13 - Risks and Opportunities of Participation in Global Value Chains

Summary

Introduction

For millennia, the ancient agrarian cycle based on crops and livestock controlled the fortunes of the world. Then came the Industrial Revolution in the mid- 19th century. ‘For the first time in history, the living standards of the masses of ordinary people have begun to undergo sustained growth’, notes Nobel laureate and economist Robert E. Lucas, Jr. ‘Nothing remotely like this economic behavior has happened before’ (Lucas, 2002: 109–110). More recently, in the context of integration and modernization, waves of technology improvement since the first industrial revolution have been changing the boundary of production and redefining the spectrum of the role of state. Participation in global value chains (GVCs), which highlight the ways in which new patterns of international trade, production, and employment shape prospects for development and competitiveness, creates opportunities and risks to enterprises. On the one hand, it creates new opportunities for profits and expands the market horizon; and on the other hand, it exposes the enterprise sector to risks previously shielded from market boundaries and geographic distance, and increases the degree of potential information asymmetry. Various forces interact in different directions, exacerbating or mitigating the dynamics of risks.

Risk implies the possibility of loss. The upside of risk, or the possibility of gain, is opportunity. Risk (or opportunity) can be imposed from outside or taken on voluntarily in the pursuit of opportunities. Enterprises are facing a wide range of risks on a day-to-day basis. Due to continual changes in technology, production frontiers are pushing outwards and higher efficiency becomes the norm for survival (for example, personal computers). Demand changes as new tastes and preferences create niches for new products, and the higher profit mark-up from innovation becomes an engine of growth (for example, the iPad). There are also catastrophic risks from unexpected events such as global economic crises and natural disasters.

The information and communication technology revolution has not only sharply increased productivity, but also reinterpreted the function of time and distance. Billions of activities are linked with ‘one-click’ and new demands become effective with ‘just-in-time’ delivery. The world is increasingly interconnected.