Research Methodology for Global Business Clusters & Global Value Chain Networks Dr. Emanuela Todeva Director of Research Centre for Business Clusters,

Research Methodology for Global Business Clusters &

Global Value Chain Networks

Dr. Emanuela Todeva Director of Research Centre for Business Clusters, Networks and Economic Development

University of Surrey

Multilateralism & Global Integration‘The world has become a Hum of Interconnected voices

and a Hive of interlinked lives.’ Christine Lagarde, 4/2/2014

• In 1950 – the emerging markets and developing economies accounted for hardly 25% of the Global GDP – now it is 50%, and in 2020 it is likely to be 2/3

• More then half of manufacturing output are intermediate products

• More then 70% of integrated services (imports) are intermediate services

• MNCs control 2/3 of global trade • 12 MNCs 31 Global cities sit among the top 100 global

bodies in terms of size

The Value Chain Describes the Full Range of Activities That Firms and Workers Do to Bring a

Product From its Conception to its End Use

value co-creation

value measurement

valuediffusion

value-in-context

value-in-exchange

valuecreation

value extraction

© Todeva, 2014

Network Approach to Value Management

GVC – Interconnected Input-Output Markets for- resources (supply networks & trade of intermediate products)- skills (outsourcing networks)- capital (shareholder networks)- production technology (R&D alliances)

GVC – Interconnected Organised Production Capabilities and Country Resources- Agents boundaries- Location boundaries- Activities - Costs- Value added- Transfers, transactions

GVC – Organisation & Coordination of production and value added activities across borders and firm boundaries

Value Chains

Value Added Along the GVC (OECD, 2013)

apparel supply chain: Forstater, 2010

Methodology as a Step-by-Step Approach

• Revealing actors & activities

• Revealing linkages• Visualising / Mapping

linkages• Developing linkages• Upgrading linkages &

Position

• Cluster Mapping• Cluster Development

(enhancement of capabilities)

• Cluster Internationalisation

UPGRADING through innovation to increase value added

Different forms of upgrading:

of processes

of products

functional

inter-sectoral

Process Upgrading

Firms can upgrade processes – transforming inputs into outputs more efficiently by re-organising the production system or introducing superior technology (i.e. footwear producers in the Synos Valley – Schmitz, 1999).

Product Upgrading

Firms can upgrade by moving into more sophisticated product lines (which can be defined in terms of increased unit values).

Example: the apparel commodity chain in Asia upgrading from discount chains to department stores (Gereffi, 1999).

Functional Upgrading

Firms acquire new functions (or abandon existing functions) so that they increase the overall skill content of their activities. They might complement production with design or marketing, or move out of low-value production activities.

Example: Torreon’s blue jeans industry upgrading from maquila to “full-package” manufacturing (Bair & Gereffi, 2001).

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 & Process

Upgrading

Functional

Upgrading

Inter-Chain

Upgrading

Intersectoral Upgrading

Firms may apply the competence acquired in a particular function to move into a new sector.

For example, in Taiwan competence in producing TVs is used to make monitors and thus move into the computer sector (Humphrey & Schmitz, 2002, Guerrieri & Pietrobelli, 2004).

The Value Chain Describes the Full Range of Activities That Firms and Workers Do to Bring a

Product From its Conception to its End Use

- The Use of complementary databases comprising of the entire population of firms and funded research projects

- Developed a Multi-Stage Cluster Methodology for Cluster mapping and analysis

- Investigating Brokerage, Intermediation, & Information sharing across firm / regional / country boundaries

Amadeus 2008

Diagnostics

240

Medical Care

4902

Social Care

3208

Medical Care Support Services

1154

Technical Support

265

Dental Practice

478

Telecare

63

Drug Development Support

376

Bio-pharma R&D

387

Integrated Pharma& Biotech

115

Health products & cosmetics

677

MedicalDevices

719

Bio-PharmaManufacturing

286

Bio-Pharma Support

496

TradePharmaceutical& bio-products

611

Pharmacies & Drug Stores

1161

Fitness & Wellbeing

309

TradeMedical & Optical

Products

813Universities / centres of excellence

in research

61

© Todeva, 2008

Activities &Transactions

Database Firms ‘Concentration of firms in the Value Chain in the Region’ Greater South East, UK

Bio-Medical & Health, Greater South East,

2008

Amadeus 2008

Diagnostics

240

Medical Care

4902

Social Care

3208

Medical Care Support Services

1154

Technical Support

265

Dental Practice

478

Telecare

63

Drug Development Support

376

Bio-pharma R&D

387

Integrated Pharma& Biotech

115

Health products & cosmetics

677

MedicalDevices

719

Bio-PharmaManufacturing

286

Bio-Pharma Support

496

TradePharmaceutical& bio-products

611

Pharmacies & Drug Stores

1161

Fitness & Wellbeing

309

TradeMedical & Optical

Products

813Universities / centres of excellence

in research

61

© Todeva, 2008

Cluster Value Chain: SURGICAL & MEDICAL INSTRUMENTS MANUFACTURING(198 firms, ties between firms based on 5 or more shared industry codes)

(87% of firms have the core industry codes: 334510 Electro-medical and Electrotherapeutic Apparatus Manufacturing; 334517 Irradiation Apparatus Manufacturing; 39112 Surgical and Medical Instrument Manufacturing; 339113 Surgical Appliance and Supplies Manufacturing)

© Todeva (2007)

Holding companies

All other personal care stores

Wholesale

Misc. metal products

Electro-medical, electro-therapeutic, irradiation apparatus; surgical & medical instruments;

surgical supplies manufacturing

R&DPlastic

products

198 firms87% in 4 coreindustries

Misc electrical equip & component

manuf.

Computer systems sPublishing

Telecom operations

Electronic hardware

Motion picture

Business services

Publishing

© E. Todeva (2004)

The Global Information Sector, 2002

The Emergence /Recognition of GVCs and Major Paradigm Changes (Cattaneo et al

2013)

• Change of relevant strategic framework, from countries to firms and GVCs. – A country cannot develop a competitive offer of goods or services in isolation. – Imports are a means for firms to access the most efficient inputs and free

resources to focus on core competences. – Following business practices, policy should treat trade and FDI, both inward

and outward, in an integrated framework. • Change of the relevant economic framework, from industries to tasks and

business functions. The objective is not to develop domestic industries that would capture all the segments of production or the whole value chain, but to develop value added services and inputs for the GVC– Acknowledge that an efficient manufacturing sector requires efficient and

competitive services as well as a skilled workforce and continuous innovation in products, processes and business models. Services such as financial intermediation, R&D, logistics, and marketing are necessary to produce higher value added manufactures.

The Global Value Chain (GVC) • Outward-looking development model driven by trade and

competitiveness. – Countries / Regions / Firms do not need to develop vertically

integrated industries to participate in global trade; it is enough to develop capacities in specific segments (stages of production, tasks or business functions) of the value chain. (Cattaneo et al., 2013)

• Trade in Value-Added (TiVA) indicators (OECD/WTO, 2013)– Focus on the estimation of the source(s) of value (domestic vs.

foreign and/or by country and industry) that is added in producing goods and services for export.

– Still involves misleading classifications such as in the chemical sector in the TiVA tables can combine both base chemicals and pharmaceutical products. These subsectors differ in their use of intermediate products as well as their skill intensity.

• The GVC Participation Index – The higher the foreign value-added embodied in gross exports and

the higher the value of inputs exported to third countries and used in their exports, the higher the participation of a given country in the value chain.

Louis Brennan , 2014

Moving Up the Value Chain • (1) Upgrading

Process upgradingProduct upgradingFunctional upgradingChain or inter-sectoral upgrading

• (2) Task bundling• (3) Workforce development and innovation• (4) Ensuring cost competitiveness• (5) Improving the connectivity with international markets• (6) Improving business and investment climates• (7) Fostering innovation and building capacity

28

Composition of Mexico’s Exports to the World Market, 1986-2006

Source: UN Comtrade.

2502141881651611581661361171109680615246272623202119

0

10

20

30

40

50

60

1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

% E

xpor

t M

arke

t

Primary Products

Resource Based Manufactures

Low Tech Manufactures

Medium Tech Manufactures

High Tech Manufactures

TotalExportsUS $B

Composition of China’s Exports to the World Market, 1987-2006

Source: UN Comtrade.

96976259343832626624919518418315114912192857262534839

0

10

20

30

40

50

60

1987 1989 1991 1993 1995 1997 1999 2001 2003 2005

% E

xpor

t M

arke

tPrimary Products

Resource Based Manufactures

Low Tech Manufactures

Medium Tech Manufactures

High Tech Manufactures

TotalExportsUS $B

Africa’s Share of World Exports Has Been Declining

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

Main Competitors in the U.S. Market for Automatic Data Processing Machines and Units(SITC 752)

0%

10%

20%

30%

40%

50%

60%

2000 2001 2002 2003 2004 2005 2006 2007

Year

Pe

rcen

t o

f U

.S.

Mar

ket

China

Malaysia

Mexico

Thailand

Singapore

Japan

32

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

Main Competitors in the U.S. Market for Telecommunication Equipment and Parts (SITC 764)

0%

10%

20%

30%

40%

2000 2001 2002 2003 2004 2005 2006 2007

Year

Per

cen

t o

f U

.S.

Mar

ket

China

Mexico

Korea

Japan

Malaysia

Canada

33

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

Main Competitors in the U.S. Market for Furniture and Parts (SITC 821)

0%

10%

20%

30%

40%

50%

2000 2001 2002 2003 2004 2005 2006 2007

Year

Per

cen

t o

f U

.S.

Mar

ket

China

Canada

Mexico

Vietnam

Italy

34

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

Main Competitors in the U.S. Market for Articles of Apparel and Clothing (SITC 84)

0%

10%

20%

30%

40%

2000 2001 2002 2003 2004 2005 2006 2007

Year

Pe

rcen

t o

f U

.S.

Mar

ket

China

Mexico

Vietnam

Indonesia

India

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

MNC R&D Centers in China, How are engineers being used?

Global Value Chains

The focus of analysis of global value chains is on the relationships among the different actors that are part of the chain.

The concept of ‘governance’ ( = coordination) is fundamental to understand such relationships;

Governance may occur thorugh:1. Market relations (Arm’s-length)2. Network relations, that is cooperation among

firms with the same level of power;3. Quasi-hierarchy, with relations among

enterprises that are legally independent, but one is hierarchically subordinate to the other;

4. Hierarchy, when a firm is owned by another (external) firm.

• R&D expenditures by business, government, higher

education, and private non-profit organizations • Source of funds for R&D, by type of costs, by type

of economic activity (NACE), by enterprise size class, by type of R&D (basic, applied, and experimental research) (Timothy J. Sturgeon, May 2013)

• Schmitz (1995) - ‘‘collective efficiency’’ (CE) - defined as the competitive advantage derived from local external economies and joint action

• Ricardo’s static concept of ‘‘Comparative Advantage’’ (CA) - registers ex-post gaps in relative productivity which determine international trade flows

• success in firm-level upgrading enables the dynamic acquisition of competitiveness in new market niches, sectors, or phases of the productive chain (Pietrobelli, 1997;Lall, 2001;).

• From innovation, to upgrading, to the acquisition of firm-level competitiveness (i.e., competitive advantage).

Competing products

Scientific and knowledge fields

Research laboratory

Research laboratory

Governmentinnovation policyagencies

MNC MNC

InternationalStandardisationagency

Scientific Association

Competing technologies

subcontractor

Governmentstandardisation agency

RESEARCHCONSORTIUM

R&D Alliance Networks

© Todeva, 2005

RELATIONSHIPS

STRUCTUREACTORS

culturalapproach

relationalapproach

structuralapproach

The Network Diamond

Emanuela Todeva (2006) Business Networks: Strategy and Structure, New York: Taylor & Francis.

Conclusions – Supporting Cluster Development & Its Integration into Global Value Chains Through

Intermediation & Facilitation• prioritising and balancing between competition and cooperation• bridging to enhance information transparency of suppliers and contracts • creating effective institutions and intermediation practices• New policy framework that provides incentives for networking & decision support• Contract management support (platform governance & legal representation /

protection)• Strategic alliance management• Market access management

Intermediationtheory

Types ofIntermediariesInstitutional

Intermediaries

IntermediationActivities/ Practices

FinancialIntermediaries

IntermediationServices

Intermediation Channels

IntermediationMechanisms

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