What is a Global Value Chain?
A global value chain represents the various tasks and activities a company must complete to produce and deliver goods into the hands of consumers. Traditional activities in a value chain include purchasing, producing, packaging, transporting, warehousing and distributing goods either internally or through other companies. To complete these activities among international countries, organizations will create a global value chain that includes logistical placements of companies within each country to complete the value or supply chain tasks.
Markets are the primary reason a value or supply chain exists. A producer must find a way to move finished goods to areas where consumers desire to purchase and use these products. A value chain does this because it adds value to the company’s overall production process, as its name implies. The advancement of business technology over the past few years and decades has made it possible for companies of all sizes to compete in international markets. The global value chain is necessary because most firms do not have the resources available to compete in the process. Outsourcing services to organizations that can complete these activities allows the producer to focus on what it does best: produce the goods or services demanded by consumers.
A global value chain can be modular, relational or captive. Modular value chains produce goods at the request of consumers. This allows a company to achieve high levels of market share as consumers will be receiving the product they desire the most. Producing and/or selling goods in international markets will often lead companies to use the most generic machinery possible in order to meet the wide demand of customers in numerous markets.
Relational value chains rely on multiple companies to complete tasks and activities. For example, a widget manufacturer may need two pounds of steel for each unit produced. While the domestic production facility has access to a local steel factory while an international location may not. Therefore, the global value chain will rely on localized industries — comprised of both large and small companies — to help complete the processes within the organization.
A captive value chain results when small companies rely on larger organizations in the chain. The lead firm can then dictate prices and services in the local industry. The global value chain may result in power struggles when a larger domestic firm attempts to control the chain including several smaller international suppliers. Although using international suppliers may mean lower costs for goods in the value chain, companies may experience backlash from consumers for unfair trade practices.
You're right, Certlerant. Unfortunately, many companies can't see far enough past the bottom line to care about the quality of the products or how they are being produced.
Yes, American labor, environmental and other laws make it much more expensive, and, in many cases, next to impossible, to run a fully domestic operation, but that doesn't mean companies should be forced to use suppliers who don't care at all about human rights or quality.
More companies that outsource manufacturing or other services internationally should consider why costs are so much less in other countries than in the United States.
Usually, costs are reduced because the products are produced in sweat shops, often by children forced to work long, hard hours for next to nothing.
In addition, cheaper, poorer quality materials are used and craftsmanship is compromised in favor of speed and output.
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