Abstract
There are numerous issues concerning global value chains that lead to heated debates all over the globe. The rapidly growing number of risk factors that are associated with the disruptions of supply chains motivate scholars to find appropriate strategies that should provide universal guidelines for multinationals. Despite the remarkable complexity of the issue, it has become vivid that a dedicated analysis is needed that covers all major features of global value chains. Moreover, the phenomena should be examined from various perspectives, given the controversial nature of the issue.
Global value chains have become a crucial concept that is widely used to explain a variety of related activities that are centered around numerous processes, ranging from production to marketing. What is more, the phenomena allow for a proper understanding of how all such processes can be distributed between various countries and regions.
Cross-border production that is performed at such a scale is a recent phenomenon. According to Ambos, B. et al. (2021), global value chains have revolutionized production processes, as numerous companies no longer produce goods and services in one single country or within their organizational boundaries. Numerous steps to liberalize investment and trade, breakthroughs in IT, and completely new approaches to shipments have allowed for the development and establishment of complex production networks.
Introduction
What is more, regions and countries are becoming increasingly dependent on their specializations. Several centuries ago, nations used to specialize in manufacturing certain types of commodities. Currently, a new phenomenon has become apparent, with different countries specializing in various stages of activities that lead from the production process to the purchase of the goods by the customer. Currently, there are high-income nations whose wealth relies predominantly on the concentration of banks and IT companies’ headquarters, not the entire production of high-value-added goods.
The increasing difference in costs significantly alters multinationals’ approaches to the optimization of various activities. A multinational always seeks to cut its costs and aims to find the most efficient allocation of resources. Therefore, each company is determined to find the most efficient routes that allow the cheapest production, preproduction, and postproduction activities. The global value chain is a broad term that encompasses various other concepts. Moreover, it is interconnected with global supply chains. At the same time, both terms that have become instrumental in modern Economics put different emphases, with global supply chains focusing on the movement of materials and products worldwide.
Numerous companies often put global value chains at the center of their decision-making process. Current supply chains depend heavily on a wide range of issues, including politics and natural calamities, that can substantially alter all the well-established business relations and shipment routes. The significance of global value chain management research in operations pertains to both multinational corporations as well as smaller companies to develop system planning strategies to develop efficient operations (Tannous and Yoon, 2018). Therefore, it is of significant importance for each multinational to develop a sophisticated global value chain management.
Coca-Cola
There are few brands that enjoy such popularity across the globe as Coca-Cola. The company seeks to establish its presence on al continents, establishing not only production facilities but also an extensive and sophisticated network of distribution centers, R&D departments, and a wide range of dedicated marketing structures. Across global value chains, more value comes from services, whether in design, software, distribution, marketing, and intellectual property (Lund, S. et al., 2020). The company has been highly successful in its efforts to combine various strategies in order to eventually achieve remarkable performance in every market.
The company seeks to set up its plants in every region it aims to cover. Given the few resources needed to produce a drink, the company is determined to escape the necessity to ship millions of bottles across borders. The company’s management realizes that it is crucial to establish facilities that can enjoy a high degree of autonomy when producing a bottle and a drink.
At the same time, the company’s approach to R&D and marketing is entirely different. R&D departments are set up in a few locations across the globe. The company’s management realizes that at this stage of the global value chain, it is much more efficient to perform all the research in a single area where a large number of professionals jointly work on a small number of projects. Then, the result can be successfully multiplied when applied to numerous regions. Thus, Coca-Cola utilizes different approaches to upstream and downstream supply chains.
The third approach that the company heavily relies on can be traced to its marketing efforts. The company has been successful in combining various methods to target the promotion of its goods. Sometimes, a company decides to use a single universal approach to all regions, with commercials and marketing materials translated into other languages. At the same time, the company allocates substantial resources to thousands of marketing specialists in different areas. These people seek to tailor the presentation of the qualities the company’s goods possess to the taste of the local population.
Moreover, in the 21st century, marketing departments have become instrumental in finding the best options to appeal to the inhabitants of specific cultural regions. The intensification of the use of intangible assets within global value chains has created new sources of market power (Durand and Milberg, 2020). The company’s values and the company’s mission are increasingly perceived as crucial success factors. Therefore, numerous marketing departments currently focus their efforts on appropriately presenting the company’s image to millions of consumers whose culture may differ significantly from the American culture.
Globalization and Deglobalization
There have been multiple technological breakthroughs recently, meaning that a steady demand for ingenious production and distribution solutions has been created. The institutional success of the global value chain approaches lies in the ability to outline the structure of different industries in a holistic way (De Marchi, V. et al.). One of the most crucial issues is the advent of technologies and equipment that can allow for efficient small-scale production of almost any type of goods in any country. Therefore, such an approach’s increased flexibility and sustainability can eventually motivate multiple manufacturers worldwide to move their production facilities closer to customers.
Greater resources that multinationals possess no longer necessarily mean a success story in numerous markets across the globe where local firms manage to understand customers better. What is more critical, such companies can rapidly manage their production in a way that reflects current tastes and challenges. At the same time, multinationals have to go through a lengthy process that involves a challenging decision-making process, new budgeting, and red tape. Moreover, Horner and Alford (2019) pinpoint that the state acts as a facilitator, regulator, producer, and buyer within global value chains. Thus, small and medium-sized companies in many regions seem to gain back the original competitive edge that is centered around flexibility.
The much-desired flexibility implies an easy transformation of a substantial integral part of business processes in a way that allows for quality and volume of production. Moreover, a single technological innovation can easily allow numerous tech producers to get access to the technology quickly. Multinationals, in many cases, need to overcome various political barriers before even proceeding to the challenging negotiation process with their potential rivals about the ability to use technology. Thus, it has become vivid that numerous small producers from small countries already enjoy a competitive edge when compared to American and European tech companies. Therefore, it was South Korea and some other small Asian nations were the first to launch an extensive 5G network.
Despite all the experience that thousands of multinationals have acquired while establishing their facilities in different parts of the world and constantly finding new contractors, the entire phenomenon lacks the tools necessary to provide a holistic approach to the issue. Performance measurement on the global value chains level is challenging due to the tremendous complexity of the geographically dispersed network and its members’ multiple and diverging objectives (Kano, Tsang, and Yeung, 2020). Therefore, global value chain management should become a priority in every company that relies heavily on cross-border production and trade. The ever-increasing role of various KPIs cannot make for the absence of a dedicated framework that outlines all the measures needed to establish business relationships that will be sustainable in the long run.
The approach to the importance of global value chains is not static. Lately, there has been rapid progress in data and methods for measuring global value chain linkages (Johnson, 2018). Therefore, it is crucial to develop a universal framework that can be utilized while evaluating the effectiveness of a specific chain. The general trend implies that it is essential to provide completely new approaches that can enhance the resilience and sustainability of global value chains in the future. Thus, numerous scholars working in entirely different spheres should provide their visions on all the current inefficiencies and destructive effects of the existing supply chains.
Ecological Issues
Given all the efforts to slow down global warming and protect the environment, it is crucial to determine the most appropriate means of decreasing the number of shipments. Moreover, it is essential to emphasize the importance of switching from tucks to more ecological types of transport. Excessive packaging has also become a severe issue that is widely discussed in a wide range of scientific communities worldwide. Each additional stage in a global supply chain can substantially increase the amount of plastic and fuel that is consumed. Therefore, the deglobalization process is, in many ways, supported by a large body of evidence that bringing production closer to customers can significantly decrease both pollution and carbon footprint.
Risks
There are numerous issues that may undermine the efficiency of various global value chains. In many cases, such problems are rooted in a wide range of logistic issues. Moreover, finding a new supplier has always been considered a complex undertaking. Thus, even a single production stop in a single country can significantly alter the original plans and seriously increase the total amount of time needed to deliver cargo to customers.
There has been a tendency recently to seriously reconsider the efficiency of extended global value chains due to their increased vulnerability to a variety of risks. Supply chain risk can be defined as the probability of danger or disruptions under which a company would face difficulties in achieving its planned objectives (Ganguly, 2019). Politic, natural calamities and even a pandemic have proven to be able to amend the long-established patterns significantly. Therefore, the role of global supply chain management has increased tremendously, with a plethora of issues currently being investigated, evaluated, and considered while calculating the final costs.
What is more important, a wide range of products cannot be easily found across the globe. Moreover, some of such commodities are concentrated in a few countries. To make matters worse, sometimes, routes that lead to those regions and countries are significantly limited. The recent trade tension between the US and China raises issues concerning the future of global value chains (Gereffi, Lim, and Lee, 2021). Moreover, Kano and Hoon Oh (2020) claim that the COVID-19 pandemic has severely shocked global value chains. Therefore, a single event may disrupt multiple links, with a wide range of companies from all over the globe suffering the blow.
Numerous scholars have already pinpointed the vulnerability of entire sectors of the economy that have shown extreme reliance on a few suppliers located in Asia. The growing number of issues that can unexpectedly disrupt shipments from that region can immediately deprive hundreds of companies producing vehicles, gadgets, and complex equipment of chips. Chips and a number of minerals have joined gas and oil as essential commodities in the 21st century. The disruption of supply chains, including those goods, may lead to severe issues within a company that may even lead to its failure.
One of the reasons numerous US politicians became enthusiastic about recreating a wide range of tech industries in the country is politics. According to Antràs (2020), there are multiple alternative interpretations of what the rise of global value chains entails. According to Lund S. et al. (2019), global value chains may shift above or beyond economic rationale if countries seek to develop domestic production. The vivid concentration of essential parts that are used in multiple spheres (including the military) in a few countries does not comply with the idea that significant sectors of the economy should be protected from various repercussions in the global market. Thus, evaluating risks allows for cutting costs substantially in the long run.
In this century, thousands of well-established multinationals that produce sophisticated goods and equipment suddenly found themselves in a position where they are expected to cater to investors that disproportionately allocate resources only to companies that manage to generate hype around their activities. The spread of global value chains has given rise to new statistical tools and analytical frameworks to correctly identify production links between and within economies (Borin and Mancini, 2019). Therefore, numerous issues within modern value chains can be addressed by means of applying a more conservative approach to giant corporations.
America has become an increasingly polarized society in the 21st century. Arguably, one of the most critical issues that lead to people’s negative perception of numerous policies is the lack of jobs. There are regions in the US that found themselves deprived of industries that initially drew millions to those states. At the same time, numerous subsidiaries in developing countries rely on extremely cheap labor costs. Such practice rarely improves the living standards of those people and may even diminish them. Millions of Americans blame numerous imbalances in the global economy and the managers’ inability to think strategically for job losses and lack of crucial industries.
It is a common assumption that in low-income economies, people who cannot yet participate in the global economy face seriously diminished living standards, as all the benefits and resources eventually flow to those working for the newly established multinationals. Global value chains and new technologies exhibit features limiting the upside and may even undermine developing countries’ economic performance (Rodrik, 2018). At the same time, the situation in high-income economies has recently become very similar. Millions of people whose ancestors built the country are now expected to find somehow educational opportunities that can secure a stable white-collar position for them. Like in much poorer regions, modern Americans have little choice but to join the severe competition on the job market that disproportionately prioritizes professionals involved in postproduction processes.
Conclusion
A serious problem with the current way numerous multinationals are run is the reliance on a few top-ranking managers that do not have many ties with a company except for extremely high salaries. Due to the metrics used in large multinationals, those managers have become determined to pursue predominantly short-term goals centered around rapid profit generation. The vibrant stock markets that no longer strongly correlate with the real economy have led the management of most American companies to focus on their reports instead of long-term strategies. Giant companies operating worldwide now rely on the opinion of millions of small investors that are no longer interested in dividends. The new type of investors tends to be disproportionately interested in rapidly increasing market value.
The increasing demand for customized goods is a crucial factor that can significantly change the current balance and make producers opt for greater reliance on more expensive domestic production. Moreover, the rapidly increasing number of manufacturers in every sphere of the economy does not allow a few giant multinationals worldwide to dominate a substantial part of the market. Numerous small local producers in Asia that are increasingly perceived as a new economic powerhouse currently successfully tailoring their production in order to cater to millions of consumers belonging to the middle class.
There are numerous issues that should be taken into consideration when evaluating the importance of global value chains in the global economy. Nevertheless, there are certain factors that indicate the increasing importance of a sophisticated approach to global value chain management. Thousands of countries worldwide currently seek to apply such an approach to their activities, allowing them to cut costs substantially. At the same time, there are various trends that may rapidly diminish the prevalence of extensive supply chains. The ever-increasing number of risk factors makes investors worldwide employ a different approach to preproduction, production, and postproduction. Therefore, it is necessary to utilize a more holistic and strategic approach that prioritizes long-term goals and implies the evaluation of all the risks.
Reference List
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