Slicing Up Global Value Chains: a Micro View

Abstract

Global value chains, GVCs, have had a transformative impact on the world economy since the early 1990s. We study 45 specific GVCs with company-confidential invoice-level data. We find that the case companies' headquartering functions capture a large share of the overall value added, 27 % on average. The value added shares of other functions are as follows: distribution 21 %, final assembly 16 %, and logistics 5 %. The remaining 30 % of the value added goes to vendors. Upon considering value added by country, we find that the home economy's share is 47 % on average. This share is reduced with offshored-as opposed to Finnish-final assembly: 2 percentage points for a high-end smartphone, over ten percentage points for a low-end feature phone, and 27 percentage points for machinery and metal products. We attribute the latter large drop to co-location of non-assembly functions, intellectual property issues, transfer pricing, and profit allocation. We conclude that GVCs are complex and heterogeneous; value chains of basic products and services are not nearly as global as those of advanced ones; and the value added share of wholesaling and retail is large in consumer products. We nevertheless argue that value added is less tied to assembly-and other tangible aspects of GVCs-than conventional wisdom suggests; the intangible aspectsmarket and internal services, and creation and appropriation of intellectual property-are more important. The increasing presence of GVCs brings about several thorny policy issues that are yet to be addressed.

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