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Global Value Chains and Upgrading: China and Mexico Compared. Gary Gereffi Duke University ggere@soc.duke.edu “Globalización, Conocimiento y Desarrollo desde la perspectiva mexicana” Universidad Nacional Autónoma de México (UNAM), México, DF, M é xico 15-17 de marzo, 2006 . 5 Themes.

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slide1

Global Value Chains and Upgrading:

China and Mexico Compared

Gary Gereffi

Duke University

ggere@soc.duke.edu

“Globalización, Conocimiento y Desarrollo desde la perspectiva mexicana”

Universidad Nacional Autónoma de México (UNAM), México, DF, México

15-17 de marzo, 2006

5 themes
5 Themes
  • Global value chains & industrial upgrading
  • Industrial diversification in Mexico & China
  • Comparing industrial upgrading trajectories in Mexico and China
  • Why is Mexico losing U.S. market share to China?
  • Can Mexico be competitive with China?
global value chains
Global Value Chains
  • Industrialization takes place in a global context (“national” industries outmoded)
  • GVCs focus on the organization of entire industries: raw materials-production-retail
  • GVCs can be fragmented or consolidated
  • Who drives the chain? (power of lead firms – producer-driven vs. buyer-driven)
  • Upgrading by countries within GVCs is possible, but not guaranteed
forms of industrial upgrading
Forms of industrial upgrading
  • Product upgrading (new, better products)
  • Process upgrading (more efficient, cheaper)
  • Functional upgrading (new roles in GVCs)
    • assembly
    • “full package” (OEM)
    • original design manufacturing (ODM)
    • original brand manufacturing (OBM)
  • Inter-sectoral upgrading (new industries)
    • Primary products to manufacturing to services
    • Labor-intensive to capital- & knowledge-intensive
slide5
Comparing Industrial Upgrading

Trajectories: Mexico vs. China

mexico s industrialization since 1985
Mexico’s Industrialization since 1985
  • Export oriented (mainly to U.S. market)
  • Highly diversified
  • Shifting emphasis from primary product exports & intermediate goods to manufactures
  • Within manufacturing, medium-tech and high-tech exports are displacing low-tech exports
slide8

Graph 1: Composition of Mexico’s Exports to the U.S. Market, 1985-2003

Source: World Trade Analyzer.

china s industrialization since 1995
China’s Industrialization since 1995
  • Sustained & diversified export dynamism
  • Decline of low-tech manufactured exports
  • Increase in medium-tech and high technology manufactured exports
  • China’s science & education policy emphasizes high-tech parks & ICTs
  • Business services weak outside of big firms
slide10

Graph 2: Composition of China’s Exports to the U.S. Market, 1985-2003

Source: World Trade Analyzer.

mexico vs china
Mexico vs. China
  • Head-to-head competition in U.S. market
  • China is world’s leading exporter of many manufactures, esp. consumer goods
  • China and Mexico are typically among the top three exporters to the U.S. market in many product categories
  • China is moving ahead of Mexico with dominant market shares in the United States, especially in 2000-2005 period
why is china gaining u s market share over mexico
Why is China gaining U.S. market share over Mexico?
  • China is a lower-cost producer overall (labor costs lower, but not transport & tariffs)
  • China has huge scale economies
  • China has a coherent and multidimensional upgrading strategy – diversify and add high value activities
  • China is using direct foreign investment to promote “fast learning” in new industries
  • China uses access to its domestic market to attract TNCs and promote knowledge spillovers
slide19

China’s Supply Chain Cities in Apparel

Source: David Barboza, “In roaring China, sweaters are west of socks city,” New York Times, Dec. 24, 2004.

how can mexico compete with china
How can Mexico compete with China?
  • Take advantage of proximity to U.S. market (e.g., quicker time to market; large & heavy goods; made-to-order customized products)
  • Eliminate comparative disadvantages (bureaucracy; low productivity; poor utilities & transport infrastructure; education)
  • Move into high-value activities within GVCs (e.g., R&D, design, engineering, business services)
  • Use domestic market as an asset
conclusions
Conclusions
  • There is a globalization paradox
    • The dramatic expansion of production capabilities reflected in global outsourcing creates heightened anxieties in both developed and developing countries regarding sustainable development
  • The global economy is concentrated at the top and fragmented at the bottom
    • Thus, the real opportunities to move up in value chains are concentrated in a small number of developing economies
slide22
Development strategies need to be more balanced and decentralized
    • “Free trade” is not a development strategy
    • Industrial policies are being implemented at subnational level
    • Regional markets supplement national ones, and can reduce the pressures from global competition
  • Labor and environmental standards matter
    • As much of the world’s apparel production becomes concentrated in China, pressures to follow “ethical sourcing” procedures will intensify
    • China will need to upgrade its labor standards and working conditions, or it will be embroiled in continuous battles with NGOs and social activists
slide23
Thank you

for your attention!