A global value chain (GVC) refers to the full range of activities that economic actors engage in to bring a product to market. The global value chain does not only involve production processes, but preproduction (such as design) and postproduction processes (such as marketing and distribution).
GVC is similar to Industry Level Value Chain but encompasses operations at the global level. GVC is similar to the concept of a supply chain, but the latter focuses on conveyance of materials and products between locations, often including change of ownership of those materials and products. The existence of a global value chain (i.e. where different stages in the production and consumption of materials and products of value take place in different parts of the world) implies a global supply chain engaged in the movement of those materials and products on a global basis.
In development
The first references to the concept of a global value chain date from the mid-1990s. Early references were enthusiastic about the upgrading prospects for developing countries that joined them. In his early work based on research on East Asian garment firms, Gary Gereffi, the pioneer in value chain analysis, describes a process of almost ‘natural’ learning and upgrading for the firms which participated in GVCs. This echoed the ‘export-led’ discourse of the World Bank in the ‘East Asian Miracle’ report based on the East Asian ‘Tigers’ success. In economics, GVC was first formalized in a paper by Hummels, Ishii and Yi in 2001. They defined GVC as the foreign component of imported intermediate inputs used to produce output, and some fraction of output is subsequently exported. Allowing for such a framework, Kei-Mu Yi showed in a 2003 paper that the growth of world trade can be explained with moderate changes in the trade costs and named this phenomenon "vertical specialization".
This encouraged the World Bank and other leading institutions to encourage developing firms to develop their indigenous capabilities through a process of upgrading technical capabilities to meet global standards with leading multinational enterprises (MNE) playing a key role in helping local firms through transfer of new technology, skills and knowledge.
Wider adoption of open source hardware technology used for digital fabrication such as 3D printers like the RepRap has the potential to partially reverse the trend towards global specialization of production systems into elements that may be geographically dispersed and closer to the end users (localization) and thus disrupt global value chains.
Analytical framework
Global value chains are a network of production and trade across countries. The study of global value chains requires inevitably a trade theory that can treat input trade. However, mainstream trade theories (Heckshcer-Ohlin-Samuelson model and New trade theory and New new trade theory) are only concerned with final goods. It needs a New new new trade theory. Escaith and Miroudot estimates that the Ricardian trade model in its extended form has "the advantage" of being better suited to the analysis of global value chains. Shiozawa argued that global value chains can be treated by the new theory of international values, because it is a general theory of input trade with many-country, many-product economy. He contends that global value chains are a new transforming general purpose technology.
The lack of appropriate tool of analysis, the studies of GVCs have been conducted mainly by sociologists like Gary Gereffi, and management science researchers. See for a genealogy Jennifer Bair (2009). Studies by means of global Input-Output Table is starting.
Development and upgrading
GVCs become a major topic in development economics especially for middle-income countries, because the "upgrading" within GVCs became the crucial condition for the sustained growth of those countries.
GVC analysis views “upgrading” as a continuum starting with “process upgrading” (e.g. a producer adopts better technology to improve efficiency), then moves on to “product upgrading” where the quality or functionality of the product is upgraded by using higher quality material or a better quality management system (QMS), and then on to “functional upgrading” in which the firm begins to design its own product and develops marketing and branding capabilities and begins to supply to end markets/customers directly - often by targeting geographies or customers (which are not served by its existing multinational clients). Subsequently, the process of upgrading might also cover inter-sectoral upgrading.