Introduction to the Handbook on Global Value Chains

Abstract

Technological and organizational changes have been crucial in transforming the way in which production is organized across time and space. The steam engine in the nineteenth century made transportation and manufacturing economical in ways that allowed the spatial separation of production from consumption (Baldwin, 2016). Although for much of the twentieth century production remained organized along vertically integrated firms, by the late 1970s a more flexible and spatially dispersed mode of production had taken hold based on slicing production into specific tasks and moving some of these out of the boundary of the firm through external contracting (Piore and Sabel, 1984). Information and communication technology (ICT) in the latter part of the twentieth century further facilitated the global outsourcing and offshoring of manufacturing activities (Dicken, 2007). This has led to the organization of economic activity in global value chains (GVCs) that are dispersed globally but governed centrally by ‘lead firms’ (Gereffi, 1994b; Gereffi, Humphrey and Sturgeon, 2005; Gibbon and Ponte, 2005; Bair, 2009a; Cattaneo, Gereffi and Staritz, 2010; Ponte and Sturgeon, 2014). The term ‘global value chain’ refers to the full range of activities that firms, farmers and workers carry out to bring a product or service from its conception to its end use, recycling or reuse. These activities include design, production, processing, assembly, distribution, maintenance and repair, disposal/recycling, marketing, finance and consumer services. In a ‘global’ value chain, these functions are distributed among many firms scattered around the world. In this context, ‘lead firms’ are groups of firms that operate at particular functional positions along the chain. Lead firms are able to shape what is done and by whom along the chain, at what price, using what standards, to which specifications and at what point in time they are delivered (Humphrey and Schmitz, 2001; Gereffi et al., 2005; Ponte and Sturgeon, 2014). GVC governance, therefore, is the set of concrete practices and organizational forms through which a specific division of labour between lead firms and other actors arise and is managed (Gibbon, Bair and Ponte, 2008). Understanding the changing dynamics of the global economy requires knowledge of how GVCs are governed and what distributional effects arise from different governance forms. The concept of GVC governance is based on the observation that value chains are rarely coordinated spontaneously through market exchange (Gereffi, 1994b; Gereffi et al., 2005; Gibbon et al., 2008). Instead, they are governed as a result of strategies and decision making by specific actors, usually large firms that manage access to final markets globally, but also at regional and national and local levels. In deciding how to manage trade and production networks in global industries, lead firms are faced with a number of choices. First, whether to make parts and components or provide particular services inhouse, procure them on the market, or adopt hybrid solutions involving various kinds of longer-term outsourcing relationships with suppliers. Second, if they decide to outsource