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INSERTING LOCAL INDUSTRIES INTO GLOBAL VALUE CHAINS AND GLOBAL PRODUCTION NETWORKS:
Opportunities and Challenges for Upgrading
With a focus on Asia

UNITED NATIONS INDUSTRIAL DEVELOPMENT ORGANIZATION
economy environment employment

Inserting Local Industries into Global Value Chains and Global Production Networks: Opportunities and Challenges for Upgrading
With a focuson Asia, China’s rising competitiveness and the phasing out of the Multi-Fibre Arrangements

UNITED NATIONS INDUSTRIAL DEVELOPMENT ORGANIZATION Vienna, 2004

Olga Memedovic, UNIDO staff member from the Strategic Research and Economics Branch, prepared this publication. The publication has benefited from the comments and previous work provided for UNIDO by Raphael Kaplinsky, Hubert Schmitz andJohn Humphrey, from the Institute of Development Studies, University of Sussex Brighton; John Mathews, Macquarie Graduate School of Management, Macquarie University, Australia; Mike Morris, School of Development Studies, University of Natal, Durban, South Africa; and Gary Gereffi, Department of Sociology, Duke University, Durham. The publication has also benefited from the comments provided byMr. John-Peter Moll and Lee YuenHoi, UNIDO experts on textile and clothing, during the preparation of this paper. UNIDO interns Ivohasina Razafimahefa, Joerg Wiegratz, Rika Yuasa, Jacopo Capra and Frank Sammeth provided assistance during various stages of preparing this publication. Comments and suggestions on the issues raised in this paper may be addressed to: Olga Memedovic Strategic Research andEconomics Branch UNIDO PO Box 300 1400 Vienna Austria Tel: +(43) (1) 26026-4676 Fax: +(43) (1) 26026-6864 E-mail: omemedovic@unido.org

This paper has not been formally edited. The designations employed and the presentation of material in this publication do not imply the expression of any opinion whatsoever on the part of the Secretariat of the United Nations Industrial DevelopmentOrganization concerning the legal status of any country, territory, city or area, or of its authorities, or concerning the delimitation of its frontiers or boundaries. The opinions, figures and estimates set forth are the responsibility of the author and should not necessarily be considered as reflecting the views or carrying endorsement of UNIDO. The designations “developed” and “developing” economies areintended for statistical convenience and do not necessarily express a judgment about the stage reached by a particular country or area in the development process. Mention of firm names or commercial products does not imply endorsement by UNIDO. Material in this paper may be freely quoted but acknowledgement is requested with a copy of the publication containing the quotation or reprint.Abstract

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Rapid technological advancements make fragmenting of activities in all stages of a production value chain increasinglypossible. Some segmented activities can be performed in different locations worldwide and reintegrated again into global value chains and global production networks. The paper examines how the spreading of these production systems can create opportunities for developing country producers to upgrade their technological and industrial capabilities and to integrate into the global economy. Linking toglobal value chains can provide better access to markets and to knowledge of leading players. For developing country producers it is important to enter global value chains, but they should do so in a way allowing for rapid innovation and learning–a ‘fast track’ strategy. For some developing countries, the key challenge of this fast track, of building technological and production capabilities, is...