Globalization of Value Chain Part II Global Value

Globalization of Value Chain (Part II)

Global Value Chain Analysis o Early known as the Global Commodity Chain approach, proposed by Gary Gereffi (1994). o Refer to configuration of activities that are divided among firms and that have a global geographical scale o The international structure of production, trade, and consumption of commodities is disaggregated into stages that are embedded in a network of activities controlled by firm

Five Governance Patterns in Global Value Chain o o o Markets Modular Value Chains Relational Value Chains Captive Value Chains Hierarchy

Key Dimensions in Global Value Chain Analysis o The input-output structure and the geographical coverage of value chains o The form of governance of global value chains o The institutional framework surrounding the chain

Approaches in Global Value Chain Analysis o Empirical observation and theoretical discussion of forms of coordination and governance in global value chains o Conceptual and policy-related analyses of paths of upgrading, with particular reference to developing country farms and firms

Coordination of Value Chains Via Standards o Standards communicate information about the attributes of a product o Standards systems can be classified in three broad categories: mandatory, voluntary and private o Standards are not free from manipulation, power struggles and opportunistic behavior

Factors in Global Value Chain Analysis o Standards n Compliance & cooperation o Sustainability n Environmental impact n Animal welfare concerns n Worker conditions o Ethical Trade n Enterprise initiatives n Certification and labeling procedures

Challenges in Global Value Chain Analysis o The complexity of transactions o The codifiability of transactions o The competence of suppliers

Case Study : Starbuck’s Global Value Chain Analysis Starbucks, a $4 billion company, started in November 2001 a pilot program for the establishment of a “preferred supplier system” (PSP) of green coffee purchasing

Starbuck’s Challenges o To improve the coffee production with sustainability o To reward supplier adopted sustainability practice o To establish corporate social responsibility

Starbuck’s Approaches o Constitute a set of standards and verification procedures o A flexible point system to reward performance in a number of categories of sustainability o Financial incentive for suppliers with high scores

The Outcome o Reducing operating costs o Creating a sustainable supply chain o Helping the formers and their community

Discuss the following questions: n What problems do Starbuck address? How does PSP initiative help solve these problems? n What issues and challenges do global value chain present? What can be done to address these issues? n What are the business issues that should be addressed when Starbuck implemented PSP?