1. Exploiting Global-value Chains and
Knowledge-Based Capital for Growth
Andrew Wyckoff
Directorate for Science, Technology & Industry
Nordic Conference
5 March 2013
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2. OECD Reviews of Innovation Policy

Completed: Luxembourg,
Switzerland, New Zealand,
South Africa, Chile, Norway,
China, Hungary, Korea,
Greece, Mexico, Russian
Federation, Peru, Slovenia,
Sweden
 Ongoing : Vietnam, Croatia,
Colombia
 Under launch / discussion:
Netherlands, France
 Regional reviews: Southeast
Asia, Latin America
Innovation
www.oecd.org/sti/innovation/review
s

3. OECD Reviews of Innovation Policy:
Sweden
Changing global conditions
• Fundamental shifts in the world
economy driven by institutional,
societal and technological change.
• Emergence of new global actors
new market opportunities and new
competition (including in high-end
markets / segments of GVCs).
• Global corporate restructuring –
offshoring of MNE production
activities and corporate research
centres.
www.oecd.org/sti/innovation/reviews

4. The rise of Global Value Chains
• Rise due to technology (ICT & transportation);
modular production, trade & investment
liberalisation;
• Growing complexity, fragmentation and
specialisation of production, leading to
networks of activities,
• Shift in factors of competitiveness towards
tacit factors – knowledge-based capital –
R&D, IP, software, data, supply-chain mngt.

5. Airline industry: Boeing 787
Dreamliner
Wing box: Mitsubishi Heavy Industries (Japan) Forward fuselage:
Wing ice protection: GKN Aerospace (UK) Kawasaki Heavy Industries (Japan)
Centre fuselage: Alenia Aeronautica (Italy) Spirit Aerosystems (USA)
Rear fuselage: Escape slides: Air Cruisers (USA)
Vertical Stabiliser: Boeing Boeing South Carolina (USA) Doors & windows:
Commercial Airplanes (USA) Zodiac Aerospace (USA)
Lavatories: PPG Aerospace (USA) Flight deck seats:
Jamco (Japan) Ipeco (UK)
Raked wing tips: Korean Airlines
Aerospace division (Korea)
Horizontal Stabiliser:
Alenia Aeronautica (Italy)
Engines: GE Engines (USA),
Rolls Royce (UK)
Aux. power unit: Hamilton Centre wing box:
Sundstrand (USA) Fuji Heavy Industries (Japan) Engine nacelles: Goodrich (USA)
Passenger doors: Tools/Software: Dassault Systemes (France)
Latécoère Aéroservices (France) Navigation: Honeywell (USA)
Landing gear: Messier-Dowti (France) Pilot control system: Rockwell Colins (USA)
Cargo doors: Saab (Sweden) Electric brakes: Messier-Bugatti (France) Wiring: Safran (France)
Tires: Bridgestone Tires (Japan)
Prepreg composites: Final assembly: Boeing
Toray (Japan) Commercial Airplanes (USA)
Source: www.newairplane.com

6. Toys: Barbie doll
Design: California, Nylon hair: Japan
USA
Body material:
Chinese Taipei
Moulds, paint
pigments: USA Clothing:
China
Quality testing:
Assembly: USA
Indonesia and
Malaysia
Marketing: USA
Source: Grossman and Rossi-Hansberg (2006)

7. Apple’s iPod
The Apple iPod = 299$ of Distribution of the
Chinese exports to US value added
• 299 US$
– 75$ profit to US (Apple)
– 73$ whls/retail US (Apple)
– 75$ to Japan (Toshiba)
– 60$ 400 parts from Asia
– 15$ 16 parts from the US
– 2$ assembly by China
• iTunes Music Store (2003)
– 70% digital market share
– Platform for everything
– Data flow to the consumer7

8. 5 Key Policy Issues
1. Measurement of GVCs: Trade in
Value Added (TiVA)
2. GVCs and trade policy
3. GVCs and national
competitiveness… the recurring
discussion on industrial policy
4. GVCs and global systemic risk
5. GVCs and upgrading – knowledge
based assets

9. 1. Measurement: Issues with
current trade statistics
• Three issues:
1. Multiple counting of intermediate
goods and services
2. Tends to conceal the actual patterns
of trade & beneficiaries
3.Incomplete picture as knowledge
and income flows are not measured.
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10. OECD-WTO TiVA Database
January 16, 2013 7:20 pm
Trade’s added value: New statistics reveal
glorious interdependence of countries
Statistics is not always the bedfellow of lies and
damned lies. At its best, it brings epiphanies.
An initiative by the OECD and the World Trade
Organisation to map the value added embodied
in international trade flows should be an eye-
opener for policy makers

11. OECD work on GVCs and TiVA
100% 7 Value added
90% 6 by second
Decomposition 80%
70%
5 tier suppliers
Value added
of gross 60% 4
by first tier
exports 50% 3 suppliers
40% 2
30%
Value added
in the
20% 1 country of
Final 10%
final
consumption Final 0%
assembly production
5
1
4
6
2 Trade in inputs
Trade in 3 (second tier
inputs (first
tier suppliers) suppliers)
7
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12. TiVA: Value-added chains (by
product)
Germany- automotive China - electronics
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13. Trade in Services: Gross vs. Value Added
% total exports of % total exports of
gross flows value-added
% Gross flows Value-added flows
1995 2009 1995 2009
70
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States Kingdom World States Kingdom World

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15. www.oecd.org/trade/valueadded
Foreign value-added in exports by country of
origin

16. www.oecd.org/trade/valueadded

17. www.oecd.org/trade/valueadded

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19. Who trades with whom?
Denmark trade balance, USD millions, 2009
Gross Trade Balance Value Added Trade Balance
20000
15000
10000
5000
0
-5000
-10000
-15000
Germany Netherlands Norway France United Italy China Spain United Sweden Rest of the
Kingdom States World
19

20. Who trades with whom?
Finland trade balance, USD millions, 2009
Gross Trade Balance Value Added Trade Balance
15000
10000
5000
0
-5000
-10000
Russian Germany United France Sweden Japan Italy Norway United China Rest of the
federation States Kingdom World
20

21. Who trades with whom?
Norwegian trade balance, USD millions, 2009
Gross Trade Balance Value Added Trade Balance
25000
20000
15000
10000
5000
0
-5000
-10000
Korea China Denmark Sweden Italy United France Germany Netherlands Rest of the United
States World Kingdom
21

22. Who trades with whom?
Swedish trade balance, USD millions, 2009
Gross Trade Balance Value Added Trade Balance
30000
25000
20000
15000
10000
5000
0
-5000
-10000
-15000
Germany Denmark Norway France Finland Italy United Japan China United Rest of the
Kingdom States World
22

23. GVCs and national competitiveness
• Imports increasingly important for exports
(no mercantilist approach: ‘exports are good, imports
are bad’)
• Better understanding the direct link between:
o trade and income & jobs
o manufacturing and services;
• New opportunities for SMEs to gain access to
global markets & new demands: timeliness,
standards,

24. A GVC perspective is also important for
upgrading, i.e. increasing value
Old paradigm:
creation
From low to high value-added sectors
New paradigm:
From low to high value-added activities
within sectors
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25. Moving up the value chain –
capturing more value
Value creation along the value chain
Source: Presentation G. Gereffi , GVC workshop ‘GVCs and emerging countries’ workshop , Paris (2010)

26. What is knowledge-based capital
(KBC)?
Three main types of assets:
Computerised information
• software & Databases
Innovative property
• patents, copyrights, trademarks & designs
Economic competencies:
• brand equity, firm-specific human capital, business
networks, organisational know-how that increases
enterprise efficiency, etc.)
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27. The rise of GVCs and the role of
KBCs
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Source: IMD (2000) Innovation and Rennovation: The Nespresso Story, IMD046, 03/2003

28. Nordic Strengths

29. KBC accounts for over half of all business
investment in several countries …
Business investment in KBC and tangible assets as a share of GDP, 2010
Source: OECD calculations based on INTAN-Invest and National Sources.

30. Competences and capacity to innovate
Comparative performance of national science and innovation systems,
(OECD median =100), 2011
Top/bottom 5 OECD values Middle range of OECD values OECD median
Science Business R&D and Entrepreneurship
innovation
200
Top half 150
OECD
100
Bottom half 50
OECD
0
Source: OECD Science, Technology and Industry Outlook 2012.

31. Interactions and human resources for
innovation
Comparative performance of national science and innovation systems,
(OECD median =100), 2011
Top/bottom 5 OECD values Middle range of OECD values OECD median
Internet for Knowledge flows and Human resources
innovation commercialisation
200
Top half 150
OECD
100
Bottom half
50
OECD
0
Source: OECD Science, Technology and Industry Outlook 2012.

32. Framework Conditions 2.0
Tax
Personal data Competition
Corporate reporting Improving measurement
Knowledge-
Based
Skills Capital Intellectual property rights
Inequality Entrepreneurship
Global value chains

33. Base Erosion & Profit Shifting
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Source: Images.com/Corbis

34. Relevant to many policy issues
Tax
Personal data Competition
Corporate reporting Improving measurement
Knowledge-
Based
Skills Capital Intellectual property rights
Inequality Entrepreneurship
Global value chains

35. What is an asset?
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36. Upgrading Policies for GVCs and
• GVCs KBC
– Imports are essential for exports;
– Services are key: 50% of VA generated by GVCs
– Activities not industries;
– Importance of tacit / “sticky” KBC
• KBC
– Innovation: more than R&D; reassess R&D Tax
credits; recognise the importance of design
– Entrepreneurship: young ≠ small;
– Finance: debt is poorly suited to KBC.

37. Contact Information
• Watch the video:
www.youtube.com/watch?v=RZKX-0SK41U&
• Use the interactive map:
www.oecd.org/trade/valueadded
• Contact us:
– Andrew.Wyckoff@oecd.org
– Tiva.contact@oecd.org
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