This reflective essay draws on the points I found interesting about global value chains (GVCs), and they changed my understanding of the business world and GVCs. The reflection is based on subject content, online discussions, and assignments completed throughout the course. From the beginning of the course, I was eager to expand my knowledge of global business, especially how international companies manoeuvre the competitive landscape. Throughout the course, I completed assignments and group projects that broadened my understanding of GVCs.
According to Pananond et al. (2020), GVCs entail cross-border production networks in which multinational enterprises (MNEs) operate as lead firms to coordinate suppliers they do not own. GVCs allow firms to upgrade their value by leveraging global activities. Notably, GVCs involve governance arrangements in which companies use numerous governance modes for geographically dispersed, finely segmented, and distinct value chain parts (Kano et al., 2020). This implies that a GVC involves interconnected global operations and functions in producing, distributing, and consuming services and goods.
This class helped me learn more about GVCs, especially issues related to establishing sustainable business operations in global markets. It allowed me to synthesise information on global business operations and challenged my long-held assumptions about GVCs. The in this section, I describe the lessons learnt from points I found interesting in this class and how they changed my understanding of GVCs.
Efficiency is not Enough in Global Markets.
This class changed my understanding of efficiency in GVCs. At the beginning of the class, I believed that MNEs strive to achieve operational efficiency by hiring top-notch talent and investing in state-of-the-art technologies (Lee, 2004). At the company level, the efficiency of how MNEs can control their subsidiaries to organise dispersed and disaggregated activities across borders (Pananond et al., 2020). It reflects how firms optimise their capabilities and resources for cost-effectiveness and greater speed. However, my understanding was challenged from the onset.
While I thought efficiency was enough to achieve a sustainable competitive advantage, I learned that it has several shortcomings that I did not expect. Low-cost and high-speed supply chains cannot respond to unexpected supply or demand changes. Also, efficient firms are likely to report excess inventory or stockpile, reducing profit margins, eroding brand equity, and causing customer dissatisfaction (Lee, 2004). Besides, efficient GVCs are likely to encounter potential supply chain breakdowns when launching new products and become uncompetitive due to the inability to adapt to modifications in market structures. Therefore, this class taught me that while supply chain efficiency is necessary, it is insufficient to attain sustainable competitiveness.
We were assigned course readings that helped me change my understanding of efficient supply chains. Specifically, “The triple-A supply chain” written by Lee in 2004, introduced the concept of Triple-A (agility, adaptability, and alignment) that broadened my understanding of efficient GVCs. Agility underpins responding to short-term supply and demand changes and external disruptions. At the same time, adaptability implies adjusting the supply chain’s design to align with structural market shifts and modifying supply networks to technologies, strategies, and products (Lee, 2004). Alignment seeks to create incentives that foster better performance. This class was eye-opening since it transformed how I perceive global businesses. It improved my ability to analyse the efficiency of MNEs and how they can position themselves to compete with rivals.
Firms Cannot Operate Self-Sufficient Value Chains.
Another lesson and outcome this class helped me achieve are understanding why firms go global or why they cannot operate self-sufficient value chains. I have always considered the theory of comparative advantage as predominantly applicable in transactions between countries. The theory introduces the concept of opportunity cost as a critical factor in making GVC decisions. It suggests that countries trade with other nations if they have a relative advantage in certain goods. Throughout the course, I have learned that firms or countries cannot run self-sufficient value chains due to cost considerations, comparative advantage, market access, technological advancements, adaptability, and agility.
One of the lessons I acquired from this class is that firms go global due to cost considerations. According to Farrel (2004), globalisation can help companies save about 70% of total costs from process improvements, offshoring, and training and task redesign. Cost savings arise from wage differences between developing and developed nations, offsetting extra management costs or capital investments to relocate investments. Before this class, I had not considered the impact of cost differential on capital investments. While I knew companies must comply with labour laws and other regulations in foreign markets, I could not have thought how companies from advanced nations leverage outsourcing to hire top talents at low wages. Other cost-saving opportunities include reengineering production processes to replace high-cost capital with low-cost labour, intense application of capital investment, and hiring local engineers to build and design cheaper capital equipment and manage other operations (Farrel, 2004). This changed my notion that companies expand to broaden their revenue streams by serving more customers.
From a comparative advantage perspective, I learned that GVC governance emerges and thrives when it allows superior efficiency by comparing real-world alternatives. Efficiency involves aligning governance systems (strategic and structural) with transaction attributes in cost-economising ways. Therefore, companies gain a competitive advantage by choosing the most economical and efficient combination of external and internal contracts by considering the macro- and micro-level characteristics of all transactions (Kano et al., 2020). In most of the articles I have read, the findings focused on the role of a firm’s capabilities and resources in attaining a competitive advantage. However, this class challenged my understanding and enabled me to apply the theory of comparative advantage in acknowledging why businesses, especially manufacturers, source materials from different countries.
GVC Governance Decisions Should Be Based on Comprehensive Market Analysis
GVC governance entails making decisions concerning control, learning, network structure, location, GVC orchestration, and performance outcomes. Throughout this class, I learned that effective decision-making demands a comprehensive analysis of macro-level influences (cost and quality of production inputs, economic development, value systems, political stability, technological environment, and institutional quality) and micro-level influences (managerial capabilities, cognitive abilities, and bounded reliability and rationality) (Kano et al., 2020). This challenged me to consider how political conflicts like the Russia-Ukraine War affect GVCs. Throughout the class, we analysed different case studies and engaged in group discussions dealing with real-world issues. This helped me appreciate how the interaction between external and internal forces affects business success in the global markets. These case studies helped me develop critical thinking, analytical, and problem-solving skills I can utilise in real-world settings.
Furthermore, I learned more about the interrelationships within GVCs. In Week 4, we analysed two cases, Toyota and Mattel. The latter helped me understand how company decisions performance and brand image. In this case, Mattel recalled children’s toys over safety concerns due to excess lead used in the paint. Based on this case, it was evident that recalls could damage brand reputation, cause logistical challenges, and increase the risk of litigation. Companies should continually upgrade their processes to protect consumers and create reputable brands. Also, the case underscores the need to understand the relationships between suppliers, customers, regulators, and GVC players to ensure successful business operations.
GVCs can Produce Adverse Social Impacts.
This class changed how I view the role of GVCs in societies. I have always appreciated companies that expand their operations to foreign markets because they create employment and other benefits through corporate social responsibilities. However, this course made me rethink the benefits of expansion strategies. Week 8 was eye-opening because it introduced us to societal impacts on GVCs, especially their contribution to modern slavery. Although this concept felt like a myth initially, it made sense as we engaged in group discussions, reviewed case studies, and completed other class assignments.
This class taught me that modern slavery takes different forms, including involuntary working conditions and forced labour. In 2021, Baker narrated how Chinese meatworkers are mistreated in Australia. Though foreign workers go to Australia hoping to improve their lives, they are often exposed to harsh working conditions, forced to work, or subjected to other forms of mistreatment. In “Slicing up the value chains“, Timmer et al. (2014) explained how international production fragmentation causes pervasive consequences regarding income distribution within and across countries. This forced me to think about the cost advantages firms gain by outsourcing labour from developing companies or expanding to emerging economies. I feel that the primary reason companies from developed countries enter developing markets is because of cheap labour. They look for opportunities to optimise their profits at the expense of society.
This reflection allowed me to share lessons acquired throughout the class. During this course, I completed several assignments, case studies, and group discussions that broadened my understanding of GVCs. The assignments challenged me to interrogate how MNEs achieve success and competitive advantage in global markets. I learned that efficiency is insufficient to succeed in global markets, firms cannot operate self-sufficient value chains, GVC governance requires a comprehensive analysis of macro- and micro-level influences, and GVCs can produce adverse societal impacts. The course improved my understanding of GVCs and the forces involved in the business world. I comprehended and applied different GVC concepts in real-world settings in this class. I recommend the readings to other students and entrepreneurs intending to establish a sustainable advantage in international markets.
Baker, R. (2021). Chinese meatworkers bear the scars of mistreatment in Australia’s visa factories. The Sydney Morning Herald. https://www.smh.com.au/national/chinese-meatworkers-bear-the-scars-of-mistreatment-in-australia-s-visa-factories-20210826-p58m51.html
Farrell, D. (2004). Beyond offshoring: Assess your company’s global potential. Harvard Business Review, 82(12), 82–90.
Kano, L., Tsang, E. W., & Yeung, H. W. C. (2020). Global value chains: A review of the multi-disciplinary literature. Journal of international business studies, 51, 577-622.
Lee, H. L. (2004). The triple-A supply chain. Harvard Business Review, 82(10), 102–113.
Pananond, P., Gereffi, G., & Pedersen, T. (2020). An integrative typology of global strategy and global value chains: the management and organisation of cross‐border activities. Global Strategy Journal, 10(3), 421-443. DOI: 10.1002/gsj.1388
Timmer, M. P., Erumban, A. A., Los, B., Stehrer, R., & De Vries, G. J. (2014). Slicing up global value chains. Journal of economic perspectives, 28(2), 99-118