1. Research Methodology for Global Business Clusters & Global Value Chain Networks
Dr. Emanuela Todeva
Director of Research Centre for Business Clusters, Networks and Economic Development
University of Surrey

2. Multilateralism & Global Integration ‘The world has become a Hum of Interconnected voices and a Hive of interlinked lives.’ Christine Lagarde, 4/2/2014
In 1950 – the emerging markets and developing economies accounted for hardly 25% of the Global GDP – now it is 50%, and in 2020 it is likely to be 2/3
More then half of manufacturing output are intermediate products
More then 70% of integrated services (imports) are intermediate services
MNCs control 2/3 of global trade
12 MNCs 31 Global cities sit among the top 100 global bodies in terms of size

3. The Value Chain Describes the Full Range of Activities That Firms and Workers Do to Bring a Product From its Conception to its End Use

4. Network Approach to Value Management
co-creation
value measurement
diffusion
value-in-
context
exchange
creation
value extraction
© Todeva, 2014

5. GVC – Interconnected Input-Output Markets for - resources (supply networks & trade of intermediate products) - skills (outsourcing networks) - capital (shareholder networks) - production technology (R&D alliances)
GVC – Organisation & Coordination of production and value added activities across borders and firm boundaries
GVC – Interconnected Organised Production Capabilities and Country Resources
Agents boundaries
Location boundaries
Activities
Costs
Value added
Transfers, transactions
Value Chains

6. Value Added Along the GVC (OECD, 2013)

7. apparel supply chain: Forstater, 2010

13. Methodology as a Step-by-Step Approach
Cluster Mapping
Cluster Development (enhancement of capabilities)
Cluster Internationalisation
Revealing actors & activities
Revealing linkages
Visualising / Mapping linkages
Developing linkages
Upgrading linkages & Position

14. UPGRADING through innovation to increase value added
Different forms of upgrading:
of processes
of products
functional
inter-sectoral

15. Process Upgrading
Firms can upgrade processes – transforming inputs into outputs more efficiently by re-organising the production system or introducing superior technology (i.e. footwear producers in the Synos Valley – Schmitz, 1999).

16. Product Upgrading
Firms can upgrade by moving into more sophisticated product lines (which can be defined in terms of increased unit values).
Example: the apparel commodity chain in Asia upgrading from discount chains to department stores (Gereffi, 1999).

17. Functional Upgrading
Firms acquire new functions (or abandon existing functions) so that they increase the overall skill content of their activities. They might complement production with design or marketing, or move out of low-value production activities.
Example: Torreon’s blue jeans industry upgrading from maquila to “full-package” manufacturing (Bair & Gereffi, 2001).

18. Upgrading Product & Process Upgrading Functional Upgrading
Upgrading refers to the acquisition of technological capabilities and market linkages that enable firms to improve their competitiveness and move into higher-value activities. Analyses of upgrading from a value chain perspective pay particular attention to the ways in which value chain linkages facilitate or obstruct upgrading.
Product & Process Upgrading
Functional Upgrading
Inter-Chain Upgrading
Explanation of different types of upgrading
Show example of Mexico, how this developing country has been able to upgrade their activities in the apparel industry.
Show that this upgrading process has been in a very short time.
This upgrading has been possible due to increasing trade

19. Intersectoral Upgrading
Firms may apply the competence acquired in a particular function to move into a new sector.
For example, in Taiwan competence in producing TVs is used to make monitors and thus move into the computer sector (Humphrey & Schmitz, 2002, Guerrieri & Pietrobelli, 2004).

20. The Value Chain Describes the Full Range of Activities That Firms and Workers Do to Bring a Product From its Conception to its End Use

21. Bio-Medical & Health, Greater South East, 2008
The Use of complementary databases comprising of the entire population of firms and funded research projects
Developed a Multi-Stage Cluster Methodology for Cluster mapping and analysis
Investigating Brokerage, Intermediation, & Information sharing across firm / regional / country boundaries
Database Firms ‘Concentration of firms in the Value Chain in the Region’
Greater South East, UK
Bio-Medical & Health, Greater South East, 2008
Amadeus 2008
Diagnostics
240
Medical Care
4902
Social Care
3208
Support Services
1154
Technical
Support
265
Dental Practice
478
Telecare 63
Drug Development
376
Bio-pharma
R&D
387
Integrated Pharma
& Biotech
115
Health products
& cosmetics
677
Medical
Devices
719
Bio-Pharma
Manufacturing
286
Bio-Pharma Support
496
Trade
Pharmaceutical
& bio-products
611
Pharmacies
& Drug Stores
1161
Fitness &
Wellbeing
309
Medical & Optical
Products
813
Universities /
centres of excellence
in research 61
© Todeva, 2008
Amadeus 2008
Diagnostics
240
Medical Care
4902
Social Care
3208
Support Services
1154
Technical
Support
265
Dental Practice
478
Telecare 63
Drug Development
376
Bio-pharma
R&D
387
Integrated Pharma
& Biotech
115
Health products
& cosmetics
677
Medical
Devices
719
Bio-Pharma
Manufacturing
286
Bio-Pharma Support
496
Trade
Pharmaceutical
& bio-products
611
Pharmacies
& Drug Stores
1161
Fitness &
Wellbeing
309
Medical & Optical
Products
813
Universities /
centres of excellence
in research 61
© Todeva, 2008
Activities &
Transactions

22. 198 firms 87% in 4 core industries
Cluster Value Chain: SURGICAL & MEDICAL INSTRUMENTS MANUFACTURING (198 firms, ties between firms based on 5 or more shared industry codes) (87% of firms have the core industry codes: Electro-medical and Electrotherapeutic Apparatus Manufacturing; Irradiation Apparatus Manufacturing; Surgical and Medical Instrument Manufacturing; Surgical Appliance and Supplies Manufacturing)
Holding companies
All other personal care stores
Wholesale
Misc. metal products
Electro-medical, electro-therapeutic, irradiation apparatus; surgical & medical instruments; surgical supplies manufacturing
R&D
Plastic products
198 firms
87% in 4 core
industries
Misc electrical equip & component manuf.
© Todeva (2007)

23. The Global Information Sector, 2002

24. The Emergence /Recognition of GVCs and Major Paradigm Changes (Cattaneo et al 2013)
Change of relevant strategic framework, from countries to firms and GVCs.
A country cannot develop a competitive offer of goods or services in isolation.
Imports are a means for firms to access the most efficient inputs and free resources to focus on core competences.
Following business practices, policy should treat trade and FDI, both inward and outward, in an integrated framework.
Change of the relevant economic framework, from industries to tasks and business functions. The objective is not to develop domestic industries that would capture all the segments of production or the whole value chain, but to develop value added services and inputs for the GVC
Acknowledge that an efficient manufacturing sector requires efficient and competitive services as well as a skilled workforce and continuous innovation in products, processes and business models. Services such as financial intermediation, R&D, logistics, and marketing are necessary to produce higher value added manufactures.

25. The Global Value Chain (GVC)
Outward-looking development model driven by trade and competitiveness.
Countries / Regions / Firms do not need to develop vertically integrated industries to participate in global trade; it is enough to develop capacities in specific segments (stages of production, tasks or business functions) of the value chain. (Cattaneo et al., 2013)
Trade in Value-Added (TiVA) indicators (OECD/WTO, 2013)
Focus on the estimation of the source(s) of value (domestic vs. foreign and/or by country and industry) that is added in producing goods and services for export.
Still involves misleading classifications such as in the chemical sector in the TiVA tables can combine both base chemicals and pharmaceutical products. These subsectors differ in their use of intermediate products as well as their skill intensity.
The GVC Participation Index
The higher the foreign value-added embodied in gross exports and the higher the value of inputs exported to third countries and used in their exports, the higher the participation of a given country in the value chain.

26. Louis Brennan , 2014

27. Moving Up the Value Chain
(1) Upgrading
Process upgrading
Product upgrading
Functional upgrading
Chain or inter-sectoral upgrading
(2) Task bundling
(3) Workforce development and innovation
(4) Ensuring cost competitiveness
(5) Improving the connectivity with international markets
(6) Improving business and investment climates
(7) Fostering innovation and building capacity

28. Composition of Mexico’s Exports to the World Market, 1986-2006
Source: UN Comtrade. 28

29. Composition of China’s Exports to the World Market, 1987-2006
Source: UN Comtrade.

30. Africa’s Share of World Exports Has Been Declining

31. Source: USITC http://dataweb.usitc.gov downloaded Feb 22, 2008

32. Source: USITC http://dataweb.usitc.gov downloaded Feb 22, 2008

33. Source: USITC http://dataweb.usitc.gov downloaded Feb 22, 2008

34. Source: USITC http://dataweb.usitc.gov downloaded Feb 22, 2008

35. MNC R&D Centers in China, How are engineers being used?
What kinds of work are Chinese, Indian, and American engineers actually doing?
Answer: Not just product adaptation, but cutting-edge research & commercialization
China: More than 1,000 MNC R&D Centers
GE’s China Technology Center: Advanced research in energy storage, environmental management
Microsoft Research Asia: Cutting-edge graphics & multimedia research

36. Global Value Chains
The focus of analysis of global value chains is on the relationships among the different actors that are part of the chain.
The concept of ‘governance’ ( = coordination) is fundamental to understand such relationships;
Governance may occur thorugh:
Market relations (Arm’s-length)
Network relations, that is cooperation among firms with the same level of power;
Quasi-hierarchy, with relations among enterprises that are legally independent, but one is hierarchically subordinate to the other;
Hierarchy, when a firm is owned by another (external) firm.

37. R&D expenditures by business, government, higher education, and private non-profit organizations
Source of funds for R&D, by type of costs, by type of economic activity (NACE), by enterprise size class, by type of R&D (basic, applied, and experimental research) (Timothy J. Sturgeon, May 2013)
Schmitz (1995) - ‘‘collective efficiency’’ (CE) - defined as the competitive advantage derived from local external economies and joint action
Ricardo’s static concept of ‘‘Comparative Advantage’’ (CA) - registers ex-post gaps in relative productivity which determine international trade flows
success in firm-level upgrading enables the dynamic acquisition of competitiveness in new market niches, sectors, or phases of the productive chain (Pietrobelli, 1997;Lall, 2001;).
From innovation, to upgrading, to the acquisition of firm-level competitiveness (i.e., competitive advantage).

38. R&D Alliance Networks MNC Competing products Competing technologies
Scientific and knowledge fields
Research
laboratory
Government
innovation policy
agencies
MNC
International
Standardisation
agency
Scientific
Association
Competing technologies
subcontractor
standardisation
RESEARCH
CONSORTIUM
© Todeva, 2005

39. The Network Diamond RELATIONSHIPS STRUCTURE ACTORS cultural approach
relational
structural
Emanuela Todeva (2006) Business Networks: Strategy and Structure, New York: Taylor & Francis.

40. Conclusions – Supporting Cluster Development & Its Integration into Global Value Chains Through Intermediation & Facilitation
prioritising and balancing between competition and cooperation
bridging to enhance information transparency of suppliers and contracts
creating effective institutions and intermediation practices
New policy framework that provides incentives for networking & decision support
Contract management support (platform governance & legal representation / protection)
Strategic alliance management
Market access management
Intermediation
theory
Types of
Intermediaries
Institutional
Activities
/ Practices
Financial
Services
Channels
Mechanisms