Transcript Slide 1

Global Value Chains and Upgrading:
China and Mexico Compared
Gary Gereffi
Duke University
[email protected]
“Globalización, Conocimiento y Desarrollo desde la perspectiva mexicana”
Universidad Nacional Autónoma de México (UNAM), México, DF, México
15-17 de marzo, 2006
5 Themes
• Global value chains & industrial upgrading
• Industrial diversification in Mexico & China
• Comparing industrial upgrading trajectories
in Mexico and China
• Why is Mexico losing U.S. market share to
China?
• Can Mexico be competitive with China?
Global Value Chains
• Industrialization takes place in a global context
(“national” industries outmoded)
• GVCs focus on the organization of entire
industries: raw materials-production-retail
• GVCs can be fragmented or consolidated
• Who drives the chain? (power of lead firms –
producer-driven vs. buyer-driven)
• Upgrading by countries within GVCs is possible,
but not guaranteed
Forms of industrial upgrading
• Product upgrading (new, better products)
• Process upgrading (more efficient, cheaper)
• Functional upgrading (new roles in GVCs)
– assembly
– “full package” (OEM)
– original design manufacturing (ODM)
– original brand manufacturing (OBM)
• Inter-sectoral upgrading (new industries)
– Primary products to manufacturing to services
– Labor-intensive to capital- & knowledge-intensive
Comparing Industrial Upgrading
Trajectories: Mexico vs. China
Mexico’s Industrialization since 1985
• Export oriented (mainly to U.S. market)
• Highly diversified
• Shifting emphasis from primary product exports
& intermediate goods to manufactures
• Within manufacturing, medium-tech and hightech exports are displacing low-tech exports
Table 1: Mexico’s Top 10 Exports to the U.S. Market, 1985-2004
1985
Rank SITC Product
2004*
1995
Value
% SITC Product
(US$
millions)
1
33
Petroleum
7,981
48.0
77
2
71
Power generating
machinery
1,018
6.1
78
3
77
Electrical machinery &
appliances
956
5.7
76
4
76
Telecommunications &
sound recording
apparatus
665
4.0
33
5
05
Vegetables & fruit
628
3.8
6
07
457
7
78
Coffee, Tea, Cocoa,
Spices
Road Vehicles
8
03
9
10
Electrical machinery &
appliances
Road vehicles
Value
% SITC
(US$
millions)
11,507 16.7
78
Product
Road vehicles
Value
(US$
millions)
26,147
%
16.8
10,683 15.5
33
Petroleum
19,697
12.6
Telecommunications &
sound recording
apparatus
Petroleum
7,691 11.1
77
Electrical machinery &
appliances
19,130
12.3
6,633
9.6
76
Telecommunications &
sound recording
apparatus
17,553
11.3
71
Power generating
machinery
3,406
4.9
75
7,729
5.0
2.7
84
Apparel
2,869
4.2
84
Office machines &
automatic data
processing equipment
Apparel
6,945
4.5
426
2.6
89
2,713
3.9
71
4.0
378
2.3
05
2,491
3.6
74
Power generating
machinery
General industrial
machinery & parts
6,310
Fish, crustaceans,
molluscs
Miscellaneous
manufactured articles
Vegetables & fruit
5,866
3.8
68
Non-ferrous Metals
335
2.0
75
2,146
3.1
87
3.3
Miscellaneous
manufactured articles
332
2.0
74
1,707
2.5
82
Professional, scientific
& controling
instruments
Furniture and parts
thereof
5,083
89
Office machines &
automatic data
processing equipment
General industrial
machinery & parts
4,317
2.8
Top 10 Products (2-digit level)
13,176
79.2
51,846 75.1
118,777
76.2
Total Exports to U.S. Market
16,631
100.0
69,043 100
155,846
100
Note: SITC refers to Standard International Trade Classification categories.
Source: World Trade Analyzer, based on United Nations trade data.
*2004: USITC U.S. General Imports - http://dataweb.usitc.gov
Graph 1: Composition of Mexico’s Exports to the U.S. Market, 1985-2003
Mexico
Exports to USA Market
70
Primary Products
Resource Based Manufactures
Low Tech Manufactures
Medium Tech Manufactures
High Tech Manufactures
60
% Export Market
50
40
30
20
10
0
Total
Exports
US $B
1985
16.6
1987
10.1
13.9
1989
14.6
Source: World Trade Analyzer.
17.8
1991
20.4
20.1
1993
38.9
44.4
1995
54.4
69.0
1997
83.2
95.9
1999
104.6
122.6
2001
149.0
142.7
2003
146.3
150.8
China’s Industrialization since 1995
• Sustained & diversified export dynamism
• Decline of low-tech manufactured exports
• Increase in medium-tech and high technology
manufactured exports
• China’s science & education policy emphasizes
high-tech parks & ICTs
• Business services weak outside of big firms
Graph 2: Composition of China’s Exports to the U.S. Market, 1985-2003
70
60
50
% Export Market
Primary Products
Resource Based Manufactures
40
Low Tech Manufactures
Medium Tech Manufactures
High Tech Manufactures
30
20
10
0
Total
Exports
US $B
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2.4
3.1
4.7
6.8
18.4
26.1
35.6
47.6
64.3
106
Source: World Trade Analyzer.
Mexico vs. China
• Head-to-head competition in U.S. market
• China is world’s leading exporter of many
manufactures, esp. consumer goods
• China and Mexico are typically among the top
three exporters to the U.S. market in many
product categories
• China is moving ahead of Mexico with
dominant market shares in the United States,
especially in 2000-2005 period
Table 2. Top 50 US Imports in which Mexico and/or China hold 20% or more of the US market, 2004
Table 3. Mexico's and China's Competing Exports to the United States, 2000-2005
Main Competitors in the US Market for Automatic Data Processing Machines and Units (SITC 752)
45.0
40.0
35.0
Share of US Market
30.0
China
Malaysia
Mexico
Singapore
Taiwan
25.0
20.0
15.0
10.0
5.0
0.0
2000
2001
2002
Year
2003
2004
Main Competitors in the US Market for Telecommunications Equipments and Parts (SITC 764)
30.0
25.0
Share of US Market
20.0
China
South Korea
Mexico
Malaysia
Canada
15.0
10.0
5.0
0.0
2000
2001
2002
Year
2003
2004
Main Competitors in the US Markets for Furniture and Parts (SITC 821)
45.0
40.0
35.0
Share of US Market
30.0
China
Canada
Mexico
Italy
Taiwan
25.0
20.0
15.0
10.0
5.0
0.0
2000
2001
2002
Year
2003
2004
Main Competitors in the US Market for Articles of Apparel and Clothing (SITC 84)
20.0
18.0
16.0
Share of US Market
14.0
12.0
China
Mexico
Hong Kong
Honduras
Viet Nam
10.0
8.0
6.0
4.0
2.0
0.0
2000
2001
2002
Year
2003
2004
Why is China gaining U.S. market
share over Mexico?
• China is a lower-cost producer overall (labor costs
lower, but not transport & tariffs)
• China has huge scale economies
• China has a coherent and multidimensional upgrading
strategy – diversify and add high value activities
• China is using direct foreign investment to promote
“fast learning” in new industries
• China uses access to its domestic market to attract
TNCs and promote knowledge spillovers
China’s Supply Chain Cities in Apparel
Source: David Barboza, “In roaring China, sweaters are west of socks city,” New York Times, Dec. 24, 2004.
How can Mexico compete with China?
• Take advantage of proximity to U.S. market (e.g.,
quicker time to market; large & heavy goods;
made-to-order customized products)
• Eliminate comparative disadvantages
(bureaucracy; low productivity; poor utilities &
transport infrastructure; education)
• Move into high-value activities within GVCs (e.g.,
R&D, design, engineering, business services)
• Use domestic market as an asset
Conclusions
• There is a globalization paradox
– The dramatic expansion of production capabilities
reflected in global outsourcing creates heightened
anxieties in both developed and developing countries
regarding sustainable development
• The global economy is concentrated at the
top and fragmented at the bottom
– Thus, the real opportunities to move up in value
chains are concentrated in a small number of
developing economies
• Development strategies need to be more
balanced and decentralized
– “Free trade” is not a development strategy
– Industrial policies are being implemented at subnational
level
– Regional markets supplement national ones, and can
reduce the pressures from global competition
• Labor and environmental standards matter
– As much of the world’s apparel production becomes
concentrated in China, pressures to follow “ethical
sourcing” procedures will intensify
– China will need to upgrade its labor standards and
working conditions, or it will be embroiled in continuous
battles with NGOs and social activists
Thank you
for your attention!