An Introduction to (Client Oriented) Global Value Chain Analysis

An Introduction to (client-oriented) Global Value Chain Analysis

Lukas Brun

March 28, 2017

Guest Lecture for The Politics of Market Competition in a Global Economy (POLSCI 555S)

Agenda

• Center Background & Activities

• The GVC analytical framework

• Undertakes client-sponsored research that addresses

economic and social development issues for governments, foundations and international organizations.

• We do this principally through the global value chain (GVC) framework, supplemented by other analytical tools.

• As a university-based research center, we address clients’

real world questions with transparency and rigor.

Representative Duke CGGC Projects – Industries & Regions

Low-Mid Tech • Coffee (Burundi) & tobacco (multiple) • Wheat, corn & cotton (multiple) • Oysters (U.S.) & Shrimp (Mexico) • Beef & Dairy (multiple) • Coal (U.S.) • Oil & Gas (Kazakhstan) • Textile & Apparel (multiple) • Furniture (U.S.) • Water & transportation infrastructure

(U.S.) • Logistics & transportation (Kazakhstan)

Mid-High Tech • Aerospace (Brazil, Costa Rica)

• Automotive (Canada)

• Geosynthetics (U.S.)

• Lithium-ion Batteries (U.S.)

• Medical devices (Brazil, Costa Rica)

• Ocean technologies (Canada)

• Shipbuilding (multiple)

• Solar & Wind Renewable Energy (U.S.)

• Smart Grid (U.S./NC)

Scoping • Typical client contacts us b/c they have vague idea that they

need to know more about X and how they can improve doing Y.

• Recent example: “we want to know more about the value chain for 3 industries: extreme climate and inshore vessels, autonomous vehicles, and underwater instruments” …

• Defining X important step in contract and report development. – What are the specific research questions client is most interested

in? – Definition stage time-consuming but worth it.

Recent Research Questions Economic Development Sustainable (Environment) Development

• How do I introduce safe fishing practices for Mexican shrimp fisheries?

• What is the opportunity for better water management practices in the Mexicali Valley?

• What led to the adoption of innovation (high efficiency motors and non-VOC coatings) in the US and Europe? What lessons can be drawn for China’s manufacturing sector?

• What role does my industry in x play in the international/national/regional/local sector? How can I capture more value in the sector?

• What innovations have been adopted in the agricultural sector in region x to increase participation in regional and global value chains?

Social (Inclusive) Development • How can women and youth play a greater

role in regional and global value chains in industry x?

• How successful have disadvantaged business policies been in government procurement and why?

Governments Private foundations

Recent clients

Governmental organizations

Source: https://public.tableau.com/profile/stacey3346#!/vizhome/CGGC/CountriesMap

https://public.tableau.com/profile/stacey3346#!/vizhome/CGGC/CountriesMap

https://public.tableau.com/profile/stacey3346#!/vizhome/CGGC/CountriesMap

The GVC Framework

Major components of the framework

1) Input-output structure: raw materials inputs final product

2) Geographic scope: local to global

3) Analysis of lead firms and governance

4) Institutional framework: rules, forums of exchange, and key organizations

Analytical Sections

• Mapping the Global Value Chain

• Geographic Distribution (global demand, global supply)

• Lead firms and governance

• Standards and institutions

• Human capital and workforce development

• Upgrading trajectories

GVC MAPPING

Understand product or service

Battleship

Bulker

Floating Production, Storage & Offloading

Passenger Cruise Vessel Roll-on Roll-off (“RoRo”) Trawler

Icebreaker LNG Ship

LPG Ship

Crude Tanker Container Vessel

Refrigerated Vessel “Reefer”

Market Segments

• Commercial

– Commercial transportation vessels

– Offshore vessels

• Passenger & Recreational

• Military/Government

– Defense

– Research

Commercial • Barges • Bulk Carriers • Container Ships • Fishing vessels • General Cargo • Oil & Gas Exploration, Service & Supply

• Tankers • Tugs/Barge Tugs

Government • Defense • Research

Passenger & Recreational

Propulsion system

Electric plant

Command & surveillance systems

Auxiliary systems

Outfit & furnishings

Hull

• Engine • Thrust block

• Generator • Propeller shaft

• Control unit • Propeller

• Electric motor

• Electric power generation and distribution

• Lighting systems

• Ship steering system • Berthing, mooring & towing

systems

• Climate control, fire extinguishing & water systems

• Fluid, fuels handling & storage

• Anchor handling & stowage systems

• Auxiliary boats & stowage system

• Replenishment-at-sea • Aircraft handling, servicing &

stowage

• Environmental pollution control

systems

• Steel plates (“skin”)

• Keel

• Girders

• Frames

• Beams

• Coatings & Paint

• Command system • Integrated Platform

Management System (IPMS) • Electromagnetic environmental

effects (E3) & radiation control

• Navigation system • Meteorological &

oceanographic system

• Communication systems • Surveillance systems

• Ship fittings • Hull compartments

• Deck machinery • Preservatives & coverings

• Living spaces

Ship Systems & Subsystems

Create Value Chain

• Value chain of (most important) pre-production, production & post-production phases & activities

– Input-output driven approaches v. “craft”

Value Adding Activities

Manufacturing

• Pre-production

• Production

– Raw Materials

– Component & Subassemblies

– Final assembly

• Post-production

Services

• Research & Development

• Design

• Manufacturing

• Distribution

• Marketing

• Maintenance

• Deconstruction

• What are low-value products & activities? What are high-value? • How do manufacturing and services relate to one another in the product?

Parts & Components

Composite components

Mechanical components

Electronic components

Wiring

Hull

Platform

Systems • Propulsion system

• Electric plant

• Auxiliary Systems

(e.g. ship steering;

berthing, mooring &

towing; HVAC; anchor

handling)

• Outfit & Furnishings

Sub-Systems/ Subassemblies

Final Products

Systems integration

Hull blocking & assembly

Outfitting

Assembly & Integration

Offshore

Post-Sales Services

Technical training,

manuals and customer support

Maintenance & Repair (ISS)

Mission

Systems • Navigation

• Electronic

• Communication

Chemicals/paint/ coatings

End-of-Life

Decommissioning

& Disassembly

Recycling/ Disposal


Tankers

Containerships/ Other Cargo

Bulkers

Other (tugs, fishing, dredgers, etc.)

Metal (steel)/alloys

Storage

Design and Production Support Services

Ship & sub-assembly

design

Materials planning & procurement (shipbuilder & systems integrators)

Production planning & engineering (shipbuilder and/or specialized firms)

Policies &

Regulations Government

Education &

Training Research Supporting Institutions & Organizations

Value Composition

Major Categories System Breakout External

services + contracts

7%

Materials 24%

Systems/ equipment

69%

external services

7%

total steel (hull, superstructures)

13%

total ducts + pipes

7%

paintings and coatings

4%

ship operation 6% cargo handling

14%

accomodations 8%

propulsion + power

generation 18%

auxiliary systems (excl.

pipes) 12%

electrical plants, electronics + automation

11%

Source: Calculated from EU Commission (2014)

GEOGRAPHIC SCOPE

Global Production

Identify market dynamics in segments & industry

• What are the major market & technology developments in the segment & industry? – Technology changes? Regulatory issues? Environmental issues?

• Production, exports and imports of product – main actors (countries)

– growth/decline in

– causes of changes

• Generally, what are the major issues and trends in the industry?

World new shipbuilding completions (million GT), 2003-2015

Source: IHS Fairplay; Japanese Shipbuilders Assn (2016)

World Completions by Country, 2010-2015 World Completions by Ship Type, 2010-2015

LPG/LNG, 4% Chemical, 4%

Tanker, 15%

Bulk Carrier, 48%

Containership, 18%

Other Dry Cargo, 7%

Passenger, 1%

Misc, 4%

China 38%

S. Korea 34%

Japan 20%

Others 8%

Global Production in the Shipbuilding GVC

Source: Calculated from IHS Fairplay; Japanese Shipbuilders Assn (2016)

Bulk Carrier 42%

Containership 21%

LNG Tanker 18%

Crude Oil Tanker

11%

Chemical/Oil Products Tanker

8%

Japan

Bulk Carrier 40%

Containership 29%


16%

Crude Oil Tanker 9%

General Cargo 6% China

LNG Tanker 38%

Crude Oil Tanker

27%

Containership 20%

LPG Tanker

9%


6%

Korea

0

50

100

150

200

250

20

10

Avg

. P

rice

($

US,

Mil)

Source: IHS Fairplay; Japanese Shipbuilders Assn (2016); UNCTAD 2016 (top)

EXPORTS AND IMPORTS

Global Trade

World Ship Exports, by Type & Value, 2007-2015 (US$ billions)

Source: UN COMTRADE

Global ship exports (2015)

Rep. of Korea, 30%

China, 22%

Japan, 9%

Germany, 4%

Poland, 4%

India, 3%

Netherlands, 3%

Italy, 3%

USA, 2% Saudi Arabia, 2%

Singapore, 1%

France, 1%

Spain, 1% Brazil, 2% Philippines, 1%

Source: UN COMTRADE

Global Ship Exports and Imports

Exports (2015)

Overall

Container ships,

Bulkers, Cargo

Offshore Tankers Recreatio

nal vessels

Passenger ships

Total Exports

$129 billion

$44 billion $33 billion $22 billion

$12 billion

$5 billion

Top 5 (by type)

Korea (30%)

China (37%)

Korea (50%)

Korea (58%)

Italy (16%)

Germany (38%)

China (22%)

Japan (21%)

China (18%)

China (18%)

Netherlands (15%)

Italy (23%)

Japan (9%)

Korea (20%)

India (8%) Japan (8%)

USA (13%) Finland (10%)

Germany (4%)

Poland (6%)

Brazil (6%) Poland (7%)

Germany (11%)

Philippines (7%)

Poland (4%)

Germany (3%)

Singapore (4%)

Germany (3%)

France (9%)

Poland (4%)

Korea 0.1%, 46th

1%, 14th

HS02 89 890190, 890130

890520, 890590

890120 8903 890110

Imports (2015)

Overall Other

carriers Tankers

Recreational

vessels

Passenger ships

Total imports

$53 billion $13 billion $6 billion $9 billion $2 billion

Top 5 (market share in vessel type)

India (9%) Germany (216)

Poland (25%)

USA (14%) Denmark (13%)

Poland (8%)

Denmark (14%)

Greece (17%)

UK (11%) India (12%)

Norway (5%)

Poland (14%)

Russia (13%)

Netherlands (9%)

Malaysia (9%)

Denmark (5%)

Greece (10%)

Belgium (7%)

Canada (7%)

Poland (9%)

Germany (5%)

Korea (9%) Denmark (6%)

Malta (7%)

Italy (8%)

Source: UN Comtrade

Source: calculated from UN Comtrade

INDUSTRY GOVERNANCE & LEAD FIRMS

• Shipbuilder (project management, procurement) Shipbuilder

• Platform system integrators (propulsion & auxiliary systems)

• Mission systems integrators (command, surveillance & armament systems, outfit & furnishings)

• Shipbuilder (hull, outfit & furnishings)

Tier 1

• Sub-system manufacturers (HVAC, Sensors, Communications, Winches…)

• Suppliers to Tier 1 Tier 2

• Sub-system components


• Raw materials and subcomponents for sub-systems


Shipbuilding Production System

Leading shipbuilding companies worldwide as of March 2016,

by orderbook value (in billion U.S. dollars)

24.42

19.9

15.07

10.47

9.89

0 5 10 15 20 25 30

Hyundai HI (South Korea)

Daewoo Shipbuilding (South Korea)

China State Shipbuilding Corp. (China)

Samsung HI (South Korea)

Imabari Shipbuilding (Japan)

Value in billion U.S. dollars

Source: Statista

Leading component firms

System Subsystem Global Lead Firms

Hull

Steel multiple

Coatings/Paint

Akzo Nobel (Brand: International Paint)(Netherlands); Chogoku Marine Paints (Japan).; Jotun Paints (UK); PPG Coatings (China, Belgium); Sigma Samsung Coatings (Korea); Subsea Industries (Belgium)

Platform Systems

Propulsion

ABB (Switz); Caterpillar (US); GE (US); MAN Diesel (Germany); Sulzer (Switz); Rolls Royce (UK/US); Stadt (Norway); TECO Westinghouse (US); Wartsila (Finland; China)

Marine Engines

HHI (Korea): marine diesel engines Doosan (HSD) (Korea) Mitsui (Japan) See Excel

HVAC Bronswerk Marine; Alscott Air Systems Mission Systems

Communication L-3 Communications; Thales; Saab

Navigation Kongsberg; SperryMarine

Number of Firms?

Zero

1 < X ≤

X < X ≤ X

Over X


Final Products Marketing &

Sales

Offshore

Post-Sales Services

Technical training,

manuals and customer support

Maintenance & Repair

(ISS)

End-of-Life

Decommissioni

ng &

Disassembly

Recycling/ Disposal


Tankers

Containerships/

Other Cargo

Bulkers

Other (tugs, fishing, dredgers, etc.)

Storage

Design and Production Support Services

Ship & sub-assembly

design

Materials planning & procurement (shipbuilder &

systems integrators)

Production planning & engineering

(shipbuilder and/or specialized firms)

Parts & Components




Wiring

Hull

Platform

Systems • Propulsion system

• Electric plant

• Auxiliary Systems

(e.g. ship steering;

berthing, mooring &

towing; HVAC;

anchor handling)

• Outfit & Furnishings

Sub-Systems/ Subassemblie

s

Systems integration


Mission


• Electronic

• Communication

Chemicals/paint/

coatings

Metal (steel)/alloys

Outfitting

Philippines in the Shipbuilding Value Chain

STANDARDS AND INSTITUTIONS

Important Standard Setting Organizations and Agreements in the Shipbuilding GVC

IACS

International Association of Classification Societies: Umbrella organization for the major twelve national classification societies, which comprise more than 90% of in-service cargo ships. The twelve members represent the US, UK, Russia, Poland, South Korea, Japan, Italy, India, Germany/Norway, France, Croatia, and China

National classification societies

Classification, societies set technical rules confirm that designs and calculations meet these rules, inspect (“survey”) ships and structures during construction and commissioning, and survey vessels to ensure that they continue to meet the rules during in-service

IMO

International Maritime Organization: United Nations agency founded in 1948 which establishes standards on maritime safety, health and environmental protection

SOLAS International Convention for the Safety of Life at Sea (1974): key IMO convention that governs many of the safety regulations for ships.

MARPOL

International Convention for the Prevention of Pollution from Ships (1973, modified 1978, 1997): key IMO convention that govern air and water pollution released from marine sources. Includes Annex VI, which limits sulphur oxide nitrogen oxide emissions from ship exhausts and mandatory technical and operational energy efficiency measures aimed at reducing greenhouse gas emissions from ships.

Sample certifications

Marine equipment • EU’s Marine Equipment Directive

(MED) – requires that certain categories of

marine equipment placed on European ships have a EU marine equipment “conformity mark”.

• Typically required for safety equipment by Classification Society – KRS: radio equipment, fire

extinguishing equipment, lifesaving equipment, voyage recorders and low location lighting (LLL) systems

Management systems • ISO 9001 - Quality management certification

• ISO 14001- Environmental management system certification

• ISO 28000- Supply chain security management certification

• ISO 28007- Guidelines for Private Maritime Security Companies (PMSC) providing privately contracted armed security personnel (PCASP) on board ships

• ISO 50001- Energy efficiency management system certification

• OHSAS 18001- Occupation health and safety management system certification

UPGRADING

Industrial Upgrading

• Products: Moving to higher value niches in GVCs (goods & services)

• Industries: Moving from labor-intensive to capital intensive to knowledge & technology intensive industries

• Roles: Assembly – OEM – OBM – ODM

• Capabilities: Production to Design to Commercialization to Innovation

Smile Curve

Stage

Value Chain

Segment

Capability Level

Activity Example

Pre

-pro

du

ctio

n

Research & Design

Low Product design modification and customization Re-designing ships for conversion and refitting

Medium Applied research and new product design Developing a new hull design with advanced capability or efficiency

High Basic nautical research Conducting scientific research to develop new anti-fouling coatings

Purchasing

Low Local search for supply chain partners Shipbuilder identifies outfitting contractors within 20 km of plant

Medium Local and regional search for supply chain partners + practice of simple supply chain management practices

Shipbuilder scans for regional outfitting contractors and maintains informal quality assessments of suppliers

High Regional and/or global search for supply chain partners + sophisticated supply chain management practices

Shipbuilder seeks “best in class” component producers and evaluates suppliers with balanced scorecards

Pro

du

ctio

n

Production

Low Construction + assembly of simple vessels Cargo vessels and bulk carriers

Medium Block construction + assembly for moderately complex vessels

Producing moderately sophisticated ships (LNG tankers; Ro-Ros)

High Fully integrated block construction + assembly for complex vessels

Producing sophisticated passenger ships (cruise ships) or military vessels (frigates; aircraft carriers)

Po

st-p

rod

uct

ion

Marketing, distribution and post-production services

Low Domestic distribution + MRO Domestic distribution and MRO repair network for locally owned and operated commercial vessels

Medium Domestic + regional distribution and MRO

Regional distribution of assembled vessels and providing MRO for regionally-owned and operated commercial + passenger vessels

High

Domestic + regional + international distribution and MRO activities + advanced post-production services, such as consulting & training

Global export of assembled vessels; providing MRO for globally-owned and operated commercial/passenger or sophisticated military vessels; providing post-production services for commercial/passenger + military vessels

Upgrading • Entry: firm entering the shipbuilding segment and offering a simple product or service

within the shipbuilding industry. • Product upgrading: increase the value of the good or service produced by a firm. For

example, a firm could produce a more durable product or provide a service requiring advanced engineering capabilities more valued in the marketplace.

• Process upgrading: a firm produces a product or service more efficiently. For example, some shipbuilders have adopted robotic plasma steel plate-cutting to improve cutting quality, speed, and waste reduction. In-sourcing and outsourcing decisions are also process upgrading practices used in the shipbuilding industry.

• Functional upgrading: firm enters new segments of a value chain. Examples include adding maintenance services to existing product offerings, or creating new products identified as a potential growth market in the industry.

• Intersectoral upgrading: allows companies from one sector to enter another sector.

Some thoughts about upgrading… • Traditional focus has been on process upgrading and product

upgrading – R&D and design almost exclusively focused on better processes or

products (deepening capability) – Opportunity: producing components for LNG ships domestically – Opportunity: diversifying end-markets for Korea intermediate suppliers

• Functional upgrading hard, but currently pursued • Downstream largely not considered.

– Opportunities for innovations in finance – lowering total cost of ownership for shipowners (leasing, addressing

maintenance surveys)

Parts & Components

Manufacturing




Software

Wiring

Hull Platform

Systems • Propulsion

system

• Electric plant

• Auxiliary

Systems (e.g.

ship steering;

berthing,

mooring &

towing; HVAC;

anchor handling)

• Outfit &

Furnishings

Sub-Systems/ Subassembly

Marketing & Sales

Systems integration


Outfitting


Market Segments

Commercial • Barges • Bulk Carriers • Container Ships • Fishing vessels • General Cargo • Oil & Gas

Exploration, Service & Supply

• Tankers • Tugs/Barge Tugs

Government • Defense • Research

Post-Sales Services

Technical training, manuals

and customer support

Maintenance & Repair

(ISS)

Design

Ship & sub-

assembly design

Mission


• Electronic

• Communication

Hull components

End-of-Life

Storage

Decommissioning

& Disassembly

Recycling/ Disposal


Metals, Alloys & Composites Chemicals Inputs

Production Support Services • Materials planning & procurement (shipbuilder & systems integrators) • Production planning & engineering (shipbuilder and/or specialized firms)

Policies &

Regulations Government

Education &

Training Research Supporting Institutions & Organizations

Key take-aways Value chain analysis is an economic development tool to help:

– Define industries

– Identify where & how value is added in an industry

– Identify market & technology trends especially key exporters and importers

– Identify companies in each segment and phase of an industry

– Understand how private governance and public policies affect the conduct and performance of an industry

– Identify needed skills and key stakeholders

– Develop upgrading recommendations for local economy

An Introduction to (Client Oriented) Global Value Chain Analysis

Economy & Finance

Transcript of An Introduction to (Client Oriented) Global Value Chain Analysis