Global Value Chain Integration – ADB – ADBI Innovation and Structural Transformation Database

Global Value Chains: Introduction

Global Value ChainsThe production of a single commodity or service can be split into many small parts (this is referred to as fragmentation). When these small parts are performed by separate production locations and/or firms, the production process takes the form of a value chain, with many parties contributing value. When this chain is dispersed over various geographical locations, we speak of a global value chain (GVCs).
(GVCs) break up the production process into different stages of production undertaken across borders.
GVCs are often considered as an easier route to development. The argument is that economies can identify a niche within a particular GVC rather than having to master all the capabilities to contribute to all stages of the production process.
The extent to which GVCs can serve this development role depends upon firms’ positioning within different GVCs, as some activities within the chain capture less of the value-added of the chain than others.
The extent to which economies are integrated into regional vs. global value chains can also impact the development outcomes and responsiveness to shocks.

GVC positioning concerns which economies/sectors contribute to a value chain
(Backward linkages)Many different sectors in different economies contribute value to a single GVC. Backward linkages are the contributions that the value chain of a specific sector in a specific economy receives from other sectors (both domestic and foreign). Example: the German transport sector value chain uses inputs from the Chinese steel industry and the Dutch electronic chips industry.
and to which value chains an economy/sector contributes
(Forward linkages)Many different sectors in different economies contribute value to a single GVC. Forward linkages are the contributions of a specific sector in a specific economy to other value chains (both domestic and foreign). Example: the Australian mining sector contributes (through many indirect linkages) to output of the German transport sector and the Vietnamese construction industry value chains.
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The position within GVCs determines where an economy creates value added, and hence it has important development implications.

Value chains are often organised along regional rather than global lines (e.g., Factory Asia, Factory Europe).
Regional Value Chains have been found to be more resilient than Global Value Chains in the period after the 2008-09 Global Financial Crisis.
The COVID-19 pandemic highlighted the challenges of distant supply chains in times of crisis.