1. Center on Globalization, Governance & Competitiveness
Gary Gereffi
Duke University
Center on Globalization, Governance & Competitiveness
Global Value Chains and Industrial Upgrading in Developing Economies: A Comparison of Africa, China, and Latin America
COMESA Conference
Seychelles
March 12-13, 2008

2. Agenda Global Value Chain Analysis and Industrial Upgrading
Africa and China
Comparing Latin America, Africa and China
Case Studies: China vs. Mexico
Challenges and Opportunities

3. Global Value Chain Analysis and Industrial Upgrading

4. What is Global Value Chain Analysis?
Actors in global industries, and how their roles are changing (lead firms plus supply chains)
Power in the chain (brands, global buyers)
Linkages – between GVC activities (firms, intra-firm, networks)
Geography – locate domestic and national industries in their global context
Institutions – Government, unions, trade associations, NGOs, multi-lateral agencies and regulations 4

5. Upgrading Product and Process Upgrading Functional Upgrading
Upgrading refers to the acquisition of technological capabilities and market linkages that enable firms to improve their competitiveness and move into higher-value activities. Analyses of upgrading from a value chain perspective pay particular attention to the ways in which value chain linkages facilitate or obstruct upgrading.
Product and Process Upgrading
Functional Upgrading
Inter-Chain Upgrading
Explanation of different types of upgrading
Show example of Mexico, how this developing country has been able to upgrade their activities in the apparel industry.
Show that this upgrading process has been in a very short time.
This upgrading has been possible due to increasing trade

6. Africa and China

7. Africa’s share of world exports has been declining

8. Africa’s Exports are still in Raw Form, Resulting in Little Value-Added Being Extracted on the Continent
Africa’s exports are still in raw form, resulting in little value added being extracted on the continent.
As can be seen in the graph, Asian economies exported almost 40% of raw materials in In 2005, this figure decreased to less than 10%.
This graph shows that Asian countries have engaged in higher value added activities

9. Top 10 Exports COMESA to the World, 2006
These are the top 10 exports of COMESA to the world. If they involve some processing to these raw materials, the exports revenues can be multiplied
Source: UN Comtrade

10. Chinese trade with Africa, 2007 (US$ bill)
In spite of Africa’s share of the world exports has been declining; Chinese trade with Africa has been increasing at very fast pace.
This presents a great opportunity for Africa. Not only to export raw materials, but also to upgrade their industries. Given the fact that China is also upgrading its operations, Africa can piggy bag to this development.
Recent cooperation and good relations between Africa and China will allow this form of development. 10 10

11. China Imports from Africa % Share
Mineral products, specially oil are the main commodity demanded by China

12. Top 10 Chinese Imports from COMESA
China imports more than 18 billion in crude oil!!! More than 90% of total imports from COMESA
Source: World Trade Atlas 12 12

13. Top 10 Chinese Exports to COMESA
Chinese exports to COMESA are more diverse, not only concentrated in one product
Source: World Trade Atlas 13 13

14. Opportunities for COMESA
Engage and encourage trade with China
Involvement in higher value added activities
Upgrading key industries in which COMESA is already exporting raw materials

15. Case Studies: Latin America and China

16. China Import by Continents/Regions, 2007
In 2007 China imported from Africa 26.1% more than the previous year! However, other regions, like Latin America increased in almost 50% their exports to China
Source: The People’s Republic of China. Ministry of Commerce.

17. China’s Trade with Latin America, 1995-2005
Latin America has also increased their trade with China.

18. The Commodity Composition of China-Latin American Trade, 1999-2005
Latin America is exporting 50% of total exports in commodities/natural resources. Remember that COMESA exports more than 90% in oil to China.
China overall exports to Latin America are more diverse

19. China’s commodity Imports from Latin America, 1999 and 2005

20. China’s Commodity Exports to Latin America, 1999 and 2005

21. China’s Trade with Latin America and Africa
Both regions export a diversified set of raw materials to China
Latin America’s commodity exports to China are more processed than those from Africa
China’s manufactured exports to Latin America are diversified than those to Africa
A key challenge for both Latin America and Africa is to avoid declining terms of trade with China, where the cost of raw material exports rises less than manufactured imports

22. Case Studies: China Vs Mexico

23. Mexico vs. China Head-to-head competition in U.S. market
China is world’s leading exporter of many manufactures, esp. consumer goods
China and Mexico are typically among the top three exporters to the U.S. market in many product categories
China is moving ahead of Mexico with dominant market shares in the United States, especially in period

24. Composition of Mexico’s Exports to the World Market, 1986-2006
Source: UN Comtrade. 24

25. Composition of China’s Exports to the World Market, 1987-2006
Source: UN Comtrade. 25

26. Top US Imports in which Mexico and/or China hold 40% or more of the US market, 2007

27. Mexico's and China's Competing Exports to the United States, 2000-2007

28. Source: USITC http://dataweb.usitc.gov downloaded Feb 22, 2008

29. Source: USITC http://dataweb.usitc.gov downloaded Feb 22, 2008

30. Source: USITC http://dataweb.usitc.gov downloaded Feb 22, 2008

31. Source: USITC http://dataweb.usitc.gov downloaded Feb 22, 2008

32. Why is China gaining U.S. market share over Mexico?
China is a lower-cost producer overall (labor costs lower, but not transport & tariffs)
China has huge scale economies
China has a coherent and multidimensional upgrading strategy – diversify and add high value activities
China is using direct foreign investment to promote “fast learning” in new industries
China uses access to its domestic market to attract TNCs and promote knowledge spillovers

33. China’s Supply Chain Cities in Apparel
Source: David Barboza, “In roaring China, sweaters are west of socks city,” New York Times, Dec. 24, 2004.

34. MNC R&D Centers in China, How are engineers being used?
What kinds of work are Chinese, Indian, and American engineers actually doing?
Answer: Not just product adaptation, but cutting-edge research & commercialization
China: More than 1,000 MNC R&D Centers
GE’s China Technology Center: Advanced research in energy storage, environmental management
Microsoft Research Asia: Cutting-edge graphics & multimedia research

35. Challenges and Opportunities35

36. Where we are today
New actors (global buyers, global suppliers, and global intermediaries)
Rapid rise of new production centers (Taiwan, Korea, China, Mexico, India)
Higher capabilities required to enter chains (health and safety, speed, quality, responsiveness, IT)
Widening gap between connected and disconnected in developing world
Growing global consolidation (supply chains, countries) 36

37. Global Challenges and Opportunities
Commodity export boom (L. America, Africa)
Find GVC niches (specialization, high value products, local sourcing, fresh produce)
Take advantage of regional integration
Differentiated global services (tourism, finance, IT)
Invest in R&D
Go “green” with environmentally friendly goods and services (corporate sustainability)

38. Gary Gereffi, Director, CGGC
Thank you
for your attention!
Gary Gereffi, Director, CGGC
Duke University
Center on Globalization, Governance & Competitiveness