]