Accessible global value chains will increase efficiency in component sourcing

Friday, December 20, 2013

By Cassandra Oaten

The Organisation for Economic Co-operation and Development (OECD) has produced an analysis on global value chains (GVCs) that was presented at the G20 Leaders Summit in Saint Petersburg, Russia on 4-6th September of this year outlining how value can be added to end products through sourcing components from a global market.

The report, which can be accessed here, points out the advantages of having well-developed GVC processes across business sectors which gives companies the ability to source component parts and services from a larger amount of providers, creating choice and competition within market sectors. This assists companies to improve efficiency in their supply chains thus maximising profits. Globally accessible GVCs mean that firms aren't restricted by location when sourcing goods. Buyers will be able to purchase required products at the quality level that suffices their needs.

The World Trade Organisation (WTO) states that by reducing trade costs GVCs present growth prospects. Perfectly efficient markets with all products globally obtainable will allow products produced in developing nations to present a price advantage to higher cost competitors. Thus developed GVCs assist in the development of nations through facilitating the development of companies producing in emerging economies who are able to add value on a marketable scale by producing products with a cost advantage that they excel in producing. A system like this will reward national sectors that are globally competitive and efficient.

More efficiency in GVCs will occur as globalisation increases and barriers to trade decrease. The removal of tariffs will reduce business costs, boost growth and reduce the cost of more effective international operations, goods and services, increasing the rationale behind looking beyond the domestic market to source components and services.

The G20 amongst other international institutions has been doing work on this topic and has a focus on developing regulatory frameworks that will be able to further develop GVCs.