International Fragmentation of Production and Insertion of Latin America & the Caribbean in Global Production Networks Andrea Gonzalez, San Andrés & UNGS Juan Carlos Hallak, San Andrés & NBER Peter Schott, Yale & NBER Workshop – Washington DC, 26 th July

Outline  Framework  Footwear industry Footwear industry in the world Global footwear value chain Footwear industry in Argentina  Automotive industry Global automotive value chain Automotive industry in Argentina Case study: Basso S.A.

Framework  Global Value Chain (GVC) Governance & Upgrading Buyer-driven value chains vs Producer-driven chains Footwear industryAuto-part industry

Footwear

Footwear industry China is the uncontested leader In 2007 China concentrated 60% of world production Production USA is the main consumer, closely followed by China Consumption USA is the main importer Germany, Italy, Spain, Belgium and the Netherlands among the twelve largest importers and exporters of footwear Imports (in pairs) China concentrates 73% of world exports Exports (in pairs)

Footwear industry Share of footwear world exports by country Italy’s 13% value share contrasts with its 2% quantity share Growth of China and Vietnam to the detriment of traditional exporters

Footwear industry Share of world exports by footwear categories Leather footwear accounts for 50% of global footwear exports (US$).

Footwear industry – Leather footwear Share of world production of leather footwear by country (in pairs) China is still the leader in leather footwear production2000: Argentina into the ten major leather footwear producers

Share of world exports of leather footwear by country Footwear industry – Leather footwear

Footwear industry – Types of footwear Sport Non sport Use High-end Low/Middle range Quality

Share of high-end footwear world exports Footwear industry – High-end footwear Traditional producers and exporters of this category are Italy, Portugal, Spain, and France : Growth of India

Footwear industry – Global Value Chain DESIGNPRODUCTIONMARKETING Trend maker Definitio n of the topic Generati on of ideas Conception of the product Prototy pe Provision of raw materials and supplies Transformati on of raw materials into product Quality control Storage Adaptation of designs to domestic taste Distribution Trend follower Trend assessm ent Brand management Imitation of designs

Footwear industry - Argentina Sustained growth since 2001 Production 1,000 Manufacturers 3 pairs/hab in 2009 Consumption U$S 286 millions Imports U$S 24 millions Exports Evolution of the production

Footwear industry - Argentina Focus on domestic market Domestic market is counter- seasonal with respect to the North Most footwear producers = Trend followers Creativity component  Adaptation of foreign designs to domestic taste. Most footwear producers = Trend followers Creativity component  Adaptation of foreign designs to domestic taste.

Footwear industry - Argentina U$S 286 millions Imports 2009 U$S 24 millions Exports % of leather footwear exports are non-sport products, 27% of which are high-end footwear International Trade

Argentina: Share of high-end exports by country Footwear industry – Argentina High-end footwear  : Exports of high-end footwear amounted to US$ 30 million  Major destination: Latin America  2009: Sweden & USA in top five

Evolution of exports – Top five Argentine exporters of high-end footwear Footwear industry - Argentina

Argentine experiences of international insertion Footwear industry - Argentina Business-model focus on Branding Franchising Latin America Business-model focus on Branding Franchising Latin America Business-model focus on Production Europe value chain Latin America value chain Business-model focus on Production Europe value chain Latin America value chain Business-model focus on Design Business-model focus on Design

Automotive industry

Global Automotive value chain Major systems Global coverage Design & innovation capabilities Global mega supplier Supply directly to the assemblers Design & innovation capabilities First-tier Process-engineering skills Operate in only market Second-tier Basic products Rudimentary skills Third-tier Source: Humphrey & Memedovic 2003 Changes in the relationship between assemblers and suppliers  assemblers transfer design function to leading suppliers

Automotive industry - Argentina Car assemblers 2009  Companies: 10  Production (in units): 512,924  Employed personnel: 25,900  Automotive industry in GDP: 0.8%  Industrial GDP share: 4.1%

Auto-part industry - Argentina Auto-part industry – 2010 Companies: 400 Employed personnel: 60,000 Auto-part industry in GDP: 1.4% Exports (U$S FOB million): 2,422 Imports (U$S CIF million): 8,731 Evolution of Argentine auto part exports and imports

Auto-part industry - Argentina

Case study: Basso S.A  Product: valves for internal combustion engines  Personnel employed: 700  Annual Production: 20 million  Exports: 85% of production to 35 countries  Main clients: Original equipment market: Alfa Romeo, Ferrari, Fiat, Ford, General Motors, John Deere, Maserati, Peugeot, among others Aftermarket: Caterpillar, Mercedez Benz, Renault, and Scania