Global Value Chains (GVCs) refer to the series of stages in the production process of a good or service – from conception and design, to manufacturing, distribution, and support services – that add value at each step. These stages can be spread across multiple companies and countries, hence the term “global” value chains.
The electronics and semiconductor sectors provide an excellent example of how GVCs work:
Design: This stage involves the conceptualization and design of a new semiconductor or electronic product. This often takes place in advanced economies like the United States or parts of Europe, where companies like Intel, Qualcomm, or Nvidia have their design operations.
Materials and Inputs: Semiconductors require a range of specialized materials, including silicon, rare metals, and chemicals. These materials are sourced globally from places like Australia (silicon), China (rare earth metals), and various countries for chemicals.
Manufacturing: The manufacturing of semiconductors is a highly sophisticated process that requires specialized facilities known as fabs. This manufacturing is concentrated in a handful of countries, with Taiwan (TSMC) and South Korea (Samsung) being notable examples. In the case of electronics, assembly is often done in places like China and Southeast Asia due to lower labor costs.
Testing and Packaging: After manufacturing, semiconductors are often sent to other locations for testing and packaging. Countries in Southeast Asia, like Malaysia and the Philippines, have a significant presence in this area.
End Products and Distribution: The semiconductors then become part of various electronic products like smartphones, computers, or cars. These finished goods are then distributed and sold globally.
After-sales Services: After-sales services include things like warranty services, software updates, and customer support. These services can be based in various locations around the world, often close to major markets.
Through GVCs, each country or company specializes in the part of the production process where it has a comparative advantage. However, GVCs also create interdependencies between countries, and disruptions in one part of the chain can have significant impacts downstream. As we’ve seen with the COVID-19 pandemic, such disruptions can lead to global shortages of semiconductors and other products.
