Searching for an essay?

Browse the database of more than 3800 essays donated by our community members!

Using Global Commodity Chains to Study Industrial Upgrading

The increasing integration of domestic economies with the world economy is a central feature of “globalization.” What makes globalization different from earlier stages in the international division of labour is, in large part, the ability of producers to slice up the value chain, i.e., to break up of the production process of a commodity into many geographically separated steps (Porter, 1990; Krugman, 1995).

This global dispersion of commodity chains increases opportunities for developing countries to participate and gain from trade because it provides greater room for them to specialize in the labour-intensive stages of the manufacturing process of a commodity. Industrial upgrading, from this perspective, involves moving up global commodity chains from labour-intensive activities to more capital- and skill-intensive economic activities that involve organizational learning to improve the position of firms or nations in international trade and production networks (Gereffi, 1999).

Writing service

Conditions

Website

essaypro

[Rated 4.9]

Prices start at $12
Min. deadline 6 hours
Writers: ESL
Refund: Yes


Payment methods: VISA, MasterCard, American Express

extraessay

[Rated 4.8]

Prices start at $11
Min. deadline 3 hours
Writers: ESL, ENL
Refund: Yes


Payment methods: VISA, MasterCard, American Express, Discover

extraessay

[Rated 4.75]

Prices start at $10
Min. deadline 3 hours
Writers: ESL, ENL
Refund: Yes


Payment methods: VISA, MasterCard, JCB, Discover

The concept of industrial upgrading encompasses several related levels of analysis: product characteristics, types of economic activity, intersectoral shifts, and intersectoral shifts (Gereffi and Tam, 1998). At a product level, one can talk about the movement from simple to more complex goods of the same type (e.g., cotton shirts to men’s suits). At the level of economic activities, there are various roles that involve increasingly sophisticated production, marketing, and design tasks. One typology includes assembly, original equipment manufacturing (OEM), original brand name manufacturing (OBM), and original design manufacturing (ODM).

The third type of industrial upgrading involves an intersectoral progression, typically from the manufacture of finished items to the production of higher-value goods and services involving forward and backward linkages along the supply chain. Finally, industrial upgrading may also be viewed as the intersectoral shift from low-value, labour-intensive industries to capital- and technology-intensive ones (e.g., clothes to cars to computers). While firms generally implement industrial upgrading, the spatial context in which this activity occurs and is observed includes local, national, and regional economies.

In the specific historical context of the global apparel industry, one of the clearest qualitative indicators of industrial upgrading are the role shifts involved in moving from the assembly (using imported inputs) to more integrated forms of manufacturing and marketing associated with the OEM and OBM export roles (Gereffi, 1995). Participation in assembly networks (often associated with export-processing zones) is considered the first step in the upgrading process because it teaches apparel exporters about the price, quality and delivery standards used in global markets.

Thus, entry into the apparel commodity chain via the assembly role requires learning how to work with organizational buyers (e.g., manufacturers, trading companies, and brokers) that supply the exporting firm with fabric and other inputs needed to assemble garments.

The most typical upgrading move following assembly is OEM or full-package production. Why is full-package production so useful for the success of a country in a global commodity chain? Compared with the mere assembly of imported inputs, full-package production fundamentally changes the relationship between buyer and supplier in a direction that gives far more autonomy and learning potential for industrial upgrading to the supplier. Full-package production is needed because the retailers and marketers that order the garments do not know how to make them.

Thus, the suppliers must learn how to do everything, and they frequently do so in a relatively long-term relationship with the buyers. Moreover, if the buyer is a marketer, the supplier can closely observe its client’s behaviour in response to changing market conditions. The more stable and open the relationship between the buyer and the supplier, the more favourable is the environment for observing and learning from the buyer.

Particular places such as the East Asian NIEs of Hong Kong, Taiwan, South Korea, and Singapore have used the OEM role to create an enduring edge in export-oriented development. However, East Asian producers confront intense competition from lower-cost exporters in various parts of the third world, and the price of their exports to western nations has been further elevated by sharp currency appreciations during the past decade.

Under these circumstances, it is advantageous to establish forward linkages to developed-country markets, where the biggest profits are made in buyer-driven commodity chains. Therefore, a number of firms in the East Asian NIEs that pioneered OEM are now pushing beyond it to the OBM role by integrating their manufacturing expertise with the design and sale of their own branded merchandise (Gereffi, 1995).

Industrial upgrading as export role shifts can be illustrated by looking at changing patterns of international trade in the apparel industry. Figure 2 reveals significant shifts in the regional patterns of U.S. apparel sourcing between 1990 and 1998. Between 1990 and 1998, U.S. apparel imports rose from $25.5 to $53.9 billion. Figure 2 is an import map that helps to identify trade shifts among the main suppliers to the U.S. apparel market.

Those nations in the innermost circle each account for 10% or more of the total value of U.S. clothing imports in 1998, while each of those in the outer ring makes up only 1.0-1.9% of total imports. In other words, as one moves from the inner rings to the outer ones in this import map, the relative importance of national apparel exporters decreases.

[Figure 2 about here]

Several key aspects of the direction and magnitude of change in U.S. apparel trade are revealed in Figure 2. First, there are striking regional differences in the pattern of U.S. apparel imports. The NIEs in Northeast Asia are becoming much less important in U.S. apparel sourcing, South and Southeast Asia are growing slowly or not at all, and imports from China, the Caribbean Basin, and Mexico are booming. Second, despite considerable mobility during the 1990s, there is a strong core-periphery pattern that dominates the geography of export activity in the U.S. apparel sourcing matrix. Only four economies (Hong Kong, South Korea, China, and Mexico) were cored U.S. suppliers during the past decade, and only China and Mexico currently hold that distinction.

There is a wide dispersion of 17 apparel suppliers in the outer two rings (indicating 1% to 4% shares of the U.S. apparel market), with just five nations in the inner three rings. Third, while for most countries the degree of change from 1990 to 1998 has been relatively modest (they changed their position by one ring or not at all), other nations have shown more substantial degrees of advancement (Mexico, Guatemala, El Salvador, Honduras, and Canada) or decline (South Korea and Singapore). Nonetheless, inward shifts of even one ring may be quite significant for smaller economies, given the substantial overall growth of U.S. apparel imports in the past decade.

These patterns of U.S. sourcing highlight three distinct models of competition in the North American apparel industry. First, there is an East Asian model in which national exporters in the East Asian NIEs offer full-package apparel to the U.S. buyers, which allows them to dominate the higher value, mainly women’s fashion-apparel market. Second, there is an emerging Mexican model in which NAFTA’s rules of origin create an incentive for more integrated apparel production in Mexico, although diverse U.S. firms are vying for the lead role in coordinating this full-package option (Gereffi and Bair, 1998).

Third, there is a Caribbean Basin model in which the traditional form of production sharing prevails, based on a mixture of low wages, an export-processing zone format, and preferential access to the U.S. market through Caribbean Basin Initiative production-sharing provisions. But Caribbean Basin apparel producers still confront U.S. quotas that offer none of the benefits of the NAFTA rules of origin. While Mexico has graduated beyond simple assembly, it has not yet achieved the full-package status of East Asian export firms.

Cite this page

Choose cite format:
Using Global Commodity Chains to Study Industrial Upgrading. (2021, Feb 04). Retrieved June 19, 2021, from https://essayscollector.com/essays/using-global-commodity-chains-to-study-industrial-upgrading/

Leave a Reply

Your email address will not be published. Required fields are marked *