Exposition on Global Value chains

 A global value chain consist of a series of interrelated activities that entails the coordination of different levels of production activities from different countries. This now popular phenominum is being fueled by increased globalization and technological advancement which has enabled companies to conduct operations through outsourcing and offshore activities. 

Basically, firms involved try to optimize their production process by establishing different plants across locations where there is a significant comparative advantage. 

 In recent years there have been a large form of technological advancement and organizations’ business models have changed drastically; now activities ranging from design, manufacturing, marketing, distribution and servicing of products can be done from separate locations, with each country ( plant) specializing in one or two aspects. 

 GVC has greatly impacted specialization issues and raised productivity. Diverse electronic communication means has also aided the combination of these GVCs.

Advantages of GVCs are ;

- Increase in productivity through specialization

- More efficient production methods 

- Easy capital movements amongst countries 

- Employment creation 

- Increased liberalization 

- Less developed countries can benefit from GVC by being a source of raw materials or by being finally consumers of finished products.

The downside of GVCs are; 

- potential break down of social cohesion

- Erosion of labour welfare

- Risk of widening economic gaps, amongst others.

Effects  on prices of Goods;

 GVC tends to have a 

negative impact on prices of goods, because production involves cross-border transactions this usually increases cost as tariffs will be charged on the goods across each territory it passes through, there is also an issue with exchange rate fluctuations since the GVC is operated across many borders, exchange rate fluctuations increases uncertainty and these tend to hike prices of the finished goods.

GVCs tends to employ more unskilled workers across countries where parts of production take place but employ more skilled ( educated) workers in their head offices; local authorities and local trade unions should ensure they bargain a fair share by requesting the establishment of country offices in their domain so that more workers ( skilled and unskilled ) can be engaged.

GVCs tend to have an advantage over local firms and this becomes a trade disadvantage for local firms. Local authorities should endeavor to set quotas for the GVC’s or insists that major parts of their raw materials be sourced from local markets.