Upgrading in Global Production Networks: State of the art Presented at the Global Production Networks Centre at NUS (GPN@NUS) Launch Workshop, 26-27 January 2015 National University of Singapore Stefano Ponte Professor of International Political Economy Department of Business and Politics Copenhagen Business School sp.dbp@cbs.dk Affiliation Title 15 years LICs, Africa Agro-food and energy GPNs Constructive dualogue with NUS researchers Lots of excitement internationally for what you are trying to accomplish here (and a bit of envy); good for NUS!

Why are GPNs important? GPNs can lower barriers to entry for developing country producers and service providers and open up specialized industry segments for export do not necessarily need to build a whole industry back-to-front But also risks of exclusion, marginalization inequality, social polarization immiserizing growth increasing economic activity with declining real incomes

Key debates Governance of GPNs Challenges and opportunities in GPN participation Geographic configurations Institutional frameworks Upgrading

GVC participation= foreign value added in a country’s exports; indicates integration in a multistage trade process Source: UNCTAD 2013: 22

Source: UNCTAD 2013: 23

Upgrading Improve value addition Classic distinction: Process upgrading Product upgrading Functional upgrading Inter-chain upgrading product upgrading: moving into more sophisticated products with increased unit value, or with more complex content, or that match more exacting product standards; process upgrading: achieving a better transformation of inputs into outputs through the reorganization of productive activities, and/or from improving standards in quality management, environmental impact and the social conditions of production; functional upgrading: acquiring new functions that increase the skill content of activities and/or improve profitability (for example, moving from production only to production and primary processing); inter-sectoral (or inter-chain) upgrading: applying competences acquired in one function of a chain and using them in a different sector/chain;

Smile-curve of value added Baldwin et al 2014

Upgrading (cont) Also important: Volume economies of scale Portfolios of qualities economies of scope Other valorization processes Fair trade, geographic indications, branding Some trajectories actually involve downgrading as well Important in periods of crisis

What factors explain upgrading trajectories What factors explain upgrading trajectories? Case study of aquaculture GPNs in Asia EU-funded research project (SEAT) Aquaculture production networks originating in Asia Tilapia, shrimp, prawns, pangasius China, Vietnam, Thailand, Bangladesh Focus on production and processing nodes Upgrading in terms of: Improving product, process, volume and/or variety (in the same node of the GPN) Changing and/or add functions (up- or downstream; in several nodes)

GPN governance and upgrading

Public sector support and upgrading

Upgrading: New analytical frontiers Social upgrading Capturingthegains.org ILO ‘better work’ framework Environmental upgrading Minimizing the environmental impact of production with equal or improved economic performance energy savings, new materials, new systems Driving forces limits of buyer-driven greening ecolabels Transmission mechanisms

Conclusion Opportunities and challenges in: GPN participation Economic, social and environmental upgrading Upgrading answer is not always in ‘trading up’ volume still important, wider portfolios (including lower quality), emerging markets and end-market diversification Regulation and public sector support Important, but helps mostly product and process upgrading Needs to be devised in view of actual functioning and governance of value chains