Global Value Chains - lecture 3
Who set's the rules in a value chain?
if things go wrong, who can change specs, audits and timelines tomorrow morning?
example: news article about a food scandal where horsemeat was sold as cow meat>who is
responsible for this? The supplier who delivers for it or the buyer (Lidl, spar, etc.) who asks
for it? Or both?
is down-, mid-, or upstream activity responsible?
In supermarket meat, who could change supplier tests and labeling this week/tomorrow>the
retailer or a specific processor?
generally the retailer holds the power, because there are a lot of different suppliers to
choose from.
why coordination/governance matters
more fragmentation/globalization, more handoffs>product spans many firms in many
countries
example>airplane components are made in all kinds of different countries
example> granola bar ingredients come from all over the world
how do you make sure everyone delivers?
faster cycles, tighter specs
faster cycles='seasons' are short nowadays (clothing is only trendy for a short time),
tighter specs=nowadays there is more customization>meaning more different
processes to manage
bottlenecks and shocks
scarce inputs (chips, vessels) + disruptions (covid-19, geopolitics/wars>capacity get
allocated by whoever controls the chokepoint
rules and responsibility travels upstream
brands must enforce quality, safety and sustainability across suppliers
all steps in the value chain must adhere to this
for all this we need governance
who sets the rules for governance?
lead firms>actor that sets and/or enforces key parameter under which other firms within the
GVC operate and coordinates GVC activities through non-market mechanisms
, buyer-led GVC (downstream-led)>big brands coordinate many suppliers they don't
own
what happens: brand sends a tech pack (fabric, GSM, color codes, stitching,
sizes, packaging), target price, delivery window and audits
who coordinated>buyer/brand chooses factories, schedule production, approve
samples, book vessels and can also charge back or cancel if specs or timelines
slip
why this is buyer-led>there are many factories, but a few big buyers. Losing one
big buyer hurts more than
for group assignment> few buyers means your GVC is buyer-led
producer-led (upstream-led)>capital-heavy producers coordinate more directly,
sometimes by owning more steps
what happens: phone brands design chips to fit TSMC's (Taiwanese chip
company) rules and book in advance
who coordinates: upstream producer (TMSC) sets the checkpoints and delivery
windows, brands adjust their plans to TSMC's schedule
why this is producer-lead>producer (TSMC) hold the power, very few other place
make those chips, so switching supplier takes time and money
why coordination matters>if TSMC moves the slot or reallocates capacity, phone
launch dates move (also marketing, retailers and app partners are all impacted)
for group assignment>few suppliers means your GVC is supplier-led
lead-firm is the firm that hold the scarce resource
make or buy (Gereffi, 2005)
make= make product yourself, buy=buy the product on the market
codify= means that transaction can be written down on paper and thus the transaction can
follow a standard procedure with standard rules that apply every time.
examples of transactions that can be codified would be office supplies, customer
orders or tax payments
examples of transactions that cannot be codified would be informal agreements,
complex or one-off events
Gereffi (2005) nuances the buy or make choice with in 3 more types of relations between
supplier and retailer
- market
- low complexity of transactions, easily codified and you can switch easily to another
supplier
- firm buys products/services on the market from a supplier
- modular
Who set's the rules in a value chain?
if things go wrong, who can change specs, audits and timelines tomorrow morning?
example: news article about a food scandal where horsemeat was sold as cow meat>who is
responsible for this? The supplier who delivers for it or the buyer (Lidl, spar, etc.) who asks
for it? Or both?
is down-, mid-, or upstream activity responsible?
In supermarket meat, who could change supplier tests and labeling this week/tomorrow>the
retailer or a specific processor?
generally the retailer holds the power, because there are a lot of different suppliers to
choose from.
why coordination/governance matters
more fragmentation/globalization, more handoffs>product spans many firms in many
countries
example>airplane components are made in all kinds of different countries
example> granola bar ingredients come from all over the world
how do you make sure everyone delivers?
faster cycles, tighter specs
faster cycles='seasons' are short nowadays (clothing is only trendy for a short time),
tighter specs=nowadays there is more customization>meaning more different
processes to manage
bottlenecks and shocks
scarce inputs (chips, vessels) + disruptions (covid-19, geopolitics/wars>capacity get
allocated by whoever controls the chokepoint
rules and responsibility travels upstream
brands must enforce quality, safety and sustainability across suppliers
all steps in the value chain must adhere to this
for all this we need governance
who sets the rules for governance?
lead firms>actor that sets and/or enforces key parameter under which other firms within the
GVC operate and coordinates GVC activities through non-market mechanisms
, buyer-led GVC (downstream-led)>big brands coordinate many suppliers they don't
own
what happens: brand sends a tech pack (fabric, GSM, color codes, stitching,
sizes, packaging), target price, delivery window and audits
who coordinated>buyer/brand chooses factories, schedule production, approve
samples, book vessels and can also charge back or cancel if specs or timelines
slip
why this is buyer-led>there are many factories, but a few big buyers. Losing one
big buyer hurts more than
for group assignment> few buyers means your GVC is buyer-led
producer-led (upstream-led)>capital-heavy producers coordinate more directly,
sometimes by owning more steps
what happens: phone brands design chips to fit TSMC's (Taiwanese chip
company) rules and book in advance
who coordinates: upstream producer (TMSC) sets the checkpoints and delivery
windows, brands adjust their plans to TSMC's schedule
why this is producer-lead>producer (TSMC) hold the power, very few other place
make those chips, so switching supplier takes time and money
why coordination matters>if TSMC moves the slot or reallocates capacity, phone
launch dates move (also marketing, retailers and app partners are all impacted)
for group assignment>few suppliers means your GVC is supplier-led
lead-firm is the firm that hold the scarce resource
make or buy (Gereffi, 2005)
make= make product yourself, buy=buy the product on the market
codify= means that transaction can be written down on paper and thus the transaction can
follow a standard procedure with standard rules that apply every time.
examples of transactions that can be codified would be office supplies, customer
orders or tax payments
examples of transactions that cannot be codified would be informal agreements,
complex or one-off events
Gereffi (2005) nuances the buy or make choice with in 3 more types of relations between
supplier and retailer
- market
- low complexity of transactions, easily codified and you can switch easily to another
supplier
- firm buys products/services on the market from a supplier
- modular
