Global Value Chians

GLOBAL VALUE CHAINS

There have been two fundamental changes in the global trade that have occurred over the past two decades that have influenced how trade is conducted today. The first of them is the integrated nature of world markets which are a direct result of the following regional integration agreements, trade liberalization, transaction cost, and communication technologies. The second is the disintegration of production processes, in particular, the increasing presence of intermediate goods in global world trade which entails the fragmentation of the Fordist vertical integration model of production so therefore allows global production networks as stated by Hernandez, Martinez-Piva, Muldar (2014). The strategy is how a company align its capabilities with the opportunities available in the market to achieve its end (Horngren et al 2006: 4). My essay will discuss what value chains are, their impact and importance in the global market, how a third world countries and bottom line companies can enter these global value chain and what opportunities arise as a result of their inclusion into global value chains. We are living in a global market so in order to remain in business one should know their stance either directly or indirectly in their markets global value chain and work towards upgrading themselves in their global value chains.

Value chain analysis examines the labor inputs, technologies, standards, regulations, products, processes, and markets in specific industries and locations in order to provide a holistic view of these global industries (Gereffi and Fernandez-Stark, 2011). A value chain can be defined as a full range of activities that a firm or a group of workers do to bring a product from its conception to its end use and beyond Gerreffi, Fernandez Start (2011). It involves a number of activities starting from the initial design of the product, its production process, marketing, distribution and customer services. In this day and age, the above-listed activities are being outsourced by firm or companies who are closer to the resource required which explains why value chain are regarded as global. For example, Konkola Copper Mine in Zambia is mining copper ore and exporting it to Shanghai Metals in China a company that further processes the copper ore into a product such as copper wire, copper tubs, etc.

Global value chains account for a large portion of international trade, global Gross Domestic Product and unemployment. All prominent sectors in an economy are directly or indirectly involved in these global value chains ranging from agriculture and electronics sectors to business and tourism sectors. In order for a company or country to be lucrative in the global market, they need to participate in these global value chains. By providing access to developed –country markets, participation in global value chains enables emerging economies to add value to their local industries Stark, Bamber, Gereffi (2014). First world countries are home to key value chain companies and are the ones leading globalization.  So therefore if a Third World Country or small medium enterprise company wants to be competitive and successful on a global level they will have to access developed markets and link into a global value chain within an industry were their service or product would be able to add value to the global market. Entering these markets however, won’t guarantee the success of a country or company. They would have to be able to sustain and upgrade their competitiveness over time and have a government that would be willing to incorporate this objective in their economic development agendas, infrastructure development, technological investments and also skill labor development all requirement to assist them in linking to the Global Value Chains.

There are a number of opportunities and benefits that a company or country would gain once they enter into these global value chains. The first would be that they would be exposed to the international market that would directly boost their revenue as well as foreign currency inflow, in a third world country could lead to a better buying power than their local currency. There would an increase in skilled employment within the country or company as more companies would require more skilled employees to keep up with the global demand and trends of their product or service. Another benefit that would be gained would be the entry into high tech fields and even upgrading into high-value products and services. Companies would be directly or indirectly exposed to new technologies are companies in the value chain would demand that they are current with modern technologies that would optimize their operation. The medical device sector in Baja California has built up over the past 25 years. During this time, medical device manufacturers, primarily from The United States, have established operations in the region to take advantage of low-cost opportunities for labor-intensive processes in very close proximity to the Californian medical device clusters (Producen,2007) an example of the opportunities created due to the global value chain. Another benefit of the global value chain is that it can result in foreign investment. The literature on financing for small and medium-sized enterprises (SMEs) highlights linkages with large firms in value chains as a possible way of enhancing access to credit Aleman, Piettrobelli, Kamiya (2019),105. As it would directly benefit a company in the higher value chain to receive resources from a bottom side companies in the value chain, financing bottom line companies to expand in production, technology, research and development or anything else that would aid in ensuring that they upgrade their productivity to assist them to supply the required good and services financing would be arranged.