Explore Global Supply Chains

Themes

Economic development and upgrading

Economic development and upgrading

A large share of international trade is organized in global value chains, and the allocation across countries is an important factor for their income, growth, and jobs. Firms organise production across borders, taking advantage of production cost differentials. While many firms, states and other societal actors benefit from this international division of labour, the gains are spread unevenly. Specialised production stages, such as design and marketing, typically command high value added whereas profit margins are squeezed in less knowledge-intensive stages. Firms and states therefore need to strive for technological learning to enhance their profitability and wealth creation, respectively. We explore the implications of global value chains for economic development and pathways towards economic upgrading.

Social and working conditions

Social and working conditions

Social conditions in global supply chains are highly uneven, particularly in South-North chains. Especially in firms competing on the basis of cheap labour and in countries characterised by weak institutions, low pay and miserable working conditions are commonplace. Child labour is still widespread. Problems prevail in particular in agriculture, mining and light industries. Many workers still lack freedom of association and the right to collective bargaining, smallholder farmers suffer from weak bargaining power and are threatened by land grabbing, and gender-based and other forms of discrimination are frequent. But integration in global supply chains also creates employment and can trigger improvements in incomes and working conditions. We investigate social conditions in global supply chains and how compliance with international human rights and labour standards can be ensured.

Environment and climate change

Environment and climate change

The way global supply chains are organised affects nature and climate in many ways. Integration in global supply chains helps to disseminate environmental standards globally and can allocate production towards locations where environmental conditions are best and ecological footprints are low. Yet, globalised production may also accelerate the diffusion of unsustainable patterns of production and consumption, increasing greenhouse gas emissions and resource depletion. Some firms may apply less rigorous standards in, or even relocate production to, places where environmental enforcement is weak. Global supply chains are one of the main entry points in pursuit of greener, in particular low carbon, economies. The research network provides evidence and lessons learned in this regard.

Sustainability standards

Sustainability standards

Standards are a prominent tool to foster sustainability in global supply chains. Standards can serve as a signal to consumers and other stakeholders, thereby incentivising implementation of better practices through price premia. Yet, market shares of sustainably produced products are still small, which may limit their impact on firms’ production decisions. Moreover, implementation of standards may also lead to unintended outcomes for suppliers in developing countries. Not all suppliers are able to comply with standards, which may exclude them from global supply chains, leading to loss of income. We investigate whether and how sustainability standards can foster sustainable production along the entire supply chain while minimizing negative consequences.

Corporate responsibility and lead firms

Corporate responsibility and lead firms

Lead firms play an important role in global supply chains, as they often place large orders and specify product and process requirements along the chain. New technologies and socially and environmentally responsible production may therefore easily diffuse from lead firms to other actors in the chain. Corporate responsibility by those firms can therefore be a strong lever. However, power asymmetries limit the qbargaining position of weaker actors in the chain, and they may therefore only bear the costs but not the benefits of such practices. It is also an open question to what extent those weaker actors could benefit from their own, independent actions towards corporate responsibility. We investigate how corporate responsibility by diverse actors in global supply chains can be leveraged to achieve sustainable production.

Sectors

Agriculture and food

Agriculture and food

Agriculture and food supply chains are often special in several regards: They are deeply interwoven with politically and socially sensitive issues such as food security, poverty and rural development. On the environmental side, agriculture has particularly strong linkages to water, biodiversity, climate change and soils. In developing countries, most producers of agricultural outputs are smallholders who are very weak partners in the value chains, usually uncovered by labour and business regulations and with very weak individual bargaining power. Farmer organisations can play an important role to remedy this, and often special regulation and state support are provided for farmers. This is why a wide range of Multistakeholder Initiatives have been formed to develop integrated solutions.

Mining

Mining

From the copper in our smartphones to the platinum in our cars – most devices we use in our daily lives contain metallic raw materials. With the transition towards an increasingly digitalized economy, electric mobility, and green energy, the demand for metals is expected to grow significantly over the next decades. In short, metals are essential for a zero carbon future. However, the extraction and processing of raw materials can generate severe social, environmental, and economic impacts, often reinforced by poor governance and weak institutional and legal frameworks. Making the mining sector more sustainable is therefore crucial for a genuine green energy transition. On the one hand, this involves the mitigation of environmental impacts and reducing the carbon footprint and water use of mines and processors. On the other hand, compliance with ambitious standards along the mining value chain and the support of multi-stakeholder dialogues may leverage more sustainable mining practices.

Textile and garments

Textile and garments

Textile and garments production sites often attract negative attention when reports about missing worker rights, water contamination, or even collapses of factories become known. Usually, these production sites are located in developing countries, where wages are relatively low, and the products produced serve as inputs for multinational companies (MNCs) from industrialized countries. On the one hand, outsourcing of textile and garments production to low wage countries generates jobs and income opportunities for people in the respective countries. On the other hand, unsustainable production practices or even exploitation of workers prevent these production locations from fully exploiting the benefits of integration in global value chains. It is crucial to understand how and to what extent MNCs can shape sustainability along their value chains.

Manufacturing industries

Manufacturing industries

The importance of the manufacturing industry is well-known, with some studies arguing that it is a key engine of growth. Hence, the need for countries to develop their local manufacturing base. The rise of global value chains (GVCs) has been underscored as an easier path to achieve this goal. While this holds a lot of promise especially for developing countries, the challenge that remains to be tackled is how to make these GVCs more sustainable. Empirical research has exhibited power imbalance between global lead firms and local firms, poor working conditions (sweatshops), eroding decent employment, natural resource exploitation and environmental degradation, and lack of product and functional upgrading that increase value capture by input suppliers as potential threats to the sustainability of GVCs of manufacturing industries. Studies in this arm of the Research Network are aimed at addressing these challenges through rigorous quantitative and qualitative research methods.

Trade and Services

Trade and Services

Trade and services activities play an increasingly important role in value chains, and in economies as a whole. Services trade is gaining in importance through direct cross-border transactions but also because services are often embodied in other traded goods. Business services, and trade and retail activities are often critical inputs in value chains, and access to such activities through foreign or domestic sources can thus be an important driver of competitiveness. Furthermore, firms performing such activities often have an important role regarding social and environmental sustainability within the value chain, because those firms typically possess relatively large market power and generate a relatively large share of value. Understanding the role and nature of these activities in global value chains is an important pillar to addressing sustainability.

Regions and countries

Subsahara Africa

Eastern/Non-EU Europe and Central Asia

East Asia

EU / Western Europe

Latin America

Industrialised non-European countries

South Asia

The Middle East and North Africa

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About the network

Ahmad, N, Primi A. · 2017
World Bank

From domestic to regional to global: Factory Africa and factory Latin America?

This chapter provides a brief overview of upgrading and GVC terminologies, providing insights on interpretability pitfalls. It offers evidence of the complementarities between strong domestic supply chains and imports and then demonstrates the importance of strong regional value chains for integration at a global level. And to illustrate the complementarities, it ends with examples of broad and targeted policies that countries are implementing for the motor vehicle value chain.

#Scientific paper #Economic development and upgrading #Social and working conditions

Contributors from our Network

Annalisa Primi

Annalisa Primi
OECD

Dr. Annalisa Primi is Senior Economist and Head of Structural Polices and Innovation Unit at the OECD Development Centre (Paris, France) in charge of analysis and policy advice on innovation, structural change and industrial development. She is the Head of the OECD Policy Dialogue Initiative on GVCs, Production Transformation and Development. She has been the lead-economist for the OECD (2013), Perspectives on Global Development 2013: Industrial policies in a Changing World. She joined the OECD in 2009, and previously to the Development Centre, she worked as economist for the Directorate of Science, Technology and Industry and for the Directorate for Public Governance and Territorial Development. From 2003 to 2009 she was Associated Expert Economic Officer at the United Nations Economic Commission for Latin America and the Caribbean (CEPAL), in Santiago, Chile.

Read more about Annalisa Primi ›

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