About
Global Value Chains (GVC) refer to the localization of production in a network of different countries and regions, each of them adding a portion of the value of the final good produced. In the aim of optimizing production costs, in the last decades, companies decided to outsource and/or offshore more and more phases of their production process.
However, after a strong wave of global integration from the mid-1980s to the end of the first decade of the 21st century, several globalization forces eased. More recently, there is evidence that these trends may even be reversing, leading to the back-shoring of some activities. The reasons behind this shift are multiple, linked to changes in geopolitics, rising concerns about globalization’s impacts on inequality, environmental degradation and major challenges to the international fragmentation of production. The COVID-19 pandemic has only served to confirm these shifts and the longer-term effects are still far from being clear.
The most likely explanation is that the dynamics of the twin seeds underpinning trends in international trade and production organization – namely technological transformations and geopolitical and policy shifts – have changed. These shifts pose profound socio-economic challenges to business and government policy that remain incompletely understood.
In terms of technological transformations, a key change is the shift to the Industry 4.0. technological paradigm, characterized by cyber-physical production systems. This technological revolution to production systems based on increasing digitalization, on top of robotization and automation, enables new methods of organization and control over the entire value chain and lifecycle of products. Digital value chains enable global inputs from suppliers, business partners and customers. The consequences of these technological revolutions on GVC structures have not yet been analyzed in-depth.
In terms of geopolitics, while China and the former Comecon countries in Europe have become highly integrated into the world economy, the ongoing changes in superpowers’ attitudes towards trade integration, emerge as the second major driving force of GVC’ restructuring. The already distressed international trading system was further challenged by the Trump Administration, its undermining of the World Trade Organization and the associated punitive tariffs against China and other trading partners, including the EU. Retaliatory measures by the Chinese side led to a serious trade dispute between the US and China, with real consequences for GVC. This conflictual US-China relationship seems to persist under the Biden administration. The fundamental issues of intensified international competition underpinning geopolitics have resulted in changing attitudes regarding technology transfer, intellectual property rights and a stronger emphasis on longer-run strategic policies (by states, companies and regional entities such as the EU).
These shifts co-exist with increasing global recognition of the existential threat from climate change and environmental degradation and the pressing need to develop policies that ensure that production and consumption adapt to this wider imperative. In the EU, this manifests itself in the European Green Deal.
The outbreak of the COVID-19 pandemic generated new threats and uncertainty in an already complicated situation, highlighting the fragility and vulnerability of the international organization of production. Severe supply security issues have emerged. As various key production centers entered lockdown, the shortage of supplies of intermediate and final products highlighted GVC vulnerabilities. This was especially clear in relation to the supply of health-related goods, like personal protection equipment (e.g. face masks) and such as-saving mechanical ventilators. The international supply chain disruptions resulting from COVID-19 had major impacts on national and regional economies leading to calls for the reshoring of international production structures in order to make GVC more resilient. Many have urged caution, arguing that access to global production was a key factor in enabling governments to cope with the rapidly changing demands linked to the pandemic. However, the perception persists that GVC expose economies to excessive risks in times of crisis and that resilience requires shorter value chains, through back-shoring or near-shoring.
Against this background, the objectives of the TWIN SEEDS project are four-fold:
to explore the geographical reorganization of GVC under these transformative geopolitical, economic and technological conditions, paying particular attention to key players within GVC, especially MNEs and their production networks.
to analyze how recent and emerging technological developments and GVC restructuring are impacting on social inequalities, through changing international production structures and shifting work organization, employment opportunities and job requirements. At the same time, we will explore how such changes interact with the major adjustments required to address the challenges of climate change and other environmental imperatives and draw out the implications for productivity dynamics, growth and employment, at regional, national and supra-national levels.
to highlight the effects of the challenges posed by the COVID-19 pandemic to trade relations and GVC in general, and to international production in key strategic sectors such as health, in particular.
to construct optimal, multifaceted scenarios for a spectrum of interrelated policies in the key policy areas of trade and investment, competition and social policies. The scenarios developed will form the basis for suggested policy recommendations.
The TWIN SEEDS project will address these four objectives through a multi-level (global, national, regional, sectoral, firm level) research framework, relying on a mix of quantitative and qualitative methods and extensive stakeholder engagement.
Apart from advancing the scientific state-of-the-art on the evolution of GVC, TWIN SEEDS will produce a unique body of original, comparative data that will be made available through open access arrangements to other researchers and policymakers for analysis and benchmarking.