Globalization of Value Chain (Part II)

Global Value Chain Analysis  Early known as the Global Commodity Chain approach, proposed by Gary Gereffi (1994).  Refer to configuration of activities that are divided among firms and that have a global geographical scale  The international structure of production, trade, and consumption of commodities is disaggregated into stages that are embedded in a network of activities controlled by firm

Five Governance Patterns in Global Value Chain  Markets  Modular Value Chains  Relational Value Chains  Captive Value Chains  Hierarchy

Key Dimensions in Global Value Chain Analysis  The input-output structure and the geographical coverage of value chains  The form of governance of global value chains  The institutional framework surrounding the chain

Approaches in Global Value Chain Analysis  Empirical observation and theoretical discussion of forms of coordination and governance in global value chains  Conceptual and policy-related analyses of paths of upgrading, with particular reference to developing country farms and firms

Coordination of Value Chains Via Standards  Standards communicate information about the attributes of a product  Standards systems can be classified in three broad categories: mandatory, voluntary and private  Standards are not free from manipulation, power struggles and opportunistic behavior

Factors in Global Value Chain Analysis  Standards Compliance & cooperation  Sustainability Environmental impact Animal welfare concerns Worker conditions  Ethical Trade Enterprise initiatives Certification and labeling procedures

Challenges in Global Value Chain Analysis  The complexity of transactions  The codifiability of transactions  The competence of suppliers

Case Study : Starbuck’s Global Value Chain Analysis Starbucks, a $4 billion company, started in November 2001 a pilot program for the establishment of a “preferred supplier system” (PSP) of green coffee purchasing

Starbuck’s Challenges  To improve the coffee production with sustainability  To reward supplier adopted sustainability practice  To establish corporate social responsibility

Starbuck’s Approaches  Constitute a set of standards and verification procedures  A flexible point system to reward performance in a number of categories of sustainability  Financial incentive for suppliers with high scores

The Outcome  Reducing operating costs  Creating a sustainable supply chain  Helping the formers and their community

Discuss the following questions: What problems do Starbuck address? How does PSP initiative help solve these problems? What issues and challenges do global value chain present? What can be done to address these issues? What are the business issues that should be addressed when Starbuck implemented PSP?