Value chain Case Study Example | Topics and Well Written Essays - 2750 words

Value chain - Case Study Example 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.' Global value chains now contain activities that are tightly integrated and often managed on a day-to-day basis. The globalisation of value chains is motivated by a number of factors. Continuous growth of competition in domestic and international markets forces firms to become more efficient and lower costs. One way of achieving that goal is to source inputs from more efficient producers, either domestically or internationally, and either within or outside the boundaries of the firm. Emergence of new markets and access to strategic assets that can help tap into foreign knowledge is one of the important motivations of global value chain. Notwithstanding these anticipated benefits, engaging in global value chains also involves costs and risks for firms. Increasing liberalisation of trade and decreasing costs of transport and communication have made it possible for enterprises to split up production processes into more complex parts spread to an increasing degree across national borders. The result is often that each enterprise specialises in a core area of production while other activities are outsourced to suppliers. This leads to a fragmentation of the production process, which is counterbalanced by closer integration between the enterprise and its trading partners http://www.oecd.org/dataoecd/24/35/38558080.pdf (Feenstra, 1998). Trade in intermediates Global value chains allow intermediate and final production to be outsourced abroad, leading to increased trade through exports and imports, and to a rapidly growing volume of intermediate inputs being exchanged between different countries. In 2003, 54% of world manufactured imports were classified as intermediate goods which include primary goods, parts and components and semi-finished goods. Relocations of existing activities Relocation of activities overseas is also a factor of growth of international sourcing. Sometimes implying the total or partial closure of the production in the home country while at the same time creating or expanding affiliates abroad producing the same goods and services as in the host country. More often, it is about the substitution of domestic stages of production by activities performed in foreign locations, with goods and services being exported from the host country to the home country. The basic purpose of relocation of activities is to gain higher product quality, efficient assets utilization with lower cost. Outsourcing and off shoring Global value chain made possible fragmentation of the production process across various countries, which have given rise to considerable restructuring in firms including the outsourcing and off shoring of certain functions. Outsourcing typically involves the purchase of intermediate goods and services from outside specialist providers, while off shoring refers to purchases by firms of intermediate goods and services from foreign providers, or to the transfer of particular tasks within the firm to a foreign location (Figure 1). Off shoring thus includes both international outsourcing where activities are contracted out to independent third parties abroad and international in-sourcing to foreign affiliates. http://www.oecd.o