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Home >   >  Cadenas Globales de Valor
  • The development of Global Value Chains (GVCs) was a process led by multinational enterprises in search for alternatives to lower their production costs, this together with a reduction in transport costs, the advances in information and communication technologies (ICT) and trade liberalization.

    In specific terms, GVCs are characterized by externalities and the realization of multinational enterprises of the different stages of the production processes (research and developments, design, fabrication, distribution, and post sales services) in other companies located in different countries around the globe that converts a simple production chain into GVCs. It is estimated that fifty percent of global trade is currently done through GVCs, that is considered as one of the greatest transformation in the global economy in the past decades.




    Production Cycle in Global Value Chains




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  • GVCs offer an important opportunity for SMEs for their integration into global economic flows, given that large multinational companies seek suppliers that can adapt to the necessities and dynamics of their business model. Additionally, for suppliers the participation in GVCs offers the opportunity of acquiring new knowledge and technologies that support the optimization of their production.

    The coordinated work within the government with the private sector will generate opportunities for the diversification of the Chilean productive matrix, leaving behind its current export pattern which is highly concentrated on natural resources. In this context, one of the main comparative advantages that Chile has is its extensive network of trade agreements.


    Regional Value Chains

    A countries insertion into GVCs depend on a number of factors, but it is evident that the proximity to large production centers or “global factories” results as one of the most relevant aspects regarding this issue. As such, value chains tend to be regional. The latter is how Mexico and Canada and in a smaller way Central America have benefited from their proximity to the United States, or countries form South East Asia have achieve great trade dynamic under the umbrella of China and Japan. The same occurs in European countries that hare geographically close to Germany.



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  • According to the OECD Study “Diagnostic of Chile´s Engagement in Global Value Chains” (2015), Chile is well integrated into GVCs as a supplier of inputs for productive processes that are undertaken by other countries, specially China. Close to 32% of Chile’s total exports are inputs for processing in GVCs, which means a high forward participation (known as upstream), the latter is relatively high compared to other countries in the OECD (TiVA) data base.

    Chilean imports of goods and services that are used in the fabrication of products destined to be exported are relatively low, 20% of total imports. This is defined as backward linkages.



    Comparative participation of Chile in GVC between 1995 and 2011

    Source: Diagnostic of Chile’s Engagement in Global Value Chains. (2015). 1st ed. Secretary-General of the OECD. p.10.

    The graph shows a comparison between countries of the region, of the percentage of exports to other countries that correspond to inputs for further processing (forwards linkages), and the percentage of external sources of inputs (backwards linkages) the country imports and that are employed in productive processes and then exported. The OCDE indicates that “as much as one third of Chile’s backward CGV linkages can be attributed to FDI openness which is among the highest ratios in the region”.


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  • GVCs impose challenges in terms of the measurement of trade flows and trade balances for countries. The traditional methodology of exports minus imports is coherent under a scenario in which goods are entirely produced within a country, employing mainly inputs also produced in the same country. However, currently products are fabricated by different companies located in several countries that supply imputes, services and in general in each of the links pf the productive chain.

    A Smart phone produced in China and exported to the United States for a value of US$100 dollars does not imply that the that the value added by China are US$100 dollars. Certainly, the value that the Chinese company added could only be US$ 20 dollars and the rest of the value corresponds to imports by that company from other companies (graphic design done in California, computer code from programmers living in France, a silicon chip made in Singapore, precious metals from Chilean mining, etc.) In other words, many countries benefit from the export of this phone, but according to traditional trade statistic, just considering the data of net exports and imports, this process would be registered as an import by the United States for US$100 dollars, thus not reflecting the contributions of the rest of the companies involved in the productive process and that are located in other countries.

    The OECD and WTO are currently working on the Trade in Value Added (TiVA) initiative, with the objective of adapting the traditional trade data to the reality of GVCs. For example, standard data show that China has a high trade surplus with the United States and the European Union and an important trade deficit with Japan. However, under the framework of TiVA analysis, the trade surpluses and deficits of China are substantially lower, the latter is explained by the fact that China’s exports hold a high level of foreign inputs.

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  • Why was it Created?

    Chilean exports are concentrated on products based on natural resources, specifically copper. This high dependency on natural resources leaves our country exposed to external shocks, thus holding back other productive sectors of the economy, accompanied with a high cost for the environment. The insertion of Chilean companies into GVC allows export diversification and raises the value added of our production, the latter though the participation within different links within these global chains, especially for SMEs.

    The increase in value and greater diversification of exports are fueled mainly by innovation undertaken by companies that are looking for new streams of income. As such, policies that seek to increase value are similar to those directed towards stimulating innovation and enhancing productivity. As innovation is a broad concept, innovation policies are crosscutting too the portfolios of government and affect a wide range of actors. Also, other important factors towards advancing in the integration into GVCs are infrastructure and logistics, the reduction of transaction costs related to trade, enhancing the availability of capital, the protection of intellectual property rights and policies directed to improve the quality of institutions. In this context, this effort to achieve a greater participation in GVCs is not only dependent on trade policy, but it is a coordinated effort with other government agencies, together with the private sector, which is even more relevant for a country like Chile, where the business environment is less competitive and where the greatest challenges for public policies must be confronted with limited public resources.

    For this reason, DIRECON, through the GCVs Department created the Inter-Ministerial Group on GVCs, with the objective of advancing towards a coordinated government effort in the identification of the challenges we face to promote the insertion of Chile into GVCs.

    Members

    1. Central Bank of Chile
    2. Chilean Copper Commission (COCHILCO)
    3. Chilean Economic Development Agency (CORFO)
    4. National Statistics Institute (INE)
    5. InvestChile
    6. Civil Aeronautics Agency
    7. Internal Revenue Service (SII)
    8. National Customs Service
    9. Undersecretary for Regional Development
    10. Ministry of Agriculture (ODEPA)
    11. Ministry of Defense
    12. Ministry of Economy
    13. Ministry of Education
    14. Ministry of Energy
    15. Ministry of Finance
    16. Ministry for Women and Gender Equality
    17. Ministry for the Environment
    18. Ministry of Public Infrastructure
    19. Ministry of Labor

    Recent Meetings

    • December 2016
    • March 2017
    • November 2017 (first meeting with the private sector)
     
    Documents



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Why are Global Value Chains important?

GVCs are part of our daily life and allow us to access a wide range of products and services at competitive values.

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