1 Introduction

The global value chain (GVC) is a global production and distribution network of various entities (firms) located in different countries and regions, coordinated, as a rule, by a large multinational enterprise (MNE), which carries out the entire set of activities for the development, production, marketing and after-sales service of goods. The value chain represents the flow of goods, services, investment, technology, information, and labor.

The phenomenon of global commodity and supply chains dates back to the 1970s. In the 1990s, those global chains have gradually transformed into global value chains and covered the field of manufacturing, and since the 2000s—the service sector. Modern GVCs are being reconfigured under the impact of many factors, particularly the inclusion in these chains of strategic alliances of MNEs and the active use of outsourcing and offshoring.

2 Concept and Typology of Global Value Chains

The globalization of production, possibilities of fragmentation of business operations, and value creation permit companies to deploy fragmented production and supply system based on networks going beyond national borders. Significant reductions in transport and communication costs accelerate this process, as well as the elimination of political and economic barriers to trade, which have increased the potential for international fragmentation of production. As a result, GVCs have become an essential element of economic globalization. Nowadays GVCs cover about 60% of world trade in intermediate goods (in turn, this trade makes up almost half of the total world trade in goods). Over 1/2 of intermediate goods imported by the member-states of OECD and almost 3/4 of imports of large developing countries such as China and Brazil are traded within the framework of GVCs.

GVCs impacted the boundaries of traditional firms which are increasingly turning into global and regional networks. GVCs are more common in industries where the different stages of value creation are easier to distinguish, such as the electronics, automotive, aviation, and apparel industries. GVCs also exist in other industries, especially in services.

GVCs enable firms and countries to participate more in global trade and create more value. Firms-participants of GVCs benefit from differences in cost, skill, and technology between countries as well as from economies of scale (Gereffi 2019). Member firms of GVCs can upgrade their technological level by getting technologies and know-how from foreign MNEs. GVCs also facilitate the participation of micro, small, and medium-sized enterprises in globalization cooperating with online platform MNEs.

There are two approaches to measure the participation of a country in GVCs—as a trade-based proportion or a production-based proportion. China and the US as well as Germany, Korea (Republic of), and Taiwan (province of the PRC) are among the top GVC players (Table 1).

Table 1 The trade-based participation in GVC rate, %
Full size table

Typically, countries with a significant FDI presence (relative to the size of their economies) tend to be more active in GVCs and generate relatively sizeable domestic export value-added. On this basis, some developing countries have drastically increased their share in GVC trade in the previous decade, especially Costa Rica, Vietnam, Cambodia, and Laos (Global Value Chain Development Report 2021). For example, in China domestic value-added exports connected with participation in the GVCs increased six times, in India—five times and in Brazil—almost three times for the period 2000–2017.

GVC participation is evidently promoting economic growth of such countries, specializing in labor-intensive assembly activities along GVCs, as Bangladesh (textiles) and Viet Nam (electronics). China, India, Brazil, Mexico, Indonesia, Vietnam, and others are the most promising destinations for GVCs. Among other countries actively integrating into the existing and emerging GVCs also can be mentioned Turkey, Peru, Chile, Malaysia, Poland, the Philippines, Thailand, and Bangladesh.

3 The Role of MNEs in the Formation and Management of Global Value Chains

GVCs are usually formed and coordinated by multinational enterprises. Globalization had a profound impact on the transformation of MNEs into companies that manage global value chain operations aiming to maximize global profits. An increasing part of international trade in intermediate and final goods and services is carried out within the network of subsidiaries, affiliates, and dependent companies of the largest MNEs. GVCs, coordinated by MNEs, account for the biggest part of the total world trade. One cannot but mention that GVCs are typically measured in the statistics of international trade based on exports and, as a result, the local sales of affiliates of MNEs are calculated as a non-GVC activity, although this “missing” activity is considerable.

The length of GVCs is measured in several stages starting with the primary inputs and finishing with the final distribution. The length of an average GVC in 2000 was 7.9 stages, in 2010—8.5, and in 2019 there remained 8.5. All stages are managed directly or indirectly by those MNEs that are at the head of GVCs. For them, the principal approach to the formation and management of GVCs is the intercountry differences in labor, capital, and other costs, which are constantly changing. Another approach is based on a reasonable degree of intra-country and sectoral diversification. As a result, a lot of economic, technological, and political factors determine the architecture of GVCs. It means that a head MNE has to monitor constantly “the division of labour” inside its GVC and re-divide it among old and new firms-participants (so-called trade-in tasks).

Inside their global chains, MNEs themselves are usually concentrating on R&D, technology, investment, and business intelligence. As a rule, MNEs prefer to keep the management of those elements of CVCs within their organizational structure (parent structure) because it provides them with strategic control over the product and investment decisions inside their GVCs.

Another MNEs strategy for managing global value chains is to maintain control of the upper stages of a value chain: the final assembly, distribution, and marketing of finished goods which tends to be highly profitable. As a result, value chains are an efficient way for MNEs to exploit their brands, patents, and other intellectual property.

  • Apple Inc., the US’s flagship manufacturer with a market value of $3 trillion at the beginning of 2022 is a hallow, factoryless manufacturer which governs its GVC via knowledge assets including patents, trademarks, copyrights, brand names, product designs, software, databases, as well as special business organization structures. In the fiscal year 2021, Apple's sales totaled $232 billion in overseas markets, one of the highest figures among US companies. Apple had $68.4 billion in sales in China only.

The knowledge flows, innovation dynamics, and use of intellectual property in GVCs are key elements of GVC efficiency and significantly increase MNEs incentive to realize R&D and innovate. Such intangible imports by foreign affiliates of MNEs double GVC trade volume (Value Chain Development Report 2021).

  • Apple iPhone X’s cost is close to $1000. The cost of all parts and assembly services totals $409 to which Apple adds $591 of intangible assets’ cost: the iOS operating system, the brand, product design, and marketing and retail networks. To make an iPhone, Foxconn in China imports $76.5 worth of parts and components from the US and $228.8 from the rest of the world.

Besides GVCs created by manufacturing MNEs, international retailers such as Walmart, Costco, Target, Metro, Tesco, Auchan, and Lotte Shopping also often act as “leading firms” in many GVCs focused on consumer goods.

4 Global Value Chains: Industry and Governance Approach

In academic literature, a clear distinction is made between chains initiated by producers and buyers (e.g., Dallas et al. 2019; McWilliam et al. 2019).

The first type of GVCs is a manufacturer-initiated chain. Here, the technological competence of the leading firm (firms) determines the competitiveness of the chain. Manufacturers managing a global chain can be both from high-tech industries (semiconductors, aerospace, radio- and telecommunications equipment, pharmaceuticals) and traditional manufacturing industries (automotive, mechanical engineering, chemicals).

The second type is a customer-initiated chain, where the leading firm is the final consumer, such as retailers or some consumer goods manufacturers (e.g., branded clothing, footwear, and food). In customer-initiated chains, retailers and brand owners manage production with a focus on marketing and sales.

At least five GVC governance models can be distinguished:

  • hierarchical chains are based on operations of vertically integrated firms where the supply of intermediate goods and components is carried out within the framework of intra-firm trade of one MNE;

  • quasi-hierarchical chains include low-capacity suppliers or intermediate customers who require significant support and ongoing attention within well-developed supply chain management from MNE managers;

  • value chains with relational and modular management are characterized by long-term relationships between MNEs and their suppliers and customers within the chain, but by a low level of MNE dominance, because the leading suppliers in such a chain have their unique competencies (and infrastructure) and can work independently of the leading firm;

  • market chains are the classic relations of market freedom and competition found in many product markets (Gereffi et al. 2005).

In many quasi-hierarchical chains (with significant management power of MNEs), for example, organized by industry leaders such as Apple or Nike, GVC member firms must confirm that they will not work with competitors as a condition of signing a contract. At the same time, many firms exporting goods (components) operate in several value chains simultaneously and serve both national and international markets.

A general trend in GVC governance model is a tendency to move away from quasi-hierarchical models to modular ones. This form of governance lowers supply chain management costs and allows MNEs to maintain reasonable levels of competition in their chains. (McWilliam et al. 2019). For example, some letdowns of Motorola and Nokia took place because their former suppliers HTC, ZTE, and Huawei started successfully competing in world markets by creating their value chain networks.

  • In the global smartphone market, there are four top global smartphone brands attractive to low- and middle-income consumers. They include Chinese corporations Huawei Technologies Co. Ltd., OPPO Co. Ltd., VIVO, and Xiaomi Corp. However, these Chinese producers imported core technological components from foreign MNEs because they had limited technological capabilities themselves in core components. To upgrade their position in GVCs, Chinese firms focused on research and development, marketing, and brand building. Thanks to the modularization of smartphone production and standard mobile platforms, they are taking advantage of minimal costs of production and successfully started to compete with foreign rivals internally and abroad. Fast innovations helped these firms to win the competition in the domestic market and to expand globally. By the end of 2021 VIVO, OPPO, and Xiaomi had taken three of the top five positions in smartphone shipments.

Most of the theoretical concepts of GVCs are based on the assumption that firms operate in a single value chain with one client. In real life, everything is much more complicated. First, most modern firms are diversified and usually have many business lines and produce various goods and services, often belonging to different industries. Second, there are many GVCs, for example, in the textile, electronics, and automotive sectors, where the same suppliers work with many customers.

5 Current and Future Transformation of Global Value Chains

The development of GVCs in the coming decades would be framed by international competition and technological revolution. New technologies and a greater degree of customization should cause a significant fragmentation of the manufacturing. GVCs have become a reality thanks to a higher level of coordination and control made easy thanks to information and communication technologies, and further digital transformation of GVCs is connected with the digitalization of all the operations of MNEs.

The slowdown in globalization as well as changes in the global business environment have already led to a change in GVCs. A reduced number of participants, shorter length, and an increase in regional localization are characteristics of today's GVCs. The Fourth Industrial Revolution can reduce the need to move certain value chain activities overseas, thereby allowing leading global companies to bring some of their offshore activities back to their home countries (Connell et al. 2018).

The increasingly widespread use of robots, artificial intelligence, machine learning, big data, and the Internet of things is influencing GVC configurations. One of the technologies which may especially affect the configuration of the GVC, primarily in the aerospace and automotive industries, is an additive manufacturing (3D printing). There are two possible scenarios for GVCs in these industries—complimentary 3D printing and a substitution scenario where 3D printing partially or wholly replaces traditional production, which can lead to regionalization or localization GVCs.

Other prospects for many GVCs are associated with the gradual relocation of production from China (due to political issues and the growth of wages and other costs in China) to nearby countries in Southeast Asia, in particular Vietnam, Indonesia, the Philippines, and Thailand. At the same time forecasts predict the growing importance of GVCs organized by MNEs from such countries as China, Mexico, Brazil, Turkey, Russia, South Africa, Singapore, India, and South Korea. They are increasing their sales not only in their regions but also globally.

Many future changes are related to COVID-19 aftermath. The distributed production system based on GVCs was not adapted to the shocks of the COVID-19 pandemic and played an essential role in transmitting shocks from the external environment to the domestic economy, whether incoming or outgoing. During the pandemic, the trade through GVC channels became the primary mechanism for the spread of economic recession from country to country. Most MNEs, organizers of GVCs, had a sufficient level of safety in terms of working capital, profits, stocks and other indicators to withstand the corona crisis but they happened to be vulnerable to such sudden stops. The most significant risks of GVCs turned out to be associated with the excessive dependence of GVC participants on export supplies from other countries and the use of just-in-time global supply systems by most MNEs, which made GVCs unsustainable and fragile during crises. (Teipen et al. 2022). These shocks have become a kind of catalyst for the transformation of the GVCs.

Pandemic-driven changes to GVCs reflect industry specifics. The leading MNEs in the semiconductor industry should not relocate their manufacturing sites due to significant country comparative advantages. At the same time, if we take the automotive industry, two-thirds of MNEs are going to move chain links to geographically closer regions. MNEs from less complex industries, such as the production of consumer goods, are also ready to minimize the length of GVCs and transform chains into regional ones. As a result, reshoring and focusing on proximity to sales markets become priority trends in the future configuration of GVCs.

6 Conclusions

  1. 1.

    GVCs play an important role in the global economy, being principal actors in the international trade. It is MNEs who organize the GVCs. The parent company forms the entire global or regional value chain, and coordinates, organizes, and controls relationships with related and subordinate firms and sub-suppliers.

  2. 2.

    Intangible assets play a critical role in GVCs. MNEs tend to move away from hierarchical and quasi-hierarchical models to modular types. This form of GVC governance minimizes costs and allows MNEs to maintain reasonable levels of competition in their chains.

  3. 3.

    Two main types of GVCs can be distinguished: producer-driven chains and buyer-driven chains. Five options for GVCs governance model can also be distinguished.

  4. 4.

    The transformation of GVCs can cause greater regionalization of value chains. With further digitalization, value chains will become shorter, less oriented towards the use of cheap labor, and services and information exchange will become more important than intermediate goods.