Poking fun at acronyms aside, there is indeed much interest in the political, economic, social, technological, and even ecological antecedents and consequences of global supply chains involved in the design, manufacturing, transportation, marketing, consumption, and disposal processes of contemporary commerce. It's rather complex and messes up traditional notions of "country of origin." To guide our way, I came across a helpful site mentioned elsewhere, appropriately entitled "global value chains." Here are some excerpts, but do visit the website if you're further interested:
What is a value chain?
The value chain describes the full range of activities that firms and workers do to bring a product from its conception to its end use and beyond. This includes activities such as design, production, marketing, distribution and support to the final consumer. The activities that comprise a value chain can be contained within a single firm or divided among different firms. Value chain activities can produce goods or services, and can be contained within a single geographical location or spread over wider areas. The GVC Initiative is particularly interested in understanding value chains that are divided among multiple firms and spread across wide swaths of geographic space, hence the term "global value chain."
Why are we interested in global value chains?
Studies from a range of disciplines show that global value chains have become much more prevalent and elaborate in the past 10 to 15 years. While many firms have had international operations and trading relationships for decades and a few for more than a century, global value chains now contain activities that are tightly integrated and often managed on a day-to-day basis. This means that firms and workers in widely separated locations affect one another more than they have in the past. Some of these effects are quite straightforward, as when a firm from one country establishes a new factory or engineering center in another country, and some are more complex, as when a firm in one country contracts with a firm in another country to coordinate production in plants owned by yet another firm in a third country, and so on.
Tracing the shifting patterns of global production, understanding how GVCs work or are “governed,” and determining the roles they play in rich and poor countries alike, is what the study of global value chains is all about. GVC research consists of learning the details of jobs, technologies, standards, regulations, products, processes, and markets in specific industries and places. GVC research is challenging, fun, interesting, relevant, and important!
Are all global value chains the same?
No. Research has also shown that GVCs exhibit a variety of characteristics and impact communities in a variety of ways. In a paper that emerged from the deliberations of the GVC Initiative (Gary Gereffi, John Humphrey, and Timothy Sturgeon, “The governance of global value chains,” Review of International Political Economy, vol. 12, no. 1, 2005), five different GVC governance patterns were identified:
1. Markets. Markets are the simplest form of GVC governance. GVCs governed by markets contain firms and individuals that buy and sell products to one another with little interaction beyond exchanging goods and services for money. The central governance mechanism is price. The linkages between value chain activities are not very "thick" because the information that needs to be exchanged and knowledge that needs to be shared is relatively straightforward.
2. Modular value chains. This is the most market-like of three network-style GVC governance patterns. Typically, suppliers in modular value chains make products or provide services to a customer's specifications. Suppliers in modular value chains tend to take full responsibility for process technology and often use generic machinery that spreads investments across a wide customer base. This keeps switching costs low and limits transaction-specific investments, even though buyer-supplier interactions can be very complex. Linkages are necessarily thicker than in simple markets because of the high volume of information flowing across the inter-firm link, but at the same time codification schemes and the internalization of coherent realms of knowledge in value chain "modules," such as design or production, can keep interactions between value chain partners from becoming highly dense and idiosyncratic.
3. Relational value chains. In this network-style GVC governance pattern we see mutual dependence regulated through reputation, social and spatial proximity, family and ethnic ties, and the like. The most obvious examples of such networks are in specific communities, or “industrial districts,” but trust and reputational effects can operate in spatially dispersed networks as well. Since trust and mutual dependence in relational GVCs take a long time to build up, and since the effects of spatial and social proximity are, by definition, limited to a relatively small set of co-located firms, the costs of switching to new partners tends to be high. Dense interactions and knowledge sharing are supported by the deep understanding value chain partners have of one another, but unlike the codification schemes that enable modular networks, these "short-cuts" tend to be idiosyncratic and thus difficult and time-consuming to re-establish with new value chain partners.
4. Captive value chains. In this network-style GVC governance pattern, small suppliers tend to be dependent on larger, dominant buyers. Depending on a dominant lead firm raises switching costs for suppliers, which are "captive." Such networks are frequently characterized by a high degree of monitoring and control by the lead firm. The asymmetric power relationships in captive networks force suppliers to link to their customer in ways that are specified by, and often specific to a particular customer, leading to thick, idiosyncratic linkages and high switching costs all round.
5. Hierarchy. This governance pattern is characterized by vertical integration (i.e."transactions" take place inside a single firm). The dominant form of governance is managerial control.