Value Chain The value chain describes the full range of activities that firms and workers do to bring

a product from its conception to its end use and beyond. This includes activities such as design, production, marketing, distribution and support to the final consumer. The activities that comprise a value chain can be contained within a single firm or divided among different firms. Value chain activities can produce goods or services, and can be contained within a single geographical location or spread over wider areas. The Global Value Chain Initiative is particularly interested in understanding value chains that are divided among multiple firms and spread across wide swaths of geographic space. The globalization of value chains is having a profound impact on economic performance. Firms are increasingly outsourcing some of their activities to third parties, locating other activities outside their home country, and forming strategic alliances and joint ventures. Companies around the world are rethinking their structures and strategies to put in place various parts of their production process where it makes the most economic sense with these ongoing changes, there is a need to increase the awareness of global value chains in the formulation of policies in support of industrial development and in promoting innovation, competitiveness and economic growth. The term "economic globalization" entered into common use in the early 1990s and refers to the rapid expansion of international trade and capital flows since that time. The economies of the world's countries have become more closely integrated than ever before. The recent work of geographers such as Hughes (2000), Henderson et al. (2002) and Dicken et al. (2001) has emphasized the complexity of inter-firm relationships in the global economy. Other studies (Borrus et al., 2000; Florida and Kenney, 1993; Lynch, 1998) show that many geographically rooted characteristics are carried abroad, as foreign direct investment projects local and national models onto the global stage. These variations can and do have profound effects on value chain governance.

Trade economists are also concerned with how global production is organized. Arndt and Kierzkowski (2001) use the term fragmentation to describe the physical separation of different parts of a production process, arguing that the international dimension of this separation is new.

Globalization has caused many businesses to divide their products or services into components. So instead of producing the components themselves or obtaining them from domestic suppliers, businesses outsource certain aspects of the work to other countries. Economists call this new co-dependency a Global Value Chain (GVC).

Understanding Global Value Chains A value chain whether global or not consists of activities that bring a good or service from its conception to its end use and beyond. This includes design, production, marketing, distribution and support to the final consumer. The activities that comprise a value chain can be contained within a single firm or divided among different firms. When those activities are no longer "contained within a single geographic location" such as a country, we have a Global Value Chain. GVCs are not new. Trade and investment were becoming broadly internationalized in the late 19th and early 20th centuries. But with the outbreak of World War I, followed by the Great Depression and the Second World War, globalization didn't really move to the forefront until the last quarter of the 20th century. International trade has evolved from companies who manufacture products in one country and sell them in another. It is also departing from the branch-plant approach, wherein a business produces its goods in a foreign market and sells them almost exclusively in that market. Instead, international trade is now increasingly characterized by intermediate inputs for both goods and services whose links may be anywhere in the world. GVCs allow each link of the chain to specialize in what it does best. This leads to greater efficiency, increased productivity and lower consumer prices for higher-quality goods and services. At the same time, this trade environment stimulates the intense global competition that encourages innovation. Companies worldwide have had to adapt with the evolution of GVCs. For example, non-core activities may be outsourced to suppliers, partners or affiliates in countries with lower labor costs or other competitive advantages. Alternatively, small and medium-sized enterprises

(SMEs) may supply goods or services to a GVC established by another company, including a foreign multinational.

Garment/Apparel GVC Companies using Global Value Chain Fords main export products from Brazil are not cars but electronic components (radios) sold mainly to the United States. Passenger cars and commercial vehicles are exported mostly to Argentina. It imports parts (mainly from Europe and the United States), electronic components and systems (mainly from the United States and Japan), cars (mainly from Argentina and Europe) and commercial vehicles (mostly from Argentina).

Fiat plants produce several car models (Uno, Palio and Marea), beside commercial vehicles. It exports parts and CKD Palio cars to subsidiaries in other developing countries, as well as light commercial vehicles and the station-wagon version of the Palio to Italy. It imports cars from Argentina (Uno and Siena, the sedan version of the Palio) as well as larger models from outside

the region (Italy). In spite of having increased its local output of parts, Fiat still strongly depends on imported parts (from Italy) and engines (from Argentina).

GM is heavily dependent on imports of parts, engines and electronic components from Canada, France, Germany, Japan, Spain, the United States and the UK. Imports of vehicles are small and mostly from Argentina (light commercial vehicles). Unlike the other leading constructors, GM produces not only small cars but also medium-size models (Astra and Vectra) in Brazil. On the export side, GMs main market is Argentina and its main export product is passenger cars and commercial vehicles. It operates two plants in Argentina: one assembles CKD pick-ups imported from Brazil and the other produces small cars (Corsa). GMs Brazilian subsidiary also exports engines to Europe (Belgium, Germany and the UK) and the United States. Volkswagens leading car model in sales (the Gol, not to be confused with the Golf) is built largely using locally produced parts. Imports come mainly from Germany (42 per cent, mostly parts and Passat car models), Mercosur (26 per cent, mostly parts, engines, and Gol and Polo car models), Spain and Mexico. in 1996, 85 per cent of vehicles and components imported into Thailand came from Japan and Germany.

Sundaram Fasteners is part of the TVS group of companies. This group is one of the largest Indian companies and has developed joint-venture operations with a number of leading global component manufacturers. In the 1980s, GM decided to sell its Liverpool radiator cap factory. Sundaram Fasteners successfully bid for the factory and moved it to Chennai (Madras). This factory now supplies all of GMs plants in the United States and it received the coveted Supplier of the Year award in 1997. Given Indias clear cost advantages in the areas of castings, forgings and machined parts, leading companies could become global suppliers for certain parts.

Toyota imported vehicles and parts into Australia from Southeast Asia and the United States (as well as Japan) and exported parts to Turkey, South Africa and Southeast Asia.

Some companies, such as Ford, appear to believe that core competences lie more in branding and finance, and they are outsourcing parts of manufacturing. Others, such as Toyota, maintain an emphasis on manufacturing excellence and competence.

The growth of Global Value Chains Three major forces driving the growth of GVCs. 1. Declining costs of transportation Unless time concerns dictate otherwise, companies can afford to move their goods and services in locations that offer the best competitive advantages. 2. Improved information and communication technologies Advances in information and communication technologies (ICT) mean that companies are much less limited by distance when operating in foreign markets. 3. Reduced barriers to trade and investment New bilateral trade and investment treaties, lower global tariffs and liberalized economies in developing markets such as China and India have allowed companies to gain access to markets that were formerly closed to them. The process of international economic integration has been underway for decades, facilitated by more open economic policies and trade liberalization in a growing number of countries. Technical advances, notably in transport and communication, have lowered costs and also fostered globalization. But what is new is the speed and scale of the current wave of globalization, and the associated phenomena of outsourcing and off shoring which subcontracting parts of the production process to specialized firms in the same country or abroad, or outright shifting production to a new location in another country in an effort to increase efficiency and lower costs. ICT has helped make this possible, not only for goods but also for services. So the value chain for any particular business is the value added by different processes or activities at each stage of production are now often truly global. This makes sense for business, constantly trying to increase efficiency as growing competition in domestic and international markets forces firms to lower costs. Business is also keen to gain access to new emerging markets and strategic assets that can help tap into foreign knowledge.

Five different types Global Value Chains. Research has also shown that GVCs exhibit a variety of characteristics and impact communities in a variety of ways. In a paper that emerged from the deliberations of the GVC Initiative (Gary Gereffi, John Humphrey, and Timothy Sturgeon, The governance of global value chains, Review of International Political Economy, vol. 12, no. 1, 2005), five different GVC governance patterns were identified: 1. Markets. Markets are the simplest form of GVC governance. GVCs governed by markets contain firms and individuals that buy and sell products to one another with little interaction beyond exchanging goods and services for money. The central governance mechanism is price. The linkages between value chain activities are not very "thick" because the information that needs to be exchanged and knowledge that needs to be shared is relatively straightforward. 2. Modular value chains. This is the most market-like of three network-style GVC governance patterns. Typically, suppliers in modular value chains make products or provide services to a customer's specifications. Suppliers in modular value chains tend to take full responsibility for process technology and often use generic machinery that spreads investments across a wide customer base. This keeps switching costs low and limits transaction-specific investments, even though buyer-supplier interactions can be very complex. Linkages are necessarily thicker than in simple markets because of the high volume of information flowing across the inter-firm link, but at the same time codification schemes and the internalization of coherent realms of knowledge in value chain "modules," such as design or production, can keep interactions between value chain partners from becoming highly dense and idiosyncratic. 3. Relational value chains. In this network-style GVC governance pattern we see mutual dependence regulated through reputation, social and spatial proximity, family and ethnic ties, and the like. The most obvious examples of such networks are in specific communities, or industrial districts, but trust and reputational effects can operate in spatially dispersed networks as well. Since trust and mutual dependence in relational GVCs take a long time to build up, and since the effects of spatial and social proximity are, by definition, limited to a relatively small set of co-located firms, the costs of switching to new partners tends to be high. Dense interactions and knowledge sharing are supported by the deep understanding value chain partners have of one another, but unlike the codification schemes that enable modular networks, these "short-cuts" tend to be

idiosyncratic and thus difficult and time-consuming to re-establish with new value chain partners. 4. Captive value chains. In this network-style GVC governance pattern, small suppliers tend to be dependent on larger, dominant buyers. Depending on a dominant lead firm raises switching costs for suppliers, which are "captive." Such networks are frequently characterized by a high degree of monitoring and control by the lead firm. The asymmetric power relationships in captive networks force suppliers to link to their customer in ways that are specified by, and often specific to a particular customer, leading to thick, idiosyncratic linkages and high switching costs all round. 5. Hierarchy. This governance pattern is characterized by vertical integration (i.e. transactions" take place inside a single firm). The dominant form of governance is managerial control. GVCs link firms, workers and consumers around the world and often provide a stepping stone for firms and workers in developing countries to integrate into the global economy. For many countries, especially low-income countries, the ability to effectively insert themselves into GVCs is a vital condition for their development. This supposes an ability to access GVCs, to compete successfully and to capture the gains in terms of national economic development, capability building and generating more and better jobs to reduce unemployment and poverty.

Much of the literature that seeks to categorize cross-border economic activity emphasizes only two options: market or hierarchy. Firms either invest offshore directly or buy goods and services from foreign firms. A smaller body of literature has noted the prevalence of network forms of organization where there is some form of "explicit coordination" beyond simple market transactions but which fall short of vertical integration. While this is a useful insight, there is convincing evidence that not all networks are the same. The GVC framework specifies three types of network governance (modular, relational, and captive) along with the two traditional modes of economic governance (markets and hierarchies).

The Significance of GVC Studies from a range of disciplines show that global value chains have become much more prevalent and elaborate in the past 10 to 15 years. While many firms have had international operations and trading relationships for decades and a few for more than a century, global value chains now contain activities that are tightly integrated and often managed on a day-to-day basis. This means that firms and workers in widely separated locations affect one another more than they have in the past. Some of these effects are quite straightforward, as when a firm from one country establishes a new factory or engineering center in another country, and some are more complex, as when a firm in one country contracts with a firm in another country to coordinate production in plants owned by yet another firm in a third country, and so on. Tracing the shifting patterns of global production, understanding how GVCs work or are governed, and determining the roles they play in rich and poor countries alike, is what the study of global value chains is all about. Requirements of global value chain One reason for the speeding-up of the whole globalization process is the rapid emergence of global value chains. The whole process of producing goods, from raw materials to finished product, has increasingly been sliced and each process can now be carried out wherever the necessary skills and materials are available at competitive cost.

But globalization is no longer only about goods and products; it increasingly involves foreign direct investment (FDI) and trade in services. Information and communication technologies (ICT) have made it possible to base services such as customer call centre anywhere in the world, regardless of where the customers are. This globalization of the value chain is driven by companies desire to increase efficiency, as growing competition in domestic and international markets forces firms to become more efficient and lower costs, as well as the desire to enter new emerging markets and gain access to strategic assets that can help tap into foreign knowledge.

One of the key findings of global value chain is that access to developed country markets has become increasingly dependent on participating in global production networks led by firms

based in developed countries. Thus, the governance of global value chains is essential for understanding how firms in developing countries can gain access to global markets, what the benefits of access and the risks of exclusion might be, and how the net gains from participation in global value chains might be increased.

CONCLUSION

Firms do not become experienced in international business overnight, but rather progress gradually through an internationalization process. The process is triggered by different motivations to go abroad. The motivations can be proactive or reactive. Proactive motivations are initiated by aggressive management, whereas reactive motivations are the defensive response of management to environmental changes and pressures. Firms that are primarily stimulated by proactive motivations are more likely to enter international business and succeed. In going abroad, firms encounter multiple problems and challenges, which range from a lack of information to mechanics and documentation. In order to gain assistance in its initial international experience, the firm can make use of either intermediaries or facilitators. Intermediaries are outside companies that actively participate in an international transaction.

Well-implemented strategic planning provides the vision, direction and goals for the organization, but operational planning translates that strategy into the everyday execution tactics of the business that will ultimately produce the outcomes defined by the strategy. Simply stated, operational planning is the conversion of strategic goals into managed execution. Corporate strategy can be thought of as a message packet that must be passed through the organization, understood by all and acted upon in orchestration. If the message is garbled, ambiguous or not communicated well, the intent will be lost in translation and operational execution will become misaligned with the corporate strategic goals. Superior operational planning requires proactive and innovative thinking to enact strategy within the operational layer of the business. Operational planning must produce the plan outcomes while managing constraints on time, money and resources.

BIBLIOGRAPHY Arndt, S. and Kierzkowski, H. (2001) Introduction, in S. Arndt, and H. Kierzkowski (eds), Fragmentation: New Production Patterns in the World Economy, Oxford: Oxford University Press, pp. 116.

Borrus, M., Ernst, D. and Haggard, S. (eds), (2000) International Production Networks in Asia, London and New York: Routledge.

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