Six questions with UNESCO Chair speaker and Duke University professor Gary Gereffi
Few understand global value and supply chains – let alone the differences between them – more deeply than Gary Gereffi, a Duke University professor who has been studying our global production frameworks in all their labyrinthian growth and development for some five decades.
In a recent event hosted by UNU-MERIT’s UNESCO Chair, Gereffi shared his timely insights on what recent industrial policy changes under the U.S.’s Biden administration could mean for the rest of North America and beyond. In this follow-up interview, he puts those more nuanced thoughts and predictions in context of how he sees global value chains working across both developed and developing countries today.
Why have you focused so much of your career on examining supply chains?
For me, work on supply chains grew out of my early interest in multinational corporations and development. My early dissertation work was on Mexico and the pharmaceutical industry in the 1970s and 1980s. There was a big debate around dependency theory at the time – whether multinational companies were creating forms of dependency that hindered or distorted development or if they were promoting it. We needed a better framework to try to understand how the global industries in which these multinationals were located were organized. Academics could step in and use a variety of research tools to throw more light on how multinational strategies and structures created these different global industries, which ended up having a lot of utility for policymakers.
After that initial work, the global value chains approach came and started to look at supply chains in a multi-tiered way. This became the sweet spot for the global value chains literature: to link the research on global industries and supply chains with what it means for particular local, regional and national places, creating this bigger literature on global value chains and development.
What has surprised you about how global value chains have developed over time?
One of the surprises is that technology continues to be a factor that reorganizes production on a regular basis. The digital revolution – or, as some people call it, Industry 4.0 – has been the most recent and far-reaching. Technological revolutions, which occur every 25 or 30 years or so, must be factored into analyses, and yet – and this also surprises me – they often aren’t. They move very fast and they move very unevenly. There have been lots of claims that the Internet and e-commerce would dramatically transform and open economies, but it’s happened in some places and not in others.
Same thing with automation, which has been possible for 20 years or so. If you read different consulting firm reports, 70 percent of all jobs are at risk of automation in [the Western] world, yet if you go to factories and talk to companies and ask what’s going on, they’ll say that we need to think about this as only partial automation or a selective process.
I think that’s where field work is absolutely critical to counterbalance the news stories of the day with regard to what technologies are out there. From a research point of view, you discover a more complex reality.
How should developing countries be approaching their role in supply chains?
Developing countries are interested in what’s happening in places considered to be technological leaders – in particular, the technologies connected to advanced manufacturing and the digital economy. Those are the same technological transformations that are going to be reshaping what’s possible in developing countries.
From a developing country point of view, they should be focusing on where they are positioned in these chains. One of the places they’re positioned is in raw material extraction or mineral extraction, since many of these new digital technologies, paradoxically, rely very heavily on traditional mining and minerals of different sorts – so-called rare earth minerals, or critical minerals.
The question this raises for developing countries is how they can understand the strategic value of their natural resources today in these new industries like electric vehicles and semiconductors – not the industries of the past that would drive much of what was going on in the developing world, like oil, natural gas, coal and all that. If you’re a country that has lithium or titanium or cobalt, and you realize these are tied to electric vehicles – an industry that could grow for 30 or 40 years – then you have to say, how do we add value to that? How do we become a player in that value chain?
What types of investments do developing countries need to achieve this?
A key area that requires investment is processing. Multinationals have always been very good at finding raw materials and then exporting them to wherever they want in the world for further processing, which led developing countries to these commodity export booms.
Whether it’s a food product or a mineral or oil, if you have a natural resource and you just export it relatively unprocessed, you’re left with the problem of declining sources of supply, price cycles, the distorting effect of commodity booms, and all of that. You’re not putting yourself in a position for innovation capacity-building and connecting up to other parts of the value chain.
I think that’s where the global value chain approach can help policymakers in developing countries to see some opportunities further down the chain, and then try to figure out how to take advantage of them. This includes different kind of partnerships – because of how fast these industries are changing, you don’t have the luxury to try to do it yourself starting from the beginning.
Could you speak a bit about the dialogues happening around deglobalization?
I think deglobalization is responding to this idea that people might want to get back to a nation-state centered international economy, having more things being done in one place where the government shapes what’s going on. This reasserts more control over what’s happening in an economy. This has often led to calls for restoring production that previously had been extended into international supply chains.
But there are many reasons why I think this is too simplistic. Virtually no industry today is done inside one country, even those for relatively simple products. If you take athletic footwear, for example, Adidas, the number one athletic shoe company in the world, tried to create a highly automated “Speed Factory” in Germany. They discovered after studying the supply chain that a basic athletic shoe contains about 65 parts, but they had to cut the shoe parts down to 17 to make it in Germany, and this end product was inferior and didn’t sell.
For more complex supply chains like a smartphone or a car or even a bicycle, the international production system creates lots of efficiencies through specialization.
You also have to be attentive to technology change. Take the semiconductor plants now being built in the U.S. that are very expensive, taking lots of subsidies – in the three or four years it takes to build a plant, the technology could already shift to where a new sort of semiconductor is now commanding the market. In a domestic market, you don’t want to put yourself in a position where you get committed to an old technology with big investments, and then the technology frontier moves elsewhere.
This means you have to do a lot of really detailed homework to be able to select what you want to produce at home. And most governments don’t have that kind of technological or economic acumen to make those decisions.
In an age of climate change and other risks, what innovations are you most optimistic about increasing supply chain resiliency?
Certainly the digital economy. Breakthroughs are creating the potential for a lot more transparency in supply chains. It’s easier to map certain things, which is definitely opening possibilities for more players – though it also leads to more competition.
Sustainable development innovations are probably the most important going forward. Areas like recycling and reuse of product are particularly important, very cost effective and open to smaller and medium firms, not just giant players.
The final thing I think we also need are innovations in distribution systems. Like smart medicine – how do you get medical services to communities that don’t have access to doctors? We need to think not so much about just making new goods or even new processes. Rather, we should focus on what we currently have and try to reach markets in more effective ways so that we can shrink the distance and cost requirements and be more user-oriented.
Recording of the UNESCO Chair webinar on ‘Reorganization of International Production, Global Value Chain Resilience and Prospects for North American Integration’, featuring Gereffi:
The opinions expressed here are the participants’ own; they do not necessarily reflect the views of UNU.