Businesses in the Modern Marketplace and Globalization
Businesses in the modern marketplace have changed their focus to competing in the global market, which has been aided by globalization. Due to the ability of businesses to leverage global sourcing, the market has now expanded into new geographies where they have increased their competitive advantage. The development of telecommunications and transportation infrastructure, which has assured that supply chains are scattered globally, has also facilitated globalization. According to Taglioni and Winkler (2016, p. 44), while industrialized countries offer highly educated expertise that has aided in research and development, poor countries offer raw resources and inexpensive labor prices. Therefore, there has been an emergence of a global production and distribution system which has brought together diverse arrangements of economic actors. The present paper focuses on development in Global Value Chains (GVC) through an analysis of analytical framework to understand the global market engagement of firms, nations, and regions.
The Main Differences and Similarities between Various Analytical Frameworks
GVCs Definition
GVCs are the global scale activities that are involved in the design, production, marketing, and distribution of a final product to the consumer (Gereffi and Fernandex-Stark, p.2).
Global value chains have impacted the global trade, employment, and production. Furthermore, the developing countries are focusing on integrating it into their economy as it offers an opportunity to access markets in developed countries and also add value to their local industries. In business supply chains, three main stages are evident that consist of outsourced activities that are the input to the process such as suppliers. The second phase involves the main production which are the service process activities that are undertaken by a company, and the third stage consists of shifting the output from the process to the customer (Cox, p.168). The final step involves distribution, logistics, and after-sales services such as distribution. Businesses operating in the international market have their sourcing and production activities spread in different countries and continents. They have to arrange complicated logistics and distribution to raise their supply to meet the global demand. Short et al. (2016, p.1878) state that the structure connecting the supply stages becomes a critical design choice that businesses must carefully select. In the global value chain there exist four analytical frameworks that must be explored. An institutional context that comprises of the industry value chain, an input-output structure that focuses on changing raw materials into final products, a geographic scope, and an arrangement of governance that dictates how a value chain is organized.
Input-Output Structure
In a GVC there exist an input-output process where a service of a product moves from the conception stage to the hands of the consumers. The segments in the GVC include design and research, production, inputs, marketing and distribution, and sales (Gereffi, and Fernandex-Stark, p.5). The input-output arrangement is presented as a collection of value chain boxes that encompasses both services and goods and are connected by arrows to point out their flow. Basu, Ron, and Wright (2017, p.23) state that these pointers are essential as they indicate the value added to product or service at different stages in the chain. In addition, they help relay crucial information that a researcher may be interested in such as gender, wages, jobs, and the firms that are part of the process at different stages of the chain. Hsuan et al. (2015, p.87) argue that it is fundamental to study and understand the whole chain, the trends that shape it, the evolution of the industry, and its structure as this helps to create a strong chain.
The Structure and Dynamic of Enterprises in the Value Chain
The world economy is organized basing on the global value chains, and it is imperative to recognize the type of companies that are engaged in the international trade and their essential features such as either they are domestic or global, private or state-owned, small, medium, or large. This process is necessary as it contributes to the understanding of the structure of governance an important framework in the GVC. In addition, it helps in explaining the rise in global GDP and employment. Companies in sectors such as electronics, tourism, apparel, commodities, and business service are engaged in the value chain, and they have impacted global trade, employment, and production. According to Neilson et al. (2014, p.3), the value chain has promoted a link between consumers, workers, and firms around the globe and it has provided a bridge for a significant number of companies to participate in the global economy.
Geographic Scope
Globalization has enabled industries to operate with firms and workers being widely separated. Telecommunications and transportation infrastructure have developed and allowed supply chains to be globally dispersed. However, it is essential to identify the lead businesses in each section of the value chain as the presence of several leading firms within one geographical area defines the level that a country holds in the chain. Therefore, the contribution of countries towards the chain can be readily determined using the nation's manufacturing exports and the sectors in which the commodities are focused. Gereffi and Fernandex-Stark (2011, p.8) write that there is a significant local, national, regional, and global shift in the geographical scope of businesses.
Governance
Governance is a crucial analytical framework for understanding the global value chain. It gives an understanding of how a chain is coordinated and controlled particularly in circumstances where some players have more power than others. According to Gereffi and Fernandex-Stark (2011, p.8), governance involves the power and authority that control how material, human, and financial resources are distributed and operate in a value chain. Under the governance framework, there are the producer-driven and buyer-driven chains. A buyer-driven chain focuses on the role of successfully branded merchandisers and large retailers who determine how the chains are operated as they require the suppliers to accomplish specific protocols and standards that they have outlined. On the other hand, a producer-driven chain is incorporated along the divisions of the supply chain and influence the positive technological impacts of the integrated suppliers. Therefore, knowing on the present governance and the control of a supply chain helps support firms to enter and develop within global industries. In this framework, there exist governance structures such as hierarchy, captive, relational, modular, and markets Gereffi and Fernandex-Stark (2011, p.8). The fabrics are determined and measured by the level of supplier competence, how production information can be codified, and the complications present in the information between actors in the chain.
Institutional Context
This framework locates how international, national, and local policies and conditions shape globalization at each phase of the value chain. According to Gereffi and Fernandex-Stark (2011, p.11), GVCs are integrated within institutional, social, and local economic dynamics, and they determine insertion in the GVC. Basu, Ron, and Wright (2017, p.101) state that economic conditions include the availability of critical inputs and give examples such as available infrastructure, access to finance, and labor costs. The social situations control the accessibility of labor and the skills levels while institutional dynamics include labor and tax guidelines, subsidies, innovation and education policies that can either hinder or promote industry development and growth. Neilson et al. (2014, p.7) recommend that it is essential to examine the stakeholder involved at the local level where the value chain has been integrated through mapping their position and role in the chain. An institutional framework allows more systematic cross-regional and cross-national comparisons hence it is appropriate in understanding the global value chain. Finally, the structure supports an analysis focused on recognizing the effect of numerous features of the institutional dynamics on related social and economic outcomes.
Use of the Frameworks
In today's automotive industry, firms are focused on achieving quality in their production process while they enhance their customer satisfaction. One major player in this sector is Ford Company that is aiming to increase its market share throughout the world. The company is multinational, and it has focused on its supply chain. In the input-output structure, Ford has significantly invested in research, marketing, and distribution processes. Ford has adopted a green supply chain management that is centered on the arrangement, improvement, and management of its traditional structure. According to Thun and Muller (2010, p.125), the new supply chain has a straightforward process of ensuring coordination between companies. There is an interdependency between eco-programs and conventional supply chain management. On the geographic scope, Ford is able to operate several of its manufacturing and distribution branches that are widely distributed through the use transportation and telecommunications infrastructures that it has established to develop and enable its supply chain globally. The framework of governance in Ford's global supply chain management is guided by high standards that are fundamental in upholding the trust of stakeholders and investors. The company has integrated all management systems, processes, and structures to ensure that the enterprise operates in an accountable and transparent way.
The Supply Chain Management (SCM) Definition
SCM involves the controlling of the movement of goods and services from their storage, the production process, and the finished products to the point of consumption (Heizer & Render, p.34).
The authors state that companies are in search of ways to manage the aspects of the supply chain. Amazon.com a business that sells services and products directly to its customers is an example of an enterprise that has focused on improving its SCM. The company is centered on the use of today's telecommunication and transportation advancements to reach its customers and also to reduce wastage in the supply chains that are dispersed globally. Amazon.com employs innovative staff who help it to design, integrate, and deploy technology within its structure (Terry-Armstrong, p.2). In the governance framework, the business relies on a centralized system where the manager makes the final decisions on the supply chain. The company applies a critical management as it is focused on its customers.
Global Commodity Chain (GCC) and Global Production Network (GPN)
A Global Commodity Chain (GCC) involves a set of inter-organizational labor and production processes that are focused on producing one finished commodity or product (Short et al., 1886). Global Production Network (GPN) is the integration of commodity chains in households, enterprises, and states into one another within the world economy. As stated earlier, globalization has altered the traditional production process as the economy is forced to produce globally giving rise to global production chains.
Conclusion
Global value chains are central to understanding the global market shift. In order to appreciate the supply chain, the paper has focused on input-output structures, geographical scope, governance, and institutional context. GVC represents an arrangement of cross-border activities that involve production and delivery of services and goods. The paper has utilized analytical frameworks that have allowed an understanding of how the global supply chain is organized through an examination of the dynamics and structure of the global industries. The economy today has been shown to be globalized with the improvement of telecommunication and transport infrastructure which has promoted a complex interaction between sectors. Therefore, it is essential for a business, company, or a country to understand how GVCs operate as a significant number of them now rely on international trade for economic growth.
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