Understanding Global Value Chains

• Global Value Chain (GVC) involves activities like design, production, distribution, and support across multiple countries.
• Companies optimize operations by outsourcing tasks to specialized firms in different locations, taking advantage of cost efficiencies, technological expertise and resource availability.

Key Definitions

• GVC involves value-adding activities across multiple countries like R&D, design, manufacturing, marketing, and after-sales services.
• Supply Chain is the flow of raw materials, components, and finished goods from suppliers to manufacturers, and then to consumers.

Scope in GVC and Supply Chains

• GVC covers the entire lifecycle of a product or service, including intangible activities like innovation, marketing, and knowledge transfer.
• Supply Chain focuses on logistics and the movement of goods, predominantly involving physical processes like procurement, manufacturing, transportation, and warehousing.

Focus in GVC and Supply Chains

• GVC maximizes value creation across different functions of a business.
• Supply Chain ensures efficient material flow and cost-effective logistics.

Activities Covered in GVC and Supply Chains

• GVC is broader, including R&D, branding, customer support, and disposal/recycling.
• Supply Chains are narrower, mainly concerned with sourcing, production, and distribution.

Geographical Aspect of GVC and Supply Chains

• GVC emphasizes cross-border collaboration and the geographical dispersion of different production stages.
• Supply Chains can be local or global, focusing on logistics and operational efficiency.

Value Chain Activities

• Infrastructure: Company overhead and management, including financing and planning.
• Human Resources Management: Recruitment, hiring, training, development, retention, and employee compensation.
• Technological Development: Research and development, including product design, market research, and process development.
• Procurement: Sourcing raw materials, components, equipment, and services.
• Inbound Logistics: Receiving, warehousing, and inventory management.
• Operations: Turning raw materials and components into finished products.
• Outbound Logistics: Distribution, including packaging, sorting, and shipping.
• Marketing & Sales: Promotion, advertising, and pricing strategy.
• After-Sales Services: Installation, training, quality assurance, repair, and customer service.

Supply Chain Definition

• Supply chain is the sequence of events in a goods flow, adding value to the good.
• These events may include conversion, assembling/disassembling, movements, and placements.
• Global supply chains cross international boundaries
• They link producers/manufacturers/suppliers with distributors/consumers.

Technical Development of Aviation (1783-1929)

• In 852 AD, first parachutes and gliders were flown in Spain and England.
• Leonardo da Vinci designed a hang glider with fixed inner wings and control surfaces towards the tips, which he never flew.
• Emanuel Swedenborg published the first paper on aviation, "Sketch of a Machine for Flying in the Air" in 1716, outlining a flying machine with a light frame, canvas cover, and large oars or wings.
• Jean-Francois Pilatre de Rozier and Francois Laurent d'Arlandes made the first human flight in Paris 1783, going 5 miles (8 km) in a hot air balloon powered by a wood fire.
• Sir George Cayley started the first rigorous study about the physics of flight and exhibited a plan for a glider in 1799.
• Otto Lilienthal made approximately 2,500 flights on various glider designs and made flights of 25 m or more.
• Between 1900 and 1902, the Wright brothers designed gliders before constructing the first powered aircraft.
• In 1903, the first sustained flight with a powered controlled aircraft occurred.

Political & Technical Developments (1929-1944)

• Aircraft construction shifted from wood and canvas to mainly aluminum and engines evolved with increased power.
• Frank Whittle patented a jet engine design in England and began building it in the 1930s.
• World War II increased the pace of aircraft development and production.
• On December 7, 1944, the agreement concerning international civil aviation reached known as the Chicago Convention.
• The International Civil Aviation Organization (ICAO) was created as a result of the agreement.
• Every state has complete and exclusive sovereignty over the airspace above its territory.

Quality and Cost Developments (1945-1973)

• Post WWII flight routes emerged across North America and Europe, due to the conversion of heavy bomber airframes into commercial aircraft.
• The Avro C102 Jetliner flew in September 1949 shortly after the British Comet.
• BOAC introduced the De Havilland Comet in scheduled service by 1952.
• Aeroflot was the first airline to offer regular jet services using the Tupolev Tu-104 on September 15, 1956.
• The Boeing 707 helped usher in new levels of comfort, safety, and passenger expectations.
• In October 1947, Chuck Yeager piloted the Bell X-1 past the speed of sound.
• Both the first jet crossings of the Atlantic and Soviet launched Sputnik 1 happened in 1948 and 1952.
• Yuri Gagarin orbited the planet in 108 min in 1961.
• Alan Shepard went into space in a Mercury space capsule.
• In 1963, Canada became the third country to send a satellite into space with Alouette I.
• Neil Armstrong landed on the moon in 1969.
• In 1967, the X-15 set the air speed record for an aircraft at 4,534 mph (Mach 6.1).

Geographic Fragmentation in Global Value Chains

• Different stages of production take place in multiple countries.
• Companies outsource tasks to take advantage of lower costs, expertise, and resources.
• Boeing 787 example: parts from the USA, France, Japan, and the UK, assembled in the USA.

Specialization and Comparative Advantage in Global Value Chains

• Focusing on what countries/firms do best (China in manufacturing, Germany in Engineering, India in IT services) results in higher efficiency and cost reduction.
• Example: Apple designs iPhones in the USA, manufactures components in Japan, and assembles them in China.

Multi-tier Supplier Networks in Global Value Chains

• Tier 1: Direct Suppliers (engine manufacturers for aircraft).
• Tier 2: Indirect Suppliers (electronics, specialized materials).
• Raw Material Suppliers (metals, composites).

Coordination and Integration in Global Value Chains

• Requires strong coordination among manufacturers, suppliers, and logistics providers.
• Companies use digital tools, Al, and IoT for real time monitoring and efficiency.
• Airbus example: digital twins and blockchain are used for better supply chain transparency

Role of Lead Firms (OEMs) in Global Value Chains

• Large corporations (Original Equipment Manufacturers) control and orchestrate the value chain, set industry standards, negotiate prices, and manage risks.
• Example: Apple (USA) and Samsung (South Korea) dictate terms for suppliers in the electronics GVC.

Regulation and Compliance in Global Value Chains

• GVCs must comply with international laws, trade policies, and industry standards.
• Includes safety regulations (FAA, EASA for aerospace), labor laws, and environmental policies.
• Ex: Airbus must comply with European safety standards even if components come from Asia.

Supply Chain Risks and Disruptions in Global Value Chains

• GVCs are vulnerable to global shocks like pandemics, geopolitical conflicts, and natural disasters.
• Firms mitigate risks by diversifying suppliers and using digital tracking systems.

Sustainability and ESG Compliance in Global Value Chains

• Increase focus on green supply chains and reducing carbon footprints.
• Companies now track emissions, use circular economy practices, and improve labor conditions.
• Tesla and Volkswagen invest in sustainable battery production for electric vehicles.

High Level of Interdependence in Global Value Chains

• No single country can produce everything independently in today's economy, as countries rely on complex trade agreements and partnerships.
• The semiconductor industry depends on Taiwan (TSMC), the USA (Nvidia, Intel), and the Netherlands (ASML).