The Complexity of Everyday Products and Global Value Chains

Concept of the Value Chain

• Social scientists use the term 'value chain' to describe the process of designing, producing, and delivering products.
• Initial production was usually confined to one company in one location.

Historical Evolution

Era of Trade in Final Goods

• Firms produced whole products to serve different markets.

Era of Trade in Intermediate Goods

• New technologies allowed fragmentation of production.
• Multiple establishments specializing in individual components emerged.
• This led to the concept of Global Value Chains (GVCs).

Example: Bicycle Production

• Collaborative effort among various countries:
  • Brakes: Japan
  • Frames: China and Vietnam
  • Saddles: Italy
• Firms can enter the global market by specializing in one component or task.

Upgrading in Global Value Chains

What is Upgrading?

• Moving up the 'smile' to more sophisticated activities in the value chain.

Case Study: Shimano

• Began producing freewheels in Sakai City due to regional advantages in heavy industry.
• Upgraded horizontally to produce other parts like speed changers.
• Upgraded vertically into research and development.
• Continues to generate jobs in the same region over 100 years later.

Economic Development Strategies

• Countries, regions, and cities need to understand their position in global value chains.
• Adopt strategies for upgrading within these chains.

Public Policy Considerations

• Ensure global value chains provide value to local actors and not just extract value.
• Consider geopolitical fragmentation and climate-related shocks for future strategies.

Final Thought

• Global collaboration is essential in the production of everyday items, like bicycles.