A global value chain (GVC) refers to the full range of activities that economic actors engage in to bring a product to market. It plays a critical role in the modern economy, bridging thousands of different markets, technologies, and ideas.Das, A., & Hussain, Z. (2017). Global value chains: Asymmetries, realities and risks. Centre for WTO Studies Working Paper No, 36. The global value chain does not only involve production processes, but preproduction (such as design) and postproduction processes (such as marketing and distribution).
GVC is similar to Industry Level Value Chain but encompasses operations at the global level. GVC is similar to the concept of a supply chain, but the latter focuses on conveyance of materials and products between locations, often including change of ownership of those materials and products.Wang, J., Comparing Valuge Chain and Supply Chain, Q Stock Inventory, accessed 19 November 2020 The existence of a global value chain (i.e. where different stages in the production and consumption of materials and products of value take place in different parts of the world) implies a global supply chain engaged in the movement of those materials and products on a global basis. By outsourcing to various economic actors, firms can efficiently and effectively design, manufacture, and distribute products globally. However, these benefits come at a cost, with distinct winners and losers within the GVC.
As states become increasingly vulnerable to economic interdependence, fewer are relying on global value chains and instead are pushing for protectionist policies. This has led to uncertainty over the future of global value chains and whether it will become less critical to the international political economy.
In development The first references to the concept of a global value chain date from the mid-1990s. Early references were enthusiastic about the upgrading prospects for developing countries that joined them. In his early work based on research on East Asian garment firms, Gary Gereffi, the pioneer in value chain analysis, describes a process of almost 'natural' learning and upgrading for the firms which participated in GVCs.Gereffi, G., (1994). The Organisation of Buyer-Driven Global Commodity Chains: How US Retailers Shape Overseas Production Networks. In G. Gereffi, and M. Korzeniewicz (Eds), Commodity Chains and Global Capitalism. Westport, CT: Praeger. This echoed the 'export-led' discourse of the World Bank in the 'East Asian Miracle' report based on the East Asian 'Tigers' success. In economics, GVC was first formalized in a paper by Hummels, Ishii and Yi in 2001. They defined GVC as the foreign component of imported intermediate inputs used to produce output, and some fraction of output is subsequently exported. Allowing for such a framework, Kei-Mu Yi showed in a 2003 paper that the growth of world trade can be explained with moderate changes in the trade costs and named this phenomenon "vertical specialization".
This encouraged the World Bank and other leading institutions to encourage developing firms to develop their indigenous capabilities through a process of upgrading technical capabilities to meet global standards with leading multinational enterprises (MNE) playing a key role in helping local firms through transfer of new technology, skills and knowledge.
Wider adoption of open source hardware technology used for digital fabrication such as 3D printers like the RepRap has the potential to partially reverse the trend towards global specialization of production systems into elements that may be geographically dispersed and closer to the end users (localization) and thus disrupt global value chains.
Analytical framework Global value chains are a network of production and trade across countries. The study of global value chains requires inevitably a trade theory that can treat input trade. However, mainstream trade theories (Heckscher-Ohlin-Samuelson model and New trade theory and New new trade theory) are only concerned with final goods. It needs a New new new trade theory. Escaith and Miroudot estimates that the Ricardian trade model in its extended form has "the advantage" of being better suited to the analysis of global value chains. Shiozawa argued that global value chains can be treated by the new theory of international values, because it is a general theory of input trade with many-country, many-product economy.Y. Shiozawa 2017 The New Theory of International Values: An Overview. In Shiozawa, Oka and Tabuchi (Eds.) A New Construction of Ricardian Theory of International Values, Springer Science, Singapore. Chap. 1, pp.3-75.Shiozawa, Y. and T. Fujimoto (2018) The nature of international competition among firms. In T. Fujimoto and F. Ikuine (eds.) Industrial Competitiveness and Design Evolution, Tokyo, Springer Japan. He contends that global value chains are a new transforming general purpose technology.Shiozawa, Y. (2020) A new framework for analyzing technological change. Journal of Evolutionary Economics 30: 989-1034
The lack of appropriate tool of analysis, the studies of GVCs were initially conducted mainly by sociologists like Gary Gereffi, and management science researchers.Sturgeon and Kawakami See for a genealogy Jennifer Bair (2009).Jennifer Bair (2009) Global Commodity Chains: Genealogy and Review. In J. Bair (Ed.) Frontiers of Commodity Chain Research. Stanford University Press, Stanford: California. This is changing, with more studies by means of global Input-Output Table starting by economists,H. Escaith and S. Inomata (2013) Global Value Chains in East Asia: The Role of Industrial Networks and Trade Policies. In D. Elms and P. Low (Eds.) Global Value Chains in a Changing World, WTO, Geneva.H. Escaith (2014) Mapping Global Value Chains and Measuring Trade in Tasks. B. Ferrarini and D. Hummels Asia and Global Production Networks: Implications for Trade, Incomes and Economic Vulnerability. Mandaluyong, Philippines and Cheltenham, UKK: Asian Development Bank and Edward Elgar Publishing. and economic geographers outlining the case for proactive sub-national public policy on the engagement of GVCs.
Development and upgrading GVCs become a major topic in development economics especially for middle-income countries, because the "upgrading" within GVCs became the crucial condition for the sustained growth of those countries.Keun Lee (2016) Economic Catch-Up and Technological Leapfrogging: The Path to Development and Macroeconomic Stability in Korea. Edward Elgar, Cheltenham: UK and Northermpsuon: Mass. Keun Lee (2019) The Art of Economic Catch-Up: Barrieres, Detours and Leapfrogging. Cambridge University Press.
GVC analysis views “upgrading” as a continuum starting with “process upgrading” (e.g. a producer adopts better technology to improve efficiency), then moves on to “product upgrading” where the quality or functionality of the product is upgraded by using higher quality material or a better quality management system (QMS), and then on to “functional upgrading” in which the firm begins to design its own product and develops marketing and branding capabilities and begins to supply to end markets/customers directly - often by targeting geographies or customers (which are not served by its existing multinational clients). Subsequently, the process of upgrading might also cover inter-sectoral upgrading.Humphrey, J., and H. Schmitz. 2004. "Chain Governance and Upgrading: Taking Stock". in Local Enterprises in the Global Economy, edited by H. Schmitz, 349–82. Cheltenham: Edward Elgar.
Functional upgrading to high-value-added activities like design and branding is for developing country suppliers a key opportunity to achieve higher profits in GVC. Likewise, a 2017 review of the empirical literature highlighted that suppliers operating in unstable economies, like Pakistan and Bangladesh, face high barriers to reach functional upgrading in high-value-added activities. In general, lower-income countries typically have fewer specialized and skilled labor and less capital to invest in the technology and infrastructure necessary for functional upgrading.
This upgrading process in GVCs has been challenged by other researchers – some of whom argue that insertion in global value chains does not always lead to upgrading due to the asymmetrical relationship between buyers and suppliers. Lead firms have structural power relative to supplier firms, meaning they can control the involvement of other firms with the supply chain. For example, firms can (and do) choose to maintain control over higher-valued activities, such as design, marketing, and branding, and have no interest in transferring these core skills to their suppliers. Thus, smaller firms in developing countries are forced to focus on lower-valued activities, like manufacturing, reducing their ability to upgrade and access global markets (except as a supplier).
Other authors point to the benefits of considering upgrading at a regional, or sub-national level. This focus enhances the possibility that less-developed regions capture the gains from GVC insertion.
Digital B2B platforms in global supply chains Digital B2B platforms are used as part of the infrastructure supporting the global supply chain by facilitating interactions between suppliers, manufacturers, and buyers across national boundaries. These platforms allow firms to find suppliers, share product details, and organize transactions without having to be physically present in international markets. They have been particularly relevant for small and medium-sized enterprises (SMEs), which tend to be hampered by limited capital, regulatory complexity, and the lack of access to global distribution channels.
Within the broader context of global supply chains, digital B2B platforms are generally used in addition to existing procurement, logistics, and distribution systems rather than as replacements for them. The conventional aspects of the supply chain, such as manufacturing plants, transport systems, and warehousing, are indispensable, but digital platforms primarily support coordination and the flow of information. These platforms can help reduce information asymmetry between supply chain participants in varying regions through standardized listings, communication tools, and data-sharing mechanisms.
The integration of digital B2B platforms into global supply chains has also been discussed in relation to supply chain visibility and operational coordination. Digital tools have been shown to facilitate decision-making, supplier comparison, and transaction efficiency across geographically distributed networks, as international trade and adoption of technology continue to expand. This reflects a broader trend whereby businesses aim at enhancing responsiveness and flexibility in the complicated global supply chain environments. Several global B2B platforms operate in this space. Alibaba is cited in third-party reporting as one example of an online marketplace used to connect manufacturers and buyers in international markets. In this role, such platforms function as intermediaries that facilitate information exchange and commercial coordination while remaining embedded within conventional structures of international trade. Their use highlights the growing role of digital infrastructure in supporting, rather than redefining, established global supply chain systems.
Current research on governance and its impact from a development perspective