The Use Of A Global Value Chain Commerce Essay


According to Dicken it is " a highly complex kaleidoscopic structure involving the fragmentation of many production process and their geographical relocation on a global scale in ways which slice through national boundries" (Dicken 2003,9). The whole process is fragmented into different firms in various countries known as vetical integration which is cost saving due to the availability of raw materials as well as highly skilled and high performance workers can be employed at lower cost. Thus in a way these firms have remarkable effect over the rich as well as poor countries such as Africa who have just the availability of resources and cheap labour and no competiveness and thus maximum utilization of resources can be done and thereby the big supermarkets can have their vegetable and other such products which is quite labour intensive in relatively lower price than producing in their own country and thus can have cost effectiveness.

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That is why many countries across the globe are emerging to have an idea of value chain and are often managed and tightly integrated and have good impact on its consumers due to the quality of product at a relatively affordable price. Inorder to come up into a new arena of value chain a company has to analyse various reasearches regarding the launch of its new product and experiment with a variety of "make" or "buy" decision and on-shore or off-shore sourcing (Berger et al 2005). Also they have to keep in mind various ethical standards and the type of product required by buyers as well as the suppliers.

Unlike the past, nowadays the use of various technologies have made the work much easy and efficient. A company can keep track of its sales, imports, exports by the use of these databases and can evaluate their progress from time to time.

Gary Gereffi identified various characteristics of Global Value Chain, its effects on the people and five Governance pattern first being the market second being the modular value chain, third the rational value chain, fourth the captive value chain and fifth is the hierarchy (Gary Gereffi, John Humphrey and Timothy Sturgeon, "The governance of global value chains", Review of International Political Economy, vol. 12, no. 1,2005).

Thus various strategic decisions have to be made before starting a new business as well as to maintain their position at the top of the value chain:

First of all the company should develop a strategies to for a new framework keeping in mind the competition and bring changes in their pattern from time to time means "the integration of trade" with the "disintegration of production" (Feenstra 1998) by slicing the value chain" (Krugmann's 1995). Thus, to reorganise, govern and co-ordinate the companies by forming a framework by analysing the recent trend in the global market and thereby increasing its market power and meeting the expectations of powerful stakeholders. Recently various frameworks have already been made and the needed specific research has been done in various industries such as tourism (Barham et al,2007), electronics (Vind and Fold, 2007) .

There had been many theories which can be applied for the framework of an organization but its value in the global economy largely depends on the actors who are the big players and the type of influence they have on others. (Therborn 2000).

Poter's five forces framework a firm can easily find the rivelry , threats and the competition prevailing in the global market (Porter 1990) and thus can stretch its host corporate capabilities far and wide to other countries depending upon the source of raw materials and technologies. Porter believes in developing new strategies in the Value chain otherwise problem in a single manufacturing firm situated in a different location can effect the host firm and can result in competitive disadvantage in the long run. Porter explains that "The appropriate unit of analysis in setting international strategy is the industry because industry is the arena in which competitive advantage is won or lost" (Porter 1987, 29).

Another strategy in this regard can be made by analysing the motives for Foreign Direct Investments: resource-seeking FDI, market-seeking FDI, and efficiency-seeking FDI (Beviglia Zampetti and Fredriksson 2003, 406) and thus allowing the flow of capital among various countries whch first began with US. Various studies in this regard has been done by Dunning (1958) on UK and Safarian (1966) on Canada.Thus these FDI brought great capital and benefits to the parent countries and also the host firms exercise their power over other Transnational Co-orporations(TNCs) even when they do not have any ownership on it (Rugman 1999). Even various researches was done by Harvard Business School on Multinational Enterprise Project which tried to find out the reasons the neglect of these institutions to TNC's and finally came out with strategies which have to be operated within the organization (Vernon 1999).

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Outsourcing of various activities by encouraging exports and having joint ventures with them can be another strategy and can be used as an instrument in the expansion of trade, and a way of entering into new markets , reduction in the labour cost and tapping out the unutilized resources (Vernon 1971).

Another strategies for companies should be of continous upgrading and setting up of new networks or chains for producion inorder to be at the top. This includes variious processes from manufacturing to export. Various processes in this regard are: Assembly, Original Equipment manufacture (OEM) ,Original brand manufacture (OBM) and Original design manufacture (ODM) (Gereffi 1994b,222-24). These processes can be used for the diversification of products. According to Gereffi there are two types of value chain (Gereffi 1999,2000) producer driven and buyer driven. Apparel is an exampel of buyer driven value chain in which various dragon retailers and departent stores like Wal-Mart, Tesco, Marks and Spencer have an extensively large number of manufacturing units diversified in various locations across the globe because the goods provided by them to the consumers needs an intensive labour behind it. But nowadays a transition from assembling to original equipment manufacturing (OEM) is observed which is a perfect example of upgrading. Thus, this strategic formula of upgrading should be done keeping in mind the competitive advantage in the market of emerging economies. But in the present global scenario a number of OBM companies are now returning back to OEM as they can easily depend on East Asian manufacturing skills and competencies. The best example of OEM and OBM is the computer and laptop based industry which manufactures laptops of the brand name Acer in Taiwan and the product is sold in America and Japan.

Moreover strategies should be made keeping in mind the political issues (such as taxes, tariffs on imports and exports) and social issues and also various governmental standards such as corporate social responsibility,human rights, licencing, labour standards, environmental factors. Because abiding by the rules and laws and having these certification gives a company recognition and helps in building its reputation. And nowadays when the big brands have understood the need of sub-contracting of their products to other countries these issues of law and order play an important role.

Thus to conclude, although it is profitable for the host company to have activities outside the national boundary but strategies should be developed keeping in mind other factors such as unemployment which is a major concern for today's developed countries as they focus mainly on entering into new markets, economies of scale, economies of scope keeping aside the negative sides. So a balance should be made while making the strategies thereby making the native country to grow rather than to degrade financially. Moreover there are some other key challenges also in doing business with the emerging economies like India and China who have weak political governance, lack of proper security, no corporate social responsibility, improper payment systems, no proper workplace equity etc. Also there should be attempts to increase the economy of once own country first keeping in mind the first and foremost duty if an organization is to behave as a good and social citizen rather than only focusing on profit maximization. Also proper research must be done before having a proper value chain and all the competition and threats must be identified in advance before entering into it.