2016 AIB Townhall Meeting

 

Integrating Macro-Micro Research on FDI, Trade, and GVCs to Understand Cross-Border Innovation and Connectivity

 

 

 

Sjoerd Beugelsdijk

Francisco Moris

Ram Mudambi

Ari Van Assche

 

 

Tuesday, June 28, 2016

17h45-18h45

 

 

 

Please join our townhall meeting in New Orleans to discuss the importance of global value chains for international business research. Our initial remarks will highlight the need to focus on value capture dynamics, the role of intangibles and the importance of connectedness. We will next open up the floor for a spirited discussion on directions for future research.  

 

 

Global value chains (GVC s) have created a new economic reality for businesses, scholars and policy-makers. Traditionally, in envisioning the production process of a good or service, the natural idea that immediately jumped to mind was that everything was done in-house — in one factory located in one country — and afterwards the item could be exported to other countries. Today’s production processes are different: increasingly, they are being conducted by a team of interconnected firms spread across different countries — that is, in GVCs.

 

The new reality of GVCs challenges the traditional wisdom on international business in a number of ways. First, it requires a paradigm shift in the way that scholars interpret trade data. In particular, there is now a growing awareness that the most commonly reported gross exports data do not capture accurately the value added that is created in a country. This matters, because it can lead to a significant misunderstanding of how value added is exchanged between countries. Prompted by these insights, several leading international organizations have developed new value-added measures of trade by constructing global input-output tables that combine national input-output tables with bilateral trade data. One such measure is the Trade in Value Added (TiVA) database created by the Organisation for Economic Co-operation and Development (OECD) and the World Trade Organization (WTO).

 

Second, and central to this townhall session, the rise of GVCs also challenges the way that we should think about the co-evolution of firms and locations. Due to the rise of GVCs, locations (countries, regions, clusters) are increasingly specializing in value chain tasks rather than in entire sectors. Acknowledging the critical role of the viscidity of some of these tasks, this trend fits perfectly well in the traditional Heckscher-Ohlin framework (business as usual from a theoretical point of view), and a long standing literature in economic geography on spatial stickiness. But there are nonetheless a number of nuances that are important for IB scholars:

 

Talking point 1: Value capture dynamics (S. Beugelsdijk)

 

The emergence of GVCs raises the Marxian question on the distribution of surplus or “value capture”. Where in the chain is value added generated and how is the surplus distributed along the value chain? And how does this affect employment in different countries? These issues are key to economists, IB scholars and economic geographers.

  

Thanks to the development of the above-mentioned global input-output tables (e.g. WIOD), we have a much better understanding where value is created along the value chain by labor, but not by capital. The distribution of the surplus (both in terms of capital as an input in the production process, as well as the surplus/profits generated) is a large unknown. We need creative ideas on how to improve our understanding of this capital component in GVCs. This need to understand the role of capital in GVCs is closely related to the “servicification” of manufacturing (talking point 2).

 

Talking point 2: Servicification of manufacturing and trade (F. Moris)

 

The emergence of GVCs also raises questions about the way services and intangibles are treated in IB theory. As it has become easier for firms to slice up their value chain, many intangible tasks (some of the highest value added activities in a value chain, see talking point 1) no longer need to be co-located with pure manufacturing activities, leading to a growing role of services in the GDP and trade of developed countries.

 

Talking point 3: Trans-local connectedness (A. Van Assche)

 

Finally, the emergence of GVCs pushes for a ‘relational turn’ in IB research. Firms that participate in a GVC are not independent actors. They are tightly interconnected through knowledge, material and financial exchange processes with their suppliers, partners and customers that are increasingly dispersed in distant locations. As a consequence, a company’s strategic decisions regarding their location, ownership and control of a specific activity critically depends on the entire system of interconnections. Their value capture should also depend on their network position in the value chain eco-system (e.g. orchestrator).