Transcript The value wedge: developing countries’ share of world

The value wedge: developing countries’ share
of world production and world GDP
40.00%
35.00%
30.00%
25.00%
GDP share
Production share
20.00%
15.00%
10.00%
5.00%
0.00%
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95 9 96
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98 9 99
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Where does value lie in the production chain?
The pro du ction value chain
R&D,
Design
P roduction
High valu e Low valu e
Distribut ion,
Logistics
Marketing,
Market research,
Brand
High er valu e
High valu e
Business strategies: developing
country firms
• Emergence of new niches
• ‘Upstream’: innovation
• ‘Downstream’: variety, distinctive
characteristics
• Partnerships between SMEs
MNC strategies: Choice of routes to
globalised production
Pr oducer-Dr iven vers us Buyer-Driven Prod ucti on Fra gm ent ation
Drivers
Core competencies
Barriers to entry
Economic sect ors
T ypical industries
Produ cer-dri ven
Industrial capital
R&D, production
Economies of scale
Consumer
dur ables,
int ermediate goods, capital
goods
Aut omobiles,
comput ers,
aircraft, semiconduct ors
of MNCs
Ownership
manufact uring firms
Main network lines
Invest ment-based
P redominant structure
Vertical
Sour ce: Rajan, 2005 (based on Ge reffi, 2001)
Consum er-drive n
Commercial capital
Design, marketing
Economies of scale
Consumer non-dura bles
Apparel, footwear, toys
Local firms, predominant ly
in developing countries
Trade-based
Horizontal
Ways to add value: typical
progression
Stage
1
2
3
4
5
Downstream
Passive importer
Ch eap labour assembly
Dependent
on
buyers
for
distribution
Active sales of cap acity
Q uality and cost-based
Foreign-buyer dep endent
Advanced p roduction sales
Mar keting
dep artment
estab lished
O verseas mar keting star ted
O wn designs mar keted
Produ ct mar keting
Sell direct to retailers and
distributors overseas
Build up p roduct range
Start own-brand sales
O wn-bra nd
Mar ket directly to customers
Independent
distribution
channels; direct advertising
In-house ma rket re search
Up stream
Assembly skills,
cap abilities
Mature p ro ducts
basic
product
Incremental p rocess changes for
quality and speed
Reverse engineering of p rod ucts
Full p rodu ction skills
Process innovation
Produ ct design capability
R&D for p rod ucts and p rocess
begu n
Produ ct inn ovation cap abilities
Comp etitive R&D capab ilities
R&D linked to ma rket needs
Advanced
p roduct/ p rocess
innovation
Is China gaining value upstream through
R&D?
Figure 3: China gaining value added share?
40.00%
35.00%
30.00%
China export share
US export share
China VA share
US VA share
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
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Sour ce: WDI
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Garments case study
THE CLOTHING VALUE C HAIN
R&D
Design
In bou nd
Logistics
Man ufacturi ng
O utbou n d
Logi stics
Packaging
Wareh ousing
Delivery
Marketi ng
Retai l in g
Bran ding Department stores
Own-brand stores
Chain stores
Discount stores
The China syndrome…
•
•
•
•
•
Productive, relatively low cost workforce
High volume production - domestic market
Vertical integration
Full package service
Speed to market
YoungorÕsIntegrated Purchase-Production-Distribution- Retail
Information System
Business
Intelligence
Fabrics
Design
Apparel
Design
Supply Chain
Plan
In formation flow
Purchase Plan
Supplier
Fabrics Production
Publish new product
Broadcast themessage
Shop layout design
Order
Forecasting
Fabrics
Production
Mate rial flow
Order Entry
Production Plan
Distribution Plan
Apparel
Production
Fabrics
Warehouse
Apparel
Distribution
Apparel
Warehouse
Point Of S ale
(POS)
Apparel
Warehouse
Account Receivable
Account
Payable
C ash fl ow
General
ledger
Online Bank
Expenses
Income
Expenses
Other strategies for adding value
• Fabric innovation/design eg Star Knitwear,
Mauritius - access to Worth Global Style Network
(fashion intelligence website)
• Handcrafting eg major UK retailer sourcing from
homeworkers in India - digital cameras, email,
mobile phone texts
• Market niches eg Phenix Logistics, Uganda selling
organic cotton t-shirts in Europe - no ICT but 50%
price premium!
Star’s Kate Moss success
Policy framework: focus on
competitiveness
• What are the opportunities?
• What are the country’s capabilities?
• Existing ICT and other infrastructure
• Human skills
• Institutional strengths/weaknesses: government, business,
consumers
• What policies most effectively match capabilities
and opportunities?
• Taking account of interactions in the economy - non-obvious
policy choices!