Measuring Success in the Global Economy: International Trade, Industrial Upgrading, and Business Function Outsourcing in Timothy J. Sturgeon, Ph.D. Global Value Chains Industrial Performance Center, MIT url: http://web.mit.edu/ipc/people/faculty/sturgeon.html email: sturgeon@mit.edu From a paper with Gary Gereffi Department of Sociology and Center for Globalization, Governance, and Competitiveness, Duke University Measurement Issues Arising from the Growth of Globalization November 6-7, 2009, Washington, DC W.E. Upjohn Institute for Employment Research and National Academy of Public Administration
One reason we are here: The evolution of global industries and the rise of Global Value Chains (GVCs) • Phase I (1960s): vertically integrated national firms and industries • Phase II (1970s): global dispersion through offshoring by MNCs • Phase III (1980s ): geographic and organizational fragmentation: outsourcing and offshoring • Phase IV (1990s): A new consolidation, global suppliers, the rise of China • Phase V (2000): Services offshoring, distributed R&D and design, global knowledge and innovation networks, the rise of India • Phase VI?: Radical consolidation, supplier deaths, rising protectionism?
A structural shift toward outsourcing (and offshoring) Outsourcing in the US Automotive Industry, Assembly and Parts Employment, 1958-2002 600 500 400 300 Assembly Parts 200 100 0 1958 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 Note: Assembly includes SIC 3711 (Motor Vehicles and Car Bodies) and Parts includes SIC 3714 (Motor Vehicle Parts and Accessories). Source: Employment, Hours, and Earnings from the Current Employment Statistics Survey , SIC basis (US Bureau of Labor Statistics).
Intermediate goods trade - the rise of GVCs World imports of intermediate, capital and consumption goods, 1962-2006 Tech bubble Asian 1991-92 US financial Recession crisis 1985-86 PC bubble CAPITAL GOODS FINAL GOODS INTERMEDIATE GOODS Source: Sturgeon and Memedovic, forthcoming, using UN Comtrade statistics, BEC classification
Intermediate goods trade - the rise of GVCs World imports of intermediate, capital and consumption goods, 1962-2006 Tech bubble Asian 1991-92 US financial Recession crisis 1985-86 PC bubble CAPITAL GOODS FINAL GOODS INTERMEDIATE GOODS Source: Sturgeon and Memedovic, forthcoming, using UN Comtrade statistics, BEC classification GVC expansion has tended to accelerate further after busts
Developing countries - the rise of GVCs Billions of US dollars Intermediate Goods Exports 1988 1990 1995 2000 2005 2006 Industrialized 703.7 1,097.6 1,967.0 2,338.3 3,542.4 4,034.7 Developing 28.7 172.8 530.7 882.3 1,606.5 1,872.5 World 732.4 1,270.3 2,497.7 3,220.6 5,148.9 5,907.2 Industrialized 96.08% 86.40% 78.75% 72.61% 68.80% 68.30% Developing 3.92% 13.60% 21.25% 27.39% 31.20% 31.70% World 100% 100% 100% 100% 100% 100% Intermediate Goods Imports 1988 1990 1995 2000 2005 2006 Industrialized 780.4 1,266.7 2,010.6 2,486.3 3,850.4 4,451.1 Developing 42.9 184.0 644.8 892.4 1,658.9 1,872.7 World 823.3 1,450.6 2,655.5 3,378.6 5,509.3 6,323.8 Industrialized 94.79% 87.32% 75.72% 73.59% 69.89% 70.39% Developing 5.21% 12.68% 24.28% 26.41% 30.11% 29.61% World 100% 100% 100% 100% 100% 100% Source: Sturgeon and Memedovic, forthcoming, using UN Comtrade statistics, BEC classification
Main issues • Global integration is being driven by value chain fragmentation and better integration of the fragments -> global value chains • Very likely that global integration will continue to accelerate • Any value chain activity ( business functions ) can become a core competence, or be outsourced - some can be offshored. • New opportunities and risks are being created for national industries, firms, and workers. • Existing data resources are inadequate to support policy responses to global integration.
Main Recommendations 1. Collect more detail on services trade, using NAPCS product descriptions as a starting point. 2. Collect a range of establishment-level economic data according to business function.
The seventeen product categories collected by the Bureau of Economic Analysis for traded private services Travel, passenger fares, and other Royalties and license fees (2) Education (3) transportation (1) Financial services (4) Insurance services (5) Telecommunications (6) Business, professional, and technical services Computer and information services Management and consulting services (9) Research, development and testing (10) Computer and data processing services (7) Database and other information services (8) Construction, architectural, engineering (11) Industrial engineering services (12) Operational leasing (13) Installation, maintenance, and equipment Advertising (15) Legal services (16) repair (14) Other business, professional, and technical services (17) UN HTC (Comtrade) product codes for traded goods = 8,000 US Department of Commerce product codes for traded goods = 16,000
Examples of critical policy questions we can’t ask from existing data on services trade… • What’s going on in the service product categories that have been mentioned as moving offshore, such as the wide variety of back-office functions like accounting, customer support, and software programming? • Is trade increasing quickly in higher end services such as radiology image interpretation, market and legal research, and research to supports financial services? • Are customized software services staying onshore while only basic software coding is moving offshore, or is higher-skilled work and work related to innovation and new product creation also being imported?
Collect more detail on services trade!!!!!
Important aspects of GVCs are invisible or hard to see in trade statistics • Power in the chain (Locating strategic management) • Value capture in GVCs can be spatially separated from production and exports (iPod case) • Long term segmentation of knowledge in GVCs - is it possible? (more detail on services trade will help, but not solve this problem) • Co-evolution and the durability of GVCs; agglomeration, clusters, infrastructure (National, regional, and local specialization in business functions) We need to collect new data that measure GVCs more directly!
Conclusion #2: there is a need to collect establishment-level economic data according to a set of generic business functions • Generic definitions to allow comparison and aggregation across industries and places • Establishment-level data to allow detailed geographic analysis; firms can be derived • Specify ownership of business function sources (outsourcing) • Specify location of business function sources (offshoring)
Key questions raised by global value chains What business functions are establishments doing internally and externally 1) ( outsourcing )? 2) What business functions are establishments doing domestically and abroad ( offshoring )? 3) What types of jobs go with various business functions, including employment by occupation, wages, tenure, and number and type of new hires? 4) What educational and training requirements are associated with various business functions? 5) How do the business functions that an establishment engages in relate to the goods and services bought and sold ( inputs and outputs )? 6) How do the business functions that an establishment engages in relate to its economic performance (market share, profitability, employment, share of value added, market share) 7) How do the mix of business functions in establishments compare across countries ?
Vertical and support business functions Vertical business functions (the value-added chain) Intermediate Operations Customer Strategic Product Marketing & Logistics & Procurement input (main NAICS and after- management development sales distribution production. sales service code) General management and administration Human resources Technology & process development Firm infrastructure and ITC Horizontal business functions (support functions)
Business function outsourcing and offshoring “SoftTest” Inc. Newark, NJ Strategic managem ent Product dev elopm ent Marketing & sales Procurement Operations Logistics & dist Corporate governance Tech & process developm ent Firm infra & IT Interm ediate input production (“Softest SPC Design Group” Dublin, Ireland) Interm ediate input production (“ASIC Design I nc.” Santa Clara, CA) “Hum an Resource Managem ent, I nc.” (Newark, NJ) Customer & after- sales service (“CRM I nc.” Bangalore, India) Affiliated supplier Independent supplier
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