What is global value chain and the slicing up of global value chain?

The goods and services we buy in our country are composed of inputs produced in various countries around the world. Especially in the manufacturing sector, no product is completely produced in one country or domestically. Low cost of production advantage, specialization, technological superiority, existence of production capacities etc., encourages components to be produced in different countries.

A value chain refers to the “full range of activities that firms and workers do to bring a product from its conception to its end use and beyond” (Gereffi and Fernandez-Stark, 2011). When the value chain is sliced up across different firms in different countries, it means that these activities are divided among different firms. The fact that they are increasingly spread over several countries explains why the value chain is “global”.

The situation where design, production, marketing, distribution and support to the final consumer of a product are made by firms in different countries is called global supply chain. It refers to the network of different production locations across the world that produces various components of a product.  Here, a certain part of each product will be produced in other countries.

Significance of global supply chain is that now majority of international trade are in components. According to the WTO, more than half of world manufactured imports are intermediate goods (primary goods, parts and components, and semi-finished products), and more than 70 percent of world services imports are intermediate services

An important example is the automobile industry where autocomponents are sourced from different countries.

What is slicing up of global value chain?

A closely related concept is slicing up of global value chain. It refers to the allocation of components production among different countries.  

Here, low cost or specialized production advantages tempts a finished product producing firm to source a particular component from a specific country.  Thus he effectively slices up the value chain of his product among different countries hen he is sourcing the components.

Why slicing up of global value chain is important from a country’s perspective?

The trend of companies sourcing components from different countries need macroeconomic care from developing countries like India. We have to encourage superior component manufacturing practices. Similarly, policies to be tailored to ensure that the country should get a good slice of this global value chain. Encouragement to local component manufacturers will help them to acquire skill, technology and scale to supply the components competitively in the global market.