The problems in the distribution of benefits in a current context in global value chains, and how future solutions are observed
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“The problems in the distribution of benefits in a current context in global value chains;and how future solutions are observed”.
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Presentation contents
- Introduction
- Background
- The problems in the distribution of benefits in a current context in Global Value Chains.
- How then can you have a greater benefit in this context?
- What problems could occur?
- Finally a solution for the most affected area: Latin America.
- Understand the different forms of participation of the countries in the GVC.
- Understand the unequal distribution of benefits of the GVC.
- Know resources to solve the problem of integration.
Objectives
Introduction
At present the world is presented with a strong globalization in international trade. Product, political, communication and monetary flows are related to this area of study.
The development of these connections between countries is achieved through Global Value Chains.
What are these?
It is the division of the production process in determined countries respectively, being differentiated by their level and type of added value in a productive area. With the help of advances in transportation and communication, modern logistics and the internet, it has been able to maintain positive levels depending on the final products.
Fact: GVCs have been developed since 1990, but have undergone changes over the years with economic crises in various countries over the years.
Background
With industrialization the countries of the world had two options:
1) The country established its entire production process as sustenance in just one complex product.
2) The country surrenders to integration or it is impossible for it to adapt to change, so it focuses on economic activities of livestock, agriculture, fishmongering or extraction.
Regardless of the selection option, integration to the CGV is possible, however the benefit is basically different due to the costs, effort and complexity of the task in how it participates.
This being the case, it is important to note that it also influences the type of product that participates, for example the value of the participation can range from a garment to a complex computer.
The problems in the distribution of benefits in a current context in Global Value Chains.
38 %
Current participation by activity.
To capture these distinctive characteristics of participation, countries are classified into four main types:
1) Commodities
2) Limited manufacturing
3) Advanced manufacturing
4) Innovative services and activities
Distinctions can be made between regions. On the one hand, there are East Asia, Europe and North America with a dedication to advanced manufacturing and services, while Africa, Central Asia and Latin America are found with basic products and limited manufacturing.
Why is this happening?
Developed countries have the development of leading companies that trade products and services that have greater added value. This means that the product is in some way more efficient and satisfies in a greater way.
These countries have greater economic and financial support from their respective governments through initiatives such as: research, investment, tariff liberalization, better connectors, liberal trade policy, among others. This then allows them to direct the global value chain, leaving other countries with less capacity the option of integrating on a smaller scale.
The earnings of the CGV has a complex labor system of care, as well as it does not show an equal distribution of benefits between countries, even the benefits of the cost reduction of large companies are not seen in the final consumer.
Africa
Fact: This is natural in any case since it is the companies who make personal decisions regarding the margin of withholding of profits.
However, with respect to inequality, it happens that there is constant competition between productive activities, so there are countries with small economies that share the same activity, not being able to make their distinction possible, in preference to selection in the integration of the chain.
The leading company will choose the best option in quality, cost strategy, geography and entry of tariffs.
Therefore, the countries will have to implement the best incentives, that is, mainly by lowering the cost price with the same quality.
How then can you have a greater benefit in this context?
Answer: The countries must fundamentally level up. (In the upward direction as shown below)
The higher up the more value your task has.
This allows to position a specialization with higher valuation.
Example:
Vietnam’s backward participation in electronics GVCs increased from 47 percent in 2000 to 67 percent in 2010.
The country used the greatest of the solutions to be able to change the level, that is, liberalization. I use tools that allowed them to lower tariffs, so that what was imported had greater value when exported. This allowed it to attract investors, financing and trade agreements with the United States, reaching a pre-privileged level.
At present it belongs to 40% of the world's telephone sector, being the second largest exporter.
What problems could occur?
Commercial blockage by competition
Investor exit
Distrust of guarantee of success for financing
Trade policy current difference
Finally a solution for the most affected area: Latin America.
The greatest change in growth is made when it goes from exporters of natural resources to manufacturing, however this region could not commit with the already existing low-cost manufacturing of other countries such as India, Bangladesh and China, so for its evolution in the chain must have a cooperation between them with the contribution of their comparative advantages.
This is why the most hopeful path for greater benefits and achieving growth for the region is to unite those tasks and carry out a GVC between this area in relation to innovation. They have several advantages such as: economic weight with Mexico, Brazil, Argentina and Chile, investors with strong relationships, geographic proximity, among others.
Reflection: However, we must take into account the diversity of policies that are developed in these countries and how they handle these situations, since, for example, that a social outbreak develops is a sign that they do not give a good guarantee to negotiate, to others there is a strong current dependence by this region with world powers, which is easy to predict the blockade and withdrawal of investments that would occur at the time of a union.
However, with the new changes that occur in the world regarding population growth, climate change, overconsumption and new searches for resources, they could threaten to maintain this dependence.
Is it time for a "Latin American Union"?