Global Value Chains

A global value chain (GVC) divides the production of a good or service across firms and countries, from inputs and production to design, marketing and distribution. Intermediate goods are inputs, such as parts, components or processed materials, that undergo further production before becoming final goods.

Role of intermediate goods

Intermediate goods connect the successive stages of a GVC. Their cross-border movement allows different countries and firms to specialise in particular tasks rather than producing an entire product domestically.

• Imported intermediates can provide access to specialised technology, quality inputs and components needed for competitive exports.
• Because parts may cross borders several times, efficient customs, logistics and standards compliance are especially important.
• Repeated cross-border processing means gross trade values can differ substantially from the domestic value added embodied in exports.

Upgrading and gains from participation

Moving up the chain means upgrading from low-value, easily replaceable tasks to activities that create or capture more value.

• Process upgrading raises productivity or quality through better skills, technology and organisation, while product upgrading shifts towards differentiated, higher-quality goods.
• Functional upgrading adds higher-value activities such as design, packaging, branding, certification and marketing.
• Higher productivity lowers unit costs, while better quality and credible standards can secure a price premium and access to higher-income markets.
• Branding, collective marketing and direct buyer links can improve value capture; longer-term lead-firm relationships can provide steadier orders, knowledge and demand information.

Conditions and limitations

Participation does not automatically produce upgrading because lead firms often control technology, standards, design and market access.

• Producers need affordable finance, infrastructure, skills, digital access, and testing or certification facilities to meet buyer requirements.
• Producer organisations and clusters can pool inputs, fulfil large orders and spread the fixed costs of technology, logistics and compliance.
• Transparent contracts and market diversification can reduce risks arising from strict standards, delayed payments, buyer concentration and dependence on a single market.
• Public policy should facilitate capability building and market access rather than treating export participation alone as evidence of higher producer income.