2.

Global value chain analysis: a primer (second

edition)*
Karina Fernandez-Stark and Gary Gereffi

2.1 IMPORTANCE OF GLOBAL VALUE CHAINS

The global economy is increasingly structured around global value chains (GVCs) that
All rights reserved. May not be reproduced in any form without permission from the publisher, except fair uses permitted under U.S. or applicable copyright law.

account for a rising share of international trade, global gross domestic product, and
employment. The evolution of GVCs in diverse sectors, such as resource-based commodi-
ties, apparel, electronics, tourism, and business service outsourcing, has significant implica-
tions in terms of global trade, production, and employment, and how developing-country
firms, producers, and workers integrate in the global economy. GVCs link firms, workers,
and consumers around the world and often provide a stepping-stone for firms and workers
in developing countries to participate in the global economy. For many countries, especially
low-income economies, the ability to effectively insert into GVCs is a vital condition for
development. This supposes an ability to access GVCs, to compete successfully, and to
‘capture the gains’ in terms of national economic development, capability building and
generating more and better jobs to reduce unemployment and poverty. Thus, it is not only
a matter of whether to participate in the global economy, but how to do so gainfully.
The GVC framework allows one to understand how global industries are organized by
examining the structure and dynamics of different actors involved in a given industry. In
today’s globalized economy with very complex industry interactions, the GVC methodol-
ogy is a useful tool to trace the shifting patterns of global production, link geographically
dispersed activities and actors within a single industry, and determine the roles they
play in developed and developing countries alike. The GVC framework focuses on the
sequences of value added within an industry, from conception to production and end use.
It examines the job descriptions, technologies, standards, regulations, products, processes,
and markets in specific industries and places, thus providing a holistic view of global
industries both from the top down and the bottom up.
The comprehensive nature of the framework allows policy makers to answer questions
regarding development issues that have not been addressed by previous paradigms.
Additionally, it provides a means to explain the changed global–local dynamics that have
emerged within the past 20 years (Gereffi and Korzeniewicz, 1994). As policy makers and
researchers alike have come to understand the pros and cons of the spread of globaliza-
tion, the GVC framework has gained importance in tackling new industry realities. These
include the role of emerging economies like China, India, and Brazil as new drivers of
global value chains, the importance of international product and process certifications as
Copyright 2019. Edward Elgar Publishing.

preconditions of competitive success for export-oriented economies, the rise of demand-

driven workforce development initiatives as integral to dynamic economic upgrading,
and the proliferation of private regulations and standards (Lee, 2010; Mayer and Gereffi,
2010). GVC studies also prove useful in the examination of social and environmental

54

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 Global value chain analysis: a primer  55

development concerns. Numerous institutions and governments have commissioned GVC

studies to understand global industries and to guide the formulation of new programs and
policies to promote economic development.
The chapter has three main sections. Section 2.2 presents the key concepts and tools
of GVC analysis, Section 2.3 discusses the six dimensions of GVC analysis, and Section
2.4 illustrates with examples recent applications of the GVC methodology. Section 2.5
concludes.

2.2 WHAT ARE GLOBAL VALUE CHAINS?

The value chain describes the full range of activities that firms and workers perform to
bring a product from its conception to end use and beyond. This includes activities such
as research and development (R&D), design, production, marketing, distribution, and
support to the final consumer. The activities that comprise a value chain can be contained
within a single firm or divided among different firms (Global Value Chains Initiative,
2017). In the context of globalization, value chain activities have generally been carried
out in interfirm networks on a global scale. By focusing on the sequences of tangible and
intangible value-adding activities from conception and production to end use, GVC analy-
sis provides a holistic view of global industries – both from the top down (for example,
examining how lead firms ‘govern’ their global-scale affiliate and supplier networks) and
from the bottom up (for example, asking how these business decisions affect the trajectory
of economic and social ‘upgrading’ or ‘downgrading’ in specific countries and regions).
There are six basic dimensions that GVC methodology explores, which are divided
into global (top-down) and local (bottom-up) elements (Figure 2.1). The first three
dimensions refer to international elements, determined by the dynamics of the industry
at a global level. They are: (1) an input–output structure, which describes the process of
transforming raw materials into final products; (2) the geographic scope, which explains
how the industry is globally dispersed and in what countries the different GVC activities
are carried out; and (3) a governance structure, which explains how firms control the value

1. Input–Output Structure of a GVC

2. Geographic Scope
GLOBAL

3. Governance Structure: Lead Firms

& Industry Organization

4. Upgrading

5. Local Institutional Context LOCAL

6. Industry Stakeholders

Source: Fernandez-Stark, Bamber and Gereffi (2013).

Figure 2.1 Six dimensions of GVC analysis

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 56  Handbook on global value chains

chain. The second set of three dimensions explains how individual countries participate in
GVCs. These local dimensions are: (4) upgrading, which describes the dynamic movement
within the value chain by examining how producers shift between different stages of the
chain (Gereffi, 1999; Humphrey and Schmitz, 2000); (5) an institutional context in which
the industry value chain is embedded in local economic and social elements (Gereffi,
1995); and (6) industry stakeholders, which describe how the different local actors of the
value chain interact to achieve industry upgrading.
The GVC approach analyzes the global economy from these two contrasting vantage
points: ‘top-down’ or global and ‘bottom-up’ or local. ‘Governance’ of global value chains,
a key concept of the top-down view, focuses mainly on lead firms and the organization
of international industries. Upgrading, the main concept for the bottom-up perspective,
focuses on the strategies used by countries, regions, and other economic stakeholders to
maintain or improve their positions in the global economy.
The next section discusses these six dimensions in more detail as analytical tools for
GVC analysis and research.

2.3 DIMENSIONS OF GVC ANALYSIS

2.3.1 Input–Output Structure

a. Identify the main activities/segments in a global value chain

A chain represents the entire input–output process that brings a product or service from
initial conception to the consumer’s hands. The main segments in the chain vary by
industry, but typically include: research and development, design, inputs, production,
distribution and marketing, and sales, and in some cases the recycling of products after
use. This input–output structure involves goods and services, as well as a range of sup-
porting industries. The input–output structure is typically represented as a set of value
chain boxes connected by arrows that show the flows of tangible and intangible goods
and services, which are critical to mapping the value added at different stages in the chain,
and to layering in information of particular interest to the researcher (e.g., jobs, wages,
gender, and the firms participating at diverse stages of the chain).
In order to understand the entire chain, it is crucial to study the evolution of the indus-
try, the trends that have shaped it, and its organization. Based on general knowledge about
the industry, segments of the chain can be identified and differentiated by the value they
add to the product or service. The researcher further develops this chain using secondary
data and interviews. The role of the researcher is to link these pieces of information
and create a united and self-explanatory chain that includes the principal activities of
the industry. The segments of the chain illustrate how different value-adding processes
contributed to the product or service.
Diagrams are extremely useful to illustrate the findings. For example, the fruit and
vegetables global value chain comprises the different segments shown in Figure 2.2.

b. Identify the dynamics and structure of companies under each segment of the value chain
Each of the segments identified in the previous step has specific characteristics and
dynamics, such as particular sourcing practices or preferred suppliers. For example, in

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 Global value chain analysis: a primer  57

Production for Packing & Cold Distribution &

Inputs Processing
Export Storage Marketing

Source: Fernandez-Stark, Bamber and Gereffi (2011c).

Figure 2.2 Fruit and vegetables global value chain segments

the fruit and vegetables value chain, the inputs for the ‘processing’ segment may come
from fruits intended for export that did not meet the quality controls or they may come
from production grown exclusively for processing. It is important to identify the type
of companies involved in the industry and their key characteristics: global or domestic;
state-owned or private; large, medium, or small; and so on. Identifying the firms that
participate in the chain will help to understand its governance structure (this dimension
will be explained in Section 2.3.3 below).
For example, under the ‘production’ and ‘distribution & marketing’ segments, the main
producers of fresh produce and the channels of distribution are listed in Figure 2.3.

Packing & Distribution &

Inputs Production Processing
Storage Marketing

Processing
Farms: Fruit & Companies
Seeds Vegetables for
processed food Dried Supermarkets
Fertilizers
Frozen
Agrochemicals Food services
(Herbicides, Residues Preserved
Fungicides & Farms: Fruit &
Pesticides) Vegetables for Importers &
fresh consumption Exporter Juices & Pulps
Wholesales
Companies
Farm Equipment
Small-scale
Medium Packing Plants retailers
Small
& Large
Irrigation Farms
Farms Cool Storage Units
Equipment

Large Producer Exporter Companies

Packing Plants
Farms
Cool Storage Units

R&D

Source: Fernandez-Stark et al. (2011c).

Figure 2.3 Fruit and vegetables global value chain

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 58  Handbook on global value chains

2.3.2 Geographic Scope

The globalization of industries has been facilitated by improvement in transportation

and telecommunications infrastructure and driven by demand for the most competitive
inputs in each segment of the value chain. Today, supply chains are globally dispersed
and different activities are usually carried out in different parts of the world. In the global
economy, countries participate in industries by leveraging their competitive advantages
in assets. Usually, developing countries offer low labor costs and raw materials, while rich
nations, with highly educated talent, are behind R&D and product design. As a result,
firms and workers in widely separated locations affect one another more than they have
in the past (Global Value Chains Initiative, 2017).
Geographical analysis is first based on the analysis of global supply and demand. This
is done by analyzing the trade flows at each stage of the value chain using international
trade statistics databases such as United Nations Comtrade and information compiled
using secondary sources of firm-level data, industry publications, and interviews with
industry experts.
One of the main contributions of GVC analysis has been to map the shifts in the geo-
graphic scope of global industries. However, GVCs operate at different geographic scales
(local, national, regional, and global) and they continue to evolve. New evidence suggests
there may be a trend toward a regionalization of GVCs in response to a variety of fac-
tors, including the growing importance of large emerging economies and regional trade
agreements (Gereffi, 2014). In the Asian apparel value chain, the expanding geographic
scope of the industry is closely tied to functional upgrading among main economies tied
to the industry (Figure 2.4).

2.3.3 Governance

Governance analysis allows one to understand how a chain is controlled and coordinated
when certain actors in the chain have more power than others. Gereffi (1994, p. 97) defined
governance as ‘authority and power relationships that determine how financial, material
and human resources are allocated, and flow within a chain.’ Initially in the global com-
modity chains framework, governance was described broadly in terms of ‘buyer-driven’
or ‘producer-driven’ chains (Gereffi, 1994). Analysis of buyer-driven chains highlights the
powerful role of large retailers, such as Walmart and Tesco, and branded merchandisers,
such as Nike and Reebok, and dictates the way their supply chains operate by requiring
suppliers to meet certain standards and protocols. In contrast, producer-driven chains
are more vertically integrated along all segments of the supply chain and leverage the
technological or scale advantages of integrated suppliers. Understanding governance
and how a value chain is controlled facilitates firm entry and development within global
industries. In practice, governance analysis requires identification of the lead firms in
the sector, their location, how they interact with their supply base, and their source of
influence and power over suppliers (e.g., standards compliance).
A more elaborate typology of five governance structures has been identified in the
GVC literature: markets, modular, relational, captive, and hierarchy (see Figure 2.5).
These structures are measured and determined by three variables: the complexity of the
information shared between actors in the chain; to what extent this information can be

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 Global value chain analysis: a primer  59

Countries Segments of Apparel Supply Chain

Garments Textiles Fibers Machinery
(spinning, weaving,
cutting, sewing)
Japan 1950s–early 1960s 1960s 1970s

Garments Textiles Fibers

Hong Kong
Level of Development

South Korea Late 1960s–early 1980s Late 1980s & 1990s

Taiwan
Garments Textiles
China
Indonesia
Thailand Late 1980s–early 1990s 1990s
India
Pakistan
Garments
Bangladesh
Cambodia Mid-1990s–early 2000s
Vietnam
Low Value-Added High

Note: Dotted arrows refer to the sequence of production and export capabilities within economies. Solid
arrows refer to the direction of trade flows between economies. Dates refer to a country’s entry years for
exports of specific products.

Source: Gereffi (2005a, p. 172).

Figure 2.4 Regional expansion and industrial upgrading in the Asian apparel value chain

codified; and the level of supplier competence to fulfill or meet production specifications
(Frederick and Gereffi, 2009; Gereffi, Humphrey and Sturgeon, 2005):

● Market: market governance involves transactions that are relatively simple.

Information on product specifications is easily transmitted, and suppliers can
make products with minimal or no input from buyers. These arm’s-length exchanges
require little or no formal cooperation between actors and the cost of switching
to new partners is low for both producers and buyers. The central governance
mechanism is price rather than a powerful lead firm.
●● Modular: modular governance occurs when complex transactions are relatively easy
to codify. Typically, suppliers in modular chains are highly capable, make products
to a customer’s specifications, and take full responsibility for process technology
using generic machinery that spreads investments across a wide customer base.
This keeps switching costs low and limits transaction-specific investments. Linkages
(or relationships) are more substantial than in simple markets because of the high
volume of information flowing across the interfirm link. Information technology
and standards for exchanging information are both key to the functioning of
modular governance.

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 60  Handbook on global value chains

Market Modular Relational Captive Hierarchy

End Use
Customers Lead Lead Integrated
Firm Firm Firm
Lead
Firm

Turnkey Relational
Chain
Value

Price
Suppliera Supplier

Component and Component and

Suppliers Material Material Captive
Materials Suppliers Suppliers Suppliers

Degree of Explicit Coordination

Low High
Degree of Power Asymmetry

Note: A turnkey supplier is a contract manufacturer that builds and distributes a product or service that is
fully complete and ready to operate or use to the specifications of a buyer.

Source: Gereffi et al. (2005, p. 89).

Figure 2.5 Five global value chain governance types

●● Relational: Relational governance occurs when buyers and sellers rely on complex
information that is not easily codified and transmitted or learned. This results in
frequent interactions and knowledge sharing between parties. Such linkages require
trust and generate mutual reliance, which are regulated through reputation, social,
and spatial proximity, family and ethnic ties, and the like. Despite mutual depend-
ence, lead firms still specify what is needed, and thus have the ability to exert some
level of control and power over suppliers, despite their high degree of competence.
Producers in relational chains are more likely to supply differentiated products
based on quality, geographic origin, or other unique characteristics. Relational
linkages take time to build, so the costs and difficulties required to switch to a new
partner tend to be high.
●● Captive: In these chains, small suppliers are dependent on one or a few buyers
that often wield a great deal of power. Such networks feature a high degree of
monitoring and control by the lead firm. The power asymmetry in captive networks
forces suppliers to link to their buyer under conditions set by, and often specific
to, that particular buyer, leading to thick ties and high switching costs for both
parties. Since the core competence of the lead firms tends to be in areas outside
of production, helping their suppliers upgrade their production capabilities does
not encroach on this core competency, but benefits the lead firm by increasing the

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 Global value chain analysis: a primer  61

efficiency of its supply chain. Ethical leadership is important to ensure suppliers

receive fair treatment and an equitable share of the market price.
● Hierarchy: Hierarchical governance describes chains characterized by vertical
integration and managerial control within lead firms that develop and manufacture
products in-house (it can be operationalized through subsidiary plants in foreign
countries). This can occur, for example, when product specifications cannot be
codified, products are complex, or highly competent suppliers cannot be found,
amongst other business conditions and reasons.

The form of governance in GVCs can change as an industry evolves and matures, and
governance patterns within an industry can vary from one stage or level of the chain
to another. In addition, recent research has shown that many GVCs are characterized
by multiple and interacting governance structures, and these affect opportunities and
challenges for economic and social upgrading (Dolan and Humphrey, 2004; Gereffi, Lee
and Christian, 2009).

2.3.4 Upgrading (and Downgrading)

Economic upgrading within GVCs is defined as firms, countries, or regions that move to
higher-value activities in order to increase the benefits (e.g., security, profits, value-added,
capabilities) from participating in global production (Gereffi, 2005a, p. 171; see Gereffi,
Chapter 14 this volume, for a discussion of economic upgrading and downgrading in
GVCs, and Rossi, Chapter 16 this volume, on social upgrading and downgrading).
Diverse mixes of government policies, institutions, corporate strategies, technologies,
and worker skills are associated with upgrading success. Within the GVC framework,
Humphrey and Schmitz (2002) identified four types of upgrading at the firm level:

● Process upgrading, which transforms inputs into outputs more efficiently by

reorganizing the production system or introducing superior technology (e.g.,
automation that increases productivity and reduces factory lead times).
●● Product upgrading, or moving into more sophisticated product lines (e.g., produc-
tion of higher value items, such as organic fruits and vegetables).
●● Functional upgrading, which entails acquiring new functions (or abandoning exist-
ing functions) to increase the overall skill and value-added content of the activities
(e.g., in the mining sector, processing the mineral in addition to extraction).
● Chain or intersectoral upgrading, where firms move into new but often related
industries (e.g., television set manufacturers start producing computer screens).

Furthermore, Fernandez-Stark, Bamber and Gereffi (2014) identified several additional

types of upgrading. These add to Humphrey and Schmitz (2002) by also considering
upgrading beyond the firms that already participate in GVCs:

● Entry in the value chain, where firms participate for the first time in national,
regional, or global value chains. This is the first and one of the most challenging
upgrading trajectories.
●● Backward linkages upgrading, where local firms (domestic or foreign) begin to

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 62  Handbook on global value chains

Chile

Kenya &
Morocco

Jordan &
Honduras

Production Packing & Distribution &

Inputs Processing
for Export Cold Storage Marketing

Source: Fernandez-Stark et al. (2011c).

Figure 2.6 Upgrading stages of selected countries in the fruit and vegetables value chain

supply tradable inputs and/or services to companies that previously used imported
inputs.
● End-market upgrading, where firms already in the chain move into more
­sophisticated product or geographic markets that require compliance with new,
more rigorous standards or call for production on a larger scale at accessible
prices.

Upgrading patterns differ by both industry and country based on the input–output
structure of the value chain and the institutional context of each country. Certain indus-
tries require linear upgrading and countries must gain expertise in one segment of the
value chain before upgrading into the next segment, as shown in Figure 2.6 for countries
involved in the horticulture value chain.
The apparel industry is a classic case used to illustrate different upgrading and
downgrading trajectories, since a large number of countries have been significant apparel
exporters from the 1970s until the present (Gereffi, 1999; Gereffi and Frederick, 2010).
Apparel suppliers in Torreón, Mexico initially entered the blue jeans industry at the
beginning of the 1990s1 in the assembly stage of the value chain, but they quickly devel-
oped expertise in providing trim and labels, and distinct washes and finishes. By 2000,
operations based in Torreón had also developed expertise in distribution by shipping their
product directly to the point of sale. Upgrading thus occurred at the firm level in Torreón,
in conjunction with the increasing demands of US buyers for full-package production.
Figure 2.7 illustrates the region’s upgrading trajectory into new higher value-added seg-
ments of the apparel value chain between 1993 and 2000.
In 1993, only four US manufacturers – Farah, Sun Apparel, Wrangler, and Levi Strauss
& Co. – had a significant presence in Torreón. By 2000, the number of export customers
grew to more than two dozen. In the early 1990s, the assembly plants on the Mexican side
of the border received cut parts from US manufacturers or brokers. These cut parts were
sewn into garments and then re-exported to the United States under the ‘maquila’ regime,
which allowed tariff-free inputs to be sent from the United States to Mexico as long as they
were included in Mexican production for re-export to the United States. Brand marketers

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 Global value chain analysis: a primer  63

Washes &
US Textiles Accessories Cutting Sewing Distribution Marketing Retail
Finishes

1993

TORREÓN,
1996
MEXICO

2000

Source: Bair and Gereffi (2001, p. 1894).

Figure 2.7 US–Torreón apparel value chain: activities and location

and retailers ‘pulled’ Mexican firms to increase their production volumes and the range
of activities performed.
However, the full-package model did not guarantee long-term success. Blue jean
exports from Torreón slumped with the decline in US export demand after 2000, and
apparel employment in Torreón, which rose from 12 000 jobs in 1993 to an estimated
75 000 jobs in 2000, declined to 40 000 in 2004. Maintaining a role in the US market
in the face of stiff competition from China and other international suppliers required
Torreón’s blue jeans cluster to continue to upgrade beyond manufacturing stages
(OEM)2 of the value chain through the development of local brands, regional market-
ing directly to US buyers, and the establishment of a local design center in the region
(Gereffi, 2005b).
The challenge of economic upgrading in GVCs is to identify the conditions under
which developing and developed countries and firms can ‘climb the value chain’ from
basic assembly activities using low-cost and unskilled labor to more advanced forms of
‘full-package’ supply and integrated manufacturing. However, increasingly, many of the
highest value activities are located in pre- and post- production manufacturing services,
which challenge host countries to adopt appropriate workforce development strategies
to supply these services locally. As seen in Figure 2.8, developed countries usually have a
presence in high value-added activities, while developing countries concentrate in lower
value-added activities.
This chapter only analyzes economic upgrading in detail; however, in order to reach
sustainable development, it is essential to meet social and environmental upgrading as well
(see Ponte, Chapter 13, Rossi, Chapter 16, and Neilson, Chapter 18 this volume). Over the
past two decades, there has been an implicit presumption that economic improvements
would lead to social gains through the improvement of the well-being of workers in the
chains. Yet, recent evidence from around the world suggests that economic upgrading is
not automatically accompanied by social upgrading.

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 64  Handbook on global value chains

Developed
countries

R&D Services
Added Economic Value

Developing
Design countries Marketing

Purchasing Distribution

Production
Base Price

Pre-production Production: Tangible Post-production

Intangible Activities Intangible
Value-adding Activities

Source: Authors based on Baldwin, Ito and Sato (2014); Shih (n.d.).

Figure 2.8 Smile curve of high-value activities in global value chains

2.3.5 Local Institutional Context

The local institutional framework identifies how local, national, and international
conditions and policies shape a country’s participation in each stage of the value chain
(Gereffi, 1995). GVCs are embedded within local economic, social, and institutional
dynamics. Insertion in GVCs depends significantly on these local conditions. Economic
conditions include the availability of key inputs: labor costs, available infrastructure,
and access to other resources such as finance. Social context governs the availability
of labor and its skill level, such as female participation in the labor force and access
to education. Finally, institutions include tax and labor regulation, subsidies, and
education and innovation policies that can promote or hinder industry growth and
development.
Because global value chains touch down in many different parts of the world, the use
of this framework allows one to carry out more systematic comparative (cross-national
and cross-regional) analysis to identify the impact of different features of the institutional
context on relevant economic and social outcomes.
Key factors affecting developing country competitiveness in GVCs include:

● productive capacity: human capital, standards and certifications, and national

innovation systems;
●● infrastructure and services: transportation, ICT, energy and water;
●● business environment: macroeconomic stability and public governance;

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 Global value chain analysis: a primer  65

●● trade and investment policy: market access, import tariffs, export–import proce-
dures, border transit times and industry-specific policies;
●● institutionalization: industry maturity and coordination, and public and private
collaboration and coordination.

2.3.6 Stakeholder Analysis

Analysis of the local dynamics of a value chain requires examination of the stakeholders
involved. All the industry actors are mapped in the value chain and their main role in the
chain is explained. The most common stakeholders in the value chain are: companies,
industry associations, workers, educational institutions, government agencies including
export promotion and investment attraction departments, ministries of foreign trade,
economy, and education, amongst others. In addition, it is important to consider how
relations between these actors are governed at the local level and which institutions are in
a position to drive change. Thus, this type of analysis is critical to identify the key players
in the value chain. It became especially relevant for industry upgrading recommendations
and the development of an industry growth strategy in which each stakeholder plays a
role to contribute in the development of the sector.

2.4 
RECENT APPLICATIONS OF GLOBAL VALUE CHAIN
ANALYSIS

Originally, GVC analysis was limited to research on competitiveness in manufacturing

industries. Today analysis has expanded in several directions to encompass emergent indus-
tries such as offshore services, to inform industrial policy, to guide opportunities to insert
small and medium enterprises (SMEs) in regional and global value chains, and to embrace
the links between economic and social upgrading such as workforce development. This
section includes several examples of the increasingly diverse application of GVC analysis.3

2.4.1 SME Participation in Regional and Global Value Chains in Agro-industries4

The insertion of small- and medium-sized producers in national, regional, and global
high-value agriculture value chains can have important consequences for poverty alle-
viation in rural areas of developing countries due to their potential to increase incomes
and create employment (Weinberger and Lumpkin, 2007). However, smallholders in
developing countries face a series of constraints that often limit their ability to participate
competitively in these chains, and there has been considerable concern that these produc-
ers are being excluded from important growth opportunities.
Illustrating the importance of the institutional context of GVC analysis, a model out-
lined by the Duke Global Value Chain Center (Duke GVCC)5 addresses the international
development community’s understanding of how interventions can be more effectively
designed to ensure sustainable inclusion of these small- and medium-sized producers in
the sector. Based on extensive primary and secondary research, with a focus on Inter-
American Development Bank Multilateral Investment Fund (IDB-MIF) initiatives in
Latin America, four major constraints were identified that limit the competitiveness of

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 66  Handbook on global value chains

Smallholders’ Competitiveness Bottlenecks

(productivity, quality, standards compliance, economies of scale,
lack of networks, etc.)

Coordination
Access to Access to & Access to
Market Training Collaboration Finance
Building

‘Holistic’ approach with exit strategy

Sustainable inclusion into the value chain

Source: Fernandez-Stark et al. (2012).

Figure 2.9 Model for sustainable smallholder inclusion in high-value agrofood chains

small- and medium-sized producers and their sustainable entry into value chains. Duke
GVCC proposes a holistic model to address these constraints: (1) access to market; (2)
access to training; (3) collaboration and cooperation building; and (4) access to finance.
A more detailed report (Fernandez-Stark et al., 2012) explains how project interventions
can improve competitiveness factors and ensure that producers’ inclusion in the value
chain is based on a viable business case. Figure 2.9 summarizes a ‘holistic’ model for the
inclusion of SMEs in GVCs.
This model is applicable to all levels of development. SMEs with low capability levels
will need longer interventions and usually all four pillars must be included in the interven-
tion. SMEs with higher levels of expertise may need support only in two of these areas
as they already have managed to overcome constraints related to the other two areas. A
summary of the four pillars model is presented in Figure 2.10. This model was developed
for the agricultural value chain; however, it can be used in other industries since SMEs in
different sectors face similar challenges.

2.4.2 Globalizing Service Sectors in the World Economy: Offshore Services6

The global value chain methodology has proven quite useful in the analysis of services
(see Low, Chapter 15 this volume). While the actual sequence of events from production
to consumption of a service is short, GVC analysis allows for the incorporation of all the

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 Global value chain analysis: a primer  67

• Linkages • Technical
• Preferences • Entrepreneurial
• Certifications & • Financial literacy
Standards • Soft skills
Access to Access to
Market Training

Collaboration & Access to

Coordination Finance

• Horizontal (among • Infrastructure

producers) • Equipment
• Vertical (among value • Certifications &
chain actors) Standards

Source: Fernandez-Stark et al. (2012).

Figure 2.10 Four pillars model for SME participation in GVCs

services supplied within an industry, ranging from very simple tasks to highly sophisti-
cated interactions in one chain. The example of offshore services illustrates how the GVC
framework provides insight into a complex industry and serves as a guide for potential
upgrading trajectories.

Offshore services
Structural changes in the world economy during the past decade facilitated the global
outsourcing of multinational corporations (MNCs), thereby creating the offshore
services industry, a new and rapidly growing sector in developing countries (Gereffi and
Fernandez-Stark, 2010b, p. 335). Information technology (IT) now allows for quick and
easy information transfers. Companies looking to improve their efficiency, reduce costs,
and increase flexibility often unbundle their corporate functions, such as human resource
management, customer support, accounting and finance, and procurement operations,
and ‘offshore’ these activities (Gospel and Sako, 2008; Sako, 2006). This reduces the
burden of support activities and allows firms to focus on their core business. The increas-
ing participation of developing countries in this new industry of offshore service exports
highlights the growing capabilities of the Global South, not only at the production level
but also in creating the knowledge behind products. For example, Chile exports engineer-
ing services related to mining, India exports pharmaceutical R&D to lead MNCs, and
Uruguay exports sophisticated expertise on cattle traceability.
Duke GVCC has analyzed skill level and work experience as a proxy to create an offshore
services value chain, presented in Figure 2.11. The first categorization refers to three
broad types of offshore services that can be provided across all industries (general business

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 Industry-specific
Horizontal Activities Vertical Activitiesa, b
HIGH
Banking, Financial Services
ITO KPO and Insurance (BFSI)
Information Technology Outsourcing Knowledge Process Outsourcing E.g. Investment research,
private equity research,
and risk management
Business Consulting analysis
Software R&D Business Analytics Legal Services

M4782-PONTE_9781788113762_t.indd 68
Market Intelligence Manufacturing
E.g. Industrial engineering
and sourcing and vendor
IT Consulting management
BPO
Business Process Outsourcing Telecommunications
E.g. IP transformation,
Software interoperability testing
ERM HRM CRM and DSP and multimedia
ERP (Enterprise Resource Planning):
manufacturing/operations, supply chain
(Enterprise (Human Resource (Customer
Energy
management, financials & project management Resource Management) Relationship E.g. Energy trading and risk
Management) Management) management, and digital
Applications Development oil field solutions
Finance & Marketing &

Value Added
Applications Integration Training Travel & Transportation
Accounting Sales Revenue management

68
systems, customer loyalty
Desktop Management Procurement, Talent solutions
Logistics and Management
Supply Chain
Health/Pharma
Management E.g. R&D, clinical trials,
Infrastructure Payroll medical transcript
Applications Management Content/ Retail
Document Recruiting Contact eCommerce and planning,
Network Management Management merchandising and
Centers/Call
Centers demand intelligence
Infrastructure Management
Others

Notes:
a. Each industry has its own value chain. Within each of these chains, there are associated services that can be offshored. This figure captures the industries with
the highest demand for offshore services.
b. This graphical depiction of industry-specific services does not imply value levels. Each industry may include ITO, BPO, and advanced activities.

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Source: Gereffi and Fernandez-Stark (2010a).

Figure 2.11 The offshore services global value chain

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 Global value chain analysis: a primer  69

services): information technology outsourcing (ITO), business process outsourcing (BPO),

and knowledge process outsourcing (KPO). The second categorization refers to services that
are industry specific. Firms providing general business services tend to be process oriented,
while those in the vertical chains must have industry-specific expertise and their services may
have limited applicability in other industries. For general business services, all activities are
related to supporting generic business functions, such as network management, application
integration, payroll, call centers, accounting, and human resources. In addition, they include
higher-value services, such as market intelligence, business analytics, and legal services
(referred to as KPO). Within these services, ITO contains a full spectrum of low-, middle-
and high-value activities of the offshore services value chain; BPO activities are in the low
and middle segments; while KPO activities are in the highest-value segment of the chain.
Within the GVC framework, adapting this scheme to our case evidence, five principal
upgrading trajectories can be identified from the ten country case studies: entry into the
value chain; upgrading within the BPO segment; offering full-package services; the expan-
sion of IT firms into KPO services; and the specialization of firms in vertical industries.
These five upgrading trajectories are presented in Figure 2.12.

2.4.3 Workforce Development and Global Value Chains

Another illustration of new applications of the GVC analysis is the topic of workforce
development. The International Labour Organization used the GVC framework to
understand the dimensions of production and employment during its 2016 International
Labour Conference (ILO, 2016). Duke GVCC introduced the skills dimension into GVC
analysis in the multi-industry study ‘Skills for Upgrading.’7
The participation of workers in GVCs can be viewed through the lens of job categories
defined by skill level in order to understand the conditions of the workers in these chains
and the challenges they face. Each skill level can be loosely associated with stages of the
value chain (Gereffi, Fernandez-Stark and Psilos, 2011). Table 2.1 distinguishes five main
types of jobs.8
Figure 2.13 shows graphically how these five types of work and skill levels are distrib-
uted across different GVCs. The composition of a country’s workforce in GVCs changes
as it undergoes economic upgrading. Two dimensions of economic upgrading can be
highlighted: traditional development paradigms that stress ‘structural transformation’
from primary projects to manufacturing and service jobs in the economy (shifting from
left to right on the figure); and the new ‘GVC paradigm’ of upgrading to higher-value
activities within any specific industry (moving from the bottom to top of each column)
(Gereffi et al., 2011; Taglioni and Winkler, 2016).
In recent years, Duke GVCC has been working to understand workforce development
issues using the GVC methodology. This undertaking incorporated a multi-industry and
multi-country analysis of upgrading trajectories and workforce initiatives that helped
to drive these shifts. The sectors and countries selected in a pioneer study conducted by
Duke GVCC (Gereffi et al., 2011) were: (1) fruit and vegetables (Chile, Kenya, Morocco,
Jordan, and Honduras); (2) apparel (Turkey, Sri Lanka, Bangladesh, Nicaragua, and
Lesotho); (3) tourism (Costa Rica, Vietnam, and Jordan); and (4) offshore services
(India, the Philippines, Chile, and Central American countries). In each segment of these
value chains, Duke GVCC found that workers required specific skills that frequently are

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 70  Handbook on global value chains

Type Diagram Description

General Business Activities Industry- Common way to enter the offshore services value chain is through the
specific
ITO KPO Activities establishment of call center operations
Opportunity for low-income countries to enter into the knowledge economy
Entry into the
Value Chain

BPO
Value Added

Recent examples of countries entering the value chain through call centers
include El Salvador (Dell, Sykes and Teleperformance), Nicaragua (Sitel),
Panama (HP and Caterpillar) and Guatemala (Exxon Mobil, ACS and
24/7 Customer) (Gereffi, Castillo, et al., 2009)

General Business Activities Industry-

Companies expand their BPO services within the segment
(Functional Upgrading)

Improving and expanding call centers’ operations or specialization in

Upgrading within the

specific
ITO KPO Activities
certain areas
BPO Segment

BPO South Africa has been an important destination for BPO services
Value Added

currently employing around 87 000 people and growing at 33% per year.
South Africa is actively working to expand its BPO activities

General Business Activities Industry- Companies positioned in the ITO and KPO segments may opt to provide
(Functional Upgrading)

specific
KPO
Activities
a more comprehensive range of activities and include BPO services
Broad Spectrum

ITO
Acquisitions of smaller BPO firms and/or creating a new business unit
within the company
Services

BPO
Value Added

India has seen a number of firms in the IT and consulting (KPO) segment
expand to the BPO sector. This is true for both big domestic firms like
Infosys, Wipro and also foreign firms located in India like IBM and
Accenture among others

IT service firms include KPO activities in their portfolio

General Business Activities Industry-
(Functional Upgrading)

IT companies engage customers to find solutions for unsolved business

Upgrading from ITO

KPO specific
to KPO functions

ITO Activities problems

BPO
Value Added

For example, between 2002 and 2005, Indian firms Infosys, Wipro, TCS
and WNS amongst others developed and launched business consulting
services practices

Industry- Companies offering some ITO, BPO and KPO services for a wide range
(Intersectoral Upgrading)

General Business Activities specific

Activities of industries start specializating and focus on key industries to develop
KPO
ITO expertise
Specialization
Industry

BPO The Czech Republic, which entered into the offshore services industry
Value Added

through the establishment of BPO shared services activities, has quickly

upgraded into R&D segments of vertical industries, particularly in the
automotive, aerospace and IT areas

Source: Fernandez-Stark, Bamber and Gereffi (2011b).

Figure 2.12 Examples of upgrading trajectories in the offshore services value chain

regulated by global rather than local actors. For example, produce buyers from developed
countries (e.g., Tesco in the UK, Walmart) set strict standards that need to be met by
workers in developing countries in order to supply these supermarkets.
As an illustration, Figure 2.14 summarizes workforce development implications in the

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 Global value chain analysis: a primer  71

Table 2.1 Types of work in global value chains

Job Category Examples of Conditions of Education Level Examples

Work
Informal SME May or may not be compen- Low; often less than Small producers in
 or household sated; precarious conditions; primary education agricultural supply
work unregulated work hours chains
Low skilled Formal; job insecurity, low Low; often primary Workers on apparel or
 labor- wages, weak organization due education or less electronic assembly lines
intensive work to subcontracting
Moderate Formal; increased job security, Completed Procurement and
 skilled work potentially poor working secondary logistics handling
hours education jobs in apparel and
automobile chains
High skilled Formal; high job security, Post-secondary Specialized component
 technology- higher paid work, working technical education production and assembly
intensive work hours & work–life balance in aerospace and medical
challenges devices chains
Knowledge- Formal; potentially freelance, Completed Accounting, engineering
 intensive work higher paid work, working university and design jobs
hours & work–life balance education, including
challenges advanced degrees

Source: Gereffi, Bamber and Fernandez-Stark (2016).

Type of work IT Business

Agriculture Apparel Automotive
Knowledge- hardware services
intensive
Economic Upgrading: New Paradigm For LAC

High-skilled,
technology-
intensive
Skills Development

Medium-skilled,
mixed production
technologies

Low-skilled,
labour-intensive

Small-scale,
household-based
Economic Upgrading: Old Paradigm For Development

Source: Adapted from Barrientos et al. (2011, p. 328).

Figure 2.13 Typology of workforce composition across different GVCs

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 72  Handbook on global value chains

Type Diagram Workforce Development Initiatives

General Business Activities Industry- Call centers hire people with high school diplomas or bachelor’s degrees
specific Further skills training is provided by the company
ITO KPO Activities
Entry into the
Value Chain

BPO In Guatemala, inter-institutional alliances were created to promote call center and
Value Added

BPO skills training. Intecap, a technical training institution funded through a 1% levy on
salaries, has been central to these initiatives (ECLAC, 2009)
Type of skills preparation: Institutions involved:
Short training Private sector
Government

Skills development is carried out by the private sector, either through in-house or
(Functional Upgrading)

General Business Activities Industry- contracted training programs

Upgrading within the

specific Educational institutions and governments help to develop course content and provide
ITO KPO Activities
BPO Segment

scholarships
BPO In South Africa, the government created the BPO Support Programme to generate more
Value Added

jobs. The program includes training for 35 000 direct jobs and 4000 in middle management

Type of skills preparation: Institutions involved:

Short training Private sector
Formal education (degree required) Government
Tertiary educational institutions

Expansive hiring process targets candidates with high school diploma and/or college
(Functional Expansion)

General Business Activities Industry- graduates to work in this industry

Full-Package Services

KPO specific New hires must first complete BPO training programs to guarantee quality services.
ITO Activities
This refers to the same training offered in the ‘Upgrading within the BPO segment’
BPO In the early 2000s in India, there was a significant push into the BPO segment by ITO and
Value Added

KPO firms. Recruiting was the central aspect to this expansion, and firms focused
particularly on hiring women from middle-class backgrounds
Type of skills preparation: Institutions involved:
Short training Private sector
Formal education (degree required) Government

General Business Activities Industry- Personnel with higher education qualifications recruited. Typically MBA graduates and
Upgrading from ITO

(Chain Upgrading)

KPO specific workers with business experience. These workers must have sharp analytical skills
to KPO functions

ITO Activities

Legal process outsourcing requires qualified lawyers. By 2015, LPO will employ 17 000
BPO
Value Added

professionals. These lawyers undergo similar training as in the US

Type of skills preparation: Institutions involved:
Formal education (degree required) Tertiary educational institutions

Industry- Companies hire area experts to sustain their competitive advantage in specific areas
General Business Activities specific For example, a BPO company providing medical transcription services must hire nurses
(Chain Upgrading)

Activities
ITO KPO and doctors to ensure accurate service provision
Specialization

In the Czech Republic, the government has been incentivizing advanced degrees such as
Vertical

BPO Master’s and PhD degrees. Master’s students accounted for 40% of the university student
Value Added

population. Today there are more than 73 000 technical university students engaged in
R&D in different areas
Type of skills preparation: Institutions involved:
Formal education (degree required) Tertiary educational institutions
Usually MA and PhD degrees
Industry-
General Business Activities specific Companies undertake process improvements to upgrade their global capabilities
Process Upgrading

Activities
KPO
ITO
For example, Siemens has specific strategies for organizational training on CMMI (one
of the most popular process improvement certifications in this industry). The strategy
BPO consists of defining the jobs skills necessary, assessing who needs the training, training
Value Added

workers with skill gaps, recording progress and monitoring new skills gaps

Type of skills preparation: Institutions involved:

Internal training Private sector
Certification institutes (on-site or online)

Source: Fernandez-Stark et al. (2011c).

Figure 2.14 
Examples of workforce development initiatives in the offshore services value
chain

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 Global value chain analysis: a primer  73

offshore services value chain. Developing countries in offshore services are engaging in
market-driven development – acquiring capabilities to upgrade services (providing better
services, expanding the number of services, or/and offering higher value-added services)
– through significant investments in workforce training and managerial capabilities,
provided initially by private offshore service providers but now increasingly supported
by an expanded range of public, private, and multi-sector initiatives. Involvement in the
offshore services industry has provided developing country workers, firms, and govern-
ments with an attractive opportunity to build the skill-based competencies required to
meet the demands of global service markets.

2.5 CONCLUSION

Globalization has given rise to a new era of international competition that is best under-
stood by looking at the global organization of industries and how countries rise and fall
within these industries. The GVC framework has also served another purpose beyond
its academic origins and research to become a major paradigm used by a wide range of
country governments and international organizations, including the World Bank, the
International Labour Organization, the UK Department for International Development,
and US Agency for International Development, amongst others (see Mayer and Gereffi,
Chapter 35 this volume). Global value chain analysis highlights how new patterns of
international trade, production, and employment shape the prospects for development
and competitiveness, using core concepts like ‘governance’ and ‘upgrading.’
The GVC framework analyzes the global and local dynamics of international indus-
tries. The six dimensions of the GVC methodology provide useful insights to understand a
country’s position in the chain and where it can be in the future. The first three dimensions
focus on global issues, including identifying the segments of the chain, the geographic
scope of the industry, and its governance structure. The local dimensions highlight the
concept of upgrading, analyzing how the country acquires value added, the local insti-
tutional context in which the industry is embedded, and, finally, the role of the national
stakeholders in the GVC participation.
These tools provide useful information to policy makers to help design sound recom-
mendations for industry upgrading. As highlighted in this chapter, GVC analysis can be
applied to a wide range of industries including extractive sectors, agriculture, manufac-
turing, and services. In addition, it offers specific prescriptions for topics such as SME
inclusion in the global economy and workforce development requirements to participate
in international trade.

NOTES

* The first edition of the GVC Primer was released in May 2011. This second edition of the GVC Primer was
released online on July 2016 and contains new material. See https://gvcc.duke.edu/wp-content/uploads/
Duke_CGGC_Global_Value_Chain_GVC_Analysis_Primer_2nd_Ed_2016.pdf; last accessed 30 April
2019.
1. For more details, see Bair and Gereffi (2001).
2. OEM: original equipment manufacturer.

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 74  Handbook on global value chains

3. For a broader mix of industries, see projects listed on the Duke Global Value Chain Center website: https://
gvcc.duke.edu/overview-of-work/; accessed 30 April 2019.
4. To obtain more information see: Fernandez-Stark and Bamber (2012a, 2012b) or Fernandez-Stark, Bamber
and Gereffi (2012).
5. In 2005, the Center on Globalization, Governance & Competitiveness (CGGC) was founded at Duke
University by Gary Gereffi as a university-based research center that worked with national and local
governments, international development organizations, and a wide range of non-governmental groups to
analyze the opportunities and challenges faced by developing and developed economies that participate
in global value chains. In 2017, the center’s name was changed to the Duke Global Value Chains Center.
All research carried out by Duke GVCC is available on its website, https://gvcc.duke.edu/; accessed 1 May
2019.
6. For more information see Fernandez-Stark et al. (2011a). Additional information can be found on the
CGGC website: https://gvcc.duke.edu/cggcproject/offshore-services-2/; accessed 30 April 2019.
7. See https://gvcc.duke.edu/cggcproject/skills-for-upgrading/; accessed 1 May 2019.
8. This scheme is based on Barrientos, Gereffi and Rossi (2011) and Gereffi et al. (2011). This classification is
not intended to refer to all jobs in the global economy; rather, it only applies to jobs linked to the offshore
production of goods and services.

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