1. KNOWLEDGE TRANSFER AND GLOBAL VALUE CHAINS (GVCs) Koen De Backer, OECD Working Group on Trade and Technology Transfer WTO, Geneva, 29 June 2012

2. What are we talking about: knowledge transfer: market transactions and externalities GVCs?, Offshoring? Outsourcing?... GVCs and knowledge transfer Trade of intermediates Offshoring: buyer – supplier relationships Upgrading within GVCs R&D offshoring Outline of the talk

3. Knowledge transfer (1) Market transactions: intended transfer –International trade –Foreign direct investment –Licensing OECD Database on Technology Balance of Payments Royalty payments for patents, licenses and copyrights –International mobility of personnel 3

4. International flows of technology, 1999 and 2009 4 Source: OECD (2011)

5. Royalties and license fees, 1997-2009 5 Source: OECD (2011)

6. Knowledge transfer (2) Externalities: unintended transfer –International trade –Foreign direct investment Movement of staff from MNEs to domestic firms Demonstration effects by MNEs Increased competition from MNEs Vertical linkages: upstream and downstream –Departure of employees –Patent applications 6

7. GVCs and offshoring/outsourcing

8. International production networks; dispersion of production stages across countries Networks of activities, firms (MNEs and local firms), industries and countries More specialisation and complex production relationships, profound changes in countries’ competitiveness Global flows of goods (final and inputs), services, capital, people, technology… Hence, different potential channels of knowledge transfer (intended and unintended) … gives rise to Global Value Chains

9. Intermediate goods trade within GVCs –Type of good important for spillovers –Capital and intermediate goods embody transfer of technology (less so for consumption goods) –Empirical evidence (e.g. for Indonesia and India) on beneficial impact of reduction in tariff barriers Larger effects for intermediate goods than for final goods Lower prices, larger sales, more variety (i.e. technology), higher quality final goods 9

10. Materials Customers Suppliers Price End Use MarketModular Lead Firm Component and Material Suppliers Turn-key Supplier Relational Captive Suppliers Captive Lead Firm Component and Material Suppliers Value Chain Hierarchy Integrated Firm Low High Degree of Explicit Coordination Degree of Power Asymmetry Lead Firm Relational Supplier Full-package Supplier 10 Offshoring: buyer – supplier (1) Source: Gereffi et al. (2010)

11. 11 D IFFERENT LEARNING PATTERNS - knowledge properties - suppliers competence - lead firm strategies Offshoring: buyer – supplier (2) Source: Gereffi et al.

12. Materials Customers Suppliers Price End Use MarketModular Lead Firm Component and Material Suppliers Turn-key Supplier Relational Captive Suppliers Captive Lead Firm Component and Material Suppliers Value Chain Hierarchy Integrated Firm Low High Degree of Explicit Coordination Degree of Power Asymmetry Lead Firm Relational Supplier Full-package Supplier 12 Knowledge spillovers Imitation Offshoring: buyer – supplier (3) - shoes in Brazil - knitwear in India

13. Materials Customers Suppliers Price End Use MarketModular Lead Firm Component and Material Suppliers Turn-key Supplier Relational Captive Suppliers Captive Lead Firm Component and Material Suppliers Value Chain Hierarchy Integrated Firm Low High Degree of Explicit Coordination Degree of Power Asymmetry Lead Firm Relational Supplier Full-package Supplier 13 Imitation Transfer of people Training by MNE Knowledge spillovers Offshoring: buyer – supplier (4)

14. Materials Customers Suppliers Price End Use MarketModular Lead Firm Component and Material Suppliers Turn-key Supplier Relational Captive Suppliers Captive Lead Firm Component and Material Suppliers Value Chain Hierarchy Integrated Firm Low High Degree of Explicit Coordination Degree of Power Asymmetry Lead Firm Relational Supplier Full-package Supplier 14 Knowledge transfer from lead firm Confined to narrow range of tasks Offshoring: buyer – supplier (5) - (sport) shoes in Brazil

15. Materials Customers Suppliers Price End Use MarketModular Lead Firm Component and Material Suppliers Turn-key Supplier Relational Captive Suppliers Captive Lead Firm Component and Material Suppliers Value Chain Hierarchy Integrated Firm Low High Degree of Explicit Coordination Degree of Power Asymmetry Lead Firm Relational Supplier Full-package Supplier 15 International standards Transfer of knowledge in codes, technical definitions… Offshoring: buyer – supplier (6) - Automotive in Brazil, Argentina and Mexico

16. Materials Customers Suppliers Price End Use MarketModular Lead Firm Component and Material Suppliers Turn-key Supplier Relational Captive Suppliers Captive Lead Firm Component and Material Suppliers Value Chain Hierarchy Integrated Firm Low High Degree of Explicit Coordination Degree of Power Asymmetry Lead Firm Relational Supplier Full-package Supplier 16 Mutual learning Face to face interactions Offshoring: buyer – supplier (7) - Apparel in East Asia - computer in Taiwan

17. Product upgrading better quality more features improved design Process upgrading increase scale and speed improve efficiency and productivity (e.g., lean production) Introduce new technology Functional upgrading acquiring new functions (or abandoning existing ones) to increase the overall skill content of the activities. Chain upgrading Moving to another chain 17 Dynamics: upgrading within GVCs (1) Source: Kaplinsky and Morris (2002)

18. 18 Dynamics: upgrading within GVCs (2) Source: OECD (2012)

19. 19 Dynamics: upgrading within GVCs (2) Lenovo, Embraer, Tata …. But… Computer comanies in Chinese Taipei (key suppliers to OEM to OBM?) Source: OECD (2012)

20. 20 Dynamics: upgrading within GVCs (2) Hierarchy Captive GVCs Relational GVCs Modular GVCs Source: OECD (2012)

21. 21 R&D offshoring (1) Share of various corporate functions undertaken abroad, 2008 and 2011 Source: OECD (2011)

22. 22 R&D offshoring (2) Most attractive foreign R&D locations (% of responses) Source: OECD (2011)

23. 23 HOME BASE EXPLOITING UNI-DIRECTIONAL FLOWS ASSET BASE EXPLOITING BI-DIRECTIONAL FLOWS R&D offshoring (2) Source: OECD (2011)

24. GVCs strengthen ‘traditional’ channels of technology transfer… And promote new channels (offshoring, including of R&D) The size and direction of knowledge transfer depends on: The characteristics of knowledge The capabilities of local firms and environments The strategies of lead firms Likewise the opportunities for upgrading are heaviliy determined by the same factors Conclusions – policy issues (1)

25. Knowledge transfer and learning not automatically; investments in knowledge capital needed by receiving partners (absorptive capacity) Host countries can play a role in increasing absorptive capacity of domestic suppliers Host countries should play a major role in facilitating knowledge transfer Conclusions – policy issues (2)

26. Koen De Backer, OECD koen.debacker@oecd.org