Globalization Effects On Global Value Chains

Defining Globalization

Discuss about the Globalization Effects on Global Value Chains.

In the traditional era, it was very difficult for parties within different geographical locations to interact with each other. Businesses and trading were only limited to short distances. On the extreme considerations, it was not possible to have any relation with a party outside an own country. However, the situation has greatly improved in the modern times; such that apart from business people carrying out their activities easily and cheaply within an own country, they are able to do so even with the outside economies (Bhagwati, 2004). Economists argue that this easiness has resulted from the globalization of the world economies. This paper will cover globalization and will make an analysis of how it impacts the value chains.

In order to have a clear understanding of what we are researching on, we shall start by defining the two main terms stated in the objective of this paper. These are; globalization and the value chains. Many people are aware of the supply chains but are less informed on the value chains. After the definitions, the paper shall differentiate between the value and the supply chain. This will help in making some clarification on anyone else who may be interested in this paper’s research. If we find globalization to be good for economies, we shall definitely bear in mind that there are various demerits resulting from it. The paper will provide a clear image of whether it impacts the value chains positively or negatively. Since globalization is a global thing, it cannot be avoided and thus a positive impacts are desirable.

The features of the value chain will be put under consideration. This paper will be important to the least developed economies that are undergoing the globalization process. Positive results will make them expand their embrace on the need for globalization.

According to Lechner (2009), this is the process that makes more and more people across larger distances to become connected in many different ways. Wells, Shuey and Kiely (2001) referred globalization to a recent rapid process of economic, political, and social intercontinental integration.  They argued that the integration allows for easier and efficient communication, travelling, and international investment. The constraint of space is eliminated in social life, there is ‘deterritorialization’ of the things we do, and ‘supraterritorial’ became the new nature of the social relations (Scholte, 2005).

There are different ways in which the connection may take place. There are four elements surrounding globalization. One is diffusion which means the simple spread of information or things, people are tied through a shared experience or common practices. The next one is interdependence where people in distance places are meaningfully affected by actions made in a place located away from them. The other one is organization of links subject to common rules. Lastly is culture where people are growing more conscious of the connections. Many people have been observed to have been benefited much from globalization. However, there are many others who have been hurt economically, some cultures have been destroyed and there are also some destruction of the natural local environment (Wells, Shuey and Kiely, 2001).

Defining Value Chain

Kleinert (2001) gave an argument of economic globalization being viewed in three forms; trade, international knowledge and technology transfer and the Foreign Direct Investment (FDI). The international knowledge and technology transfer is very impressive, however, the greatest attention has been created by the FDIs.

Value chain is defined by Arline (2015) as all the processes that a business goes through for it to deliver the final product or a service. The range of activities include production, design, marketing and distribution. Value chain commencement depends on the type of a company. For instance, a company that produces goods has its value chain beginning upon the acquirement of raw materials. The value chain was suggested by Porter in 1985. The production process undergoes a series of stages before the final product is delivered; in each of these stages, value is said to be increased (Porter, 1985). Everything done to the raw materials to become a final product that can be used by consumers is the value chain. Value chain management is an important aspect in the production process as it organizes how the participants from different production stages interact with each other to ensure that minimum time is taken to make the product ready for delivery.

A supply chain is the system and resources that are required in getting products or services from the suppliers to the final consumers. On the other hand, the value chain builds on the same concept but it puts some emphasis on considering also the process of value addition (Friedman, 2016). The value chain is more appealing since it is responsible for the performance of a business. It determines the quality and time taken for the consumers to get the products.

Multinational Corporations (MNCs) are corporate enterprises managing production or delivering services to many countries. Both the local and national policies are affected by multinational corporations. This makes governments to compete in order to make the multinational corporations more attractive. The corporations have monopoly in intellectual property and technology and thus has power over local and the national government. Because multinational corporations are large in size, their participation in the economy is of utmost importance. Therefore, a threat of withdrawal may have a significant impacts on the policies made by the government. Economic globalization is the increased economic interdependence many economies across the world. This is facilitated by the increment in the cross-border movement of capital, goods, technology and services. The corporations facilitates this process. An example of a multinational corporation with a great influence on the political process is Walmart. It influence the processes through contributions to campaigns, lobbying and threats of exiting the market.

The Difference between a Value and a Supply Chain

MNCs are of great benefits to an economy in that they result in an expansion in economic activities, they create more employment opportunities and the government tax is increased. Both the local and the National government are in dire need of such benefits and they therefore struggle to make their economies more attractive to the MNCs. The attraction is created through actions like offering tax breaks for these corporations. The establishment of MNCs leads to attainment of control in the political entities. Macalista (2016) noted that the increment in the ownership of corporations by foreign investors is an important competitive driver of globalization.

The MNCs has played a critical role in the achievement of globalization. They help in achievement on the establishment of many links with many world economies. The process of globalization is achieved based on the following argument. In the developing economies, labour and raw materials are cheap and readily available. However, developing economies do not have sufficient capital for exploitation. The MNCS used the capital available in the developed economies to set up factories and plants in those developing economies.

Inbound Logistics – These are all activities that are involved in the first production process. These includes the handling of raw materials; receiving, storing and their distribution inside the business. Creating value here involves creating a good relationship with the suppliers.

Outbound Logistics – This is the final process where the product gets distributed to the consumers once it’s ready for consumption. This involves storage, collection and distribution either internally or externally.

Operation – This is the whole process of value chain where the raw materials undergoes all the stages to become a final product. Here value is created by the operational system.

Sales and Marketing – the activities involved here include; pricing, promotion, advertising, sales-force organization, management of customers relations to ensure the correct consumer groups are targeted, and the selection distribution channels. Here value is created by the benefits offered and good communication. It ensures your products are demanded and not those of the competitors.

Service – The final products needs maintenance to ensure that it maintains its performance for the consumer after purchase. It includes; repair, warrant, installation, maintenance, training and after-sales service.

Administrative Infrastructure – This includes the structure of the organization, its management, planning, finance, accounting and the quality-control mechanisms.

Human Resource Management This is an important part of the production process as it determines the quality and efficiency of production. It involves the selection, training, motivating, rewarding, and retaining of employees that best suit the production process. Their roles is helping in building, designing and marketing the products.

The Roles of MNCs in Driving Globalization

IT – This is concerned with the development of technology which is a crucial factor in the production process. Product development requires technology for research and the development stage. It is through technology that development and designing of new products is achieved. It is also important in making the production process easier through process automation.

Procurement – This is the part of the value chain that is responsible for acquiring the raw materials for the production process. Value is created by tracing vendors who offer the best prices.

Globalization has resulted in positive transformation in the value chains. For instance there has been a transformation on the ways the companies produce goods and their distribution worldwide (Oecd.org, 2016). The Global Value Chains (GVCs) are greatly impacting many economies. Becca (2013) presented an argument to support that globalization has really improved the value chains. The argument was that multinational corporations came up with better technology for wine production which led to an improvement in quality. Multinational enterprises are a product of globalization and they provide important information that develops the GVCs (Sydor, 2011).

Hummels, Jun and Kei-Mu (2001) argues against globalization contributing to vertical disintegration of production basing their argument on the increasing number of subsequent stages taking place abroad. Foreign suppliers supply inputs that the same plant produced and are therefore not substitutes for domestic source (Fally, 2012)

In the initial years, the smile curve was flat, but with the globalization of the 21^st century, the curve has become u-shaped. This means that the performance of members has increased in the GVCs. Manufacturing intelligent assets has been transitioned easily from advanced to emerging countries (Monden and Minagawa, 2015).

MNCs are established in developing economies where labour and raw materials are available at lower prices. This makes the manufacturing activities involved to be on a reduced cost. The reduction of manufacturing costs helps in improvement in the consumers’ surplus as the producers are able to supply at a lower price. The MNCs are responsible for the new manufacturing technology and techniques introduction in the developing nations. New technology helps in efficient means of production and therefore it saves on the production costs. The developing nations lacks sotisphicated managerial skills that are brought about by the MNCs as an added advantage (Syed, Agarwal and Tian, 2016). Better managerial skills will help in ensuring that money is allocated in places where it brings much benefits; thus the extra costs incurred from misallocation of funds will be avoidable.

Primary Features

The Multinational Enterprises bounds the FDI and therefore are considered to be the center of globalization developments. They are characterized with long term developments as well as regional and sectoral developments. Trade in the traditional era was the main channel in which the world economy was integrated (Kleinert, 2001). Trade among the developed economies is mostly on the same industry.  Since developing economies do not have sufficient capital to support every stage of production, they are forced to raise their importation of intermediate goods. According to Baldwin (2014) globalization played a great role in reducing the costs of moving goods from one country to another.

Conclusion

Globalization have been of great importance in the facilitation of many processes across different economies. There are many factors that are driving economies to embrace globalization. For example, an economy needs to achieve the goals of achieving economic growth and the creation of jobs to increase their employment rate. Globalized industries have a competitive advantage over the others. So it can be concluded that globalization is unavoidable and is a necessary condition for development. The MNCs are very good for an economy’s development.

Everyone can benefit from the GVCs is only the government facilitated by becoming more open to investment and trade and to encourage innovation. The interconnected economies are experiencing more growth from firms integrating the GVCs. Protectionism prevents competition in an economy by various countries that may be interested in investing in a given country. It should be resisted and free trade embraced for more jobs to be created, and fast growth be felt.

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