1. Define the term value chain, global value chain and outline its components. Show
Global Value ChainIn 1985, Michael E. Porter introduced the term ‘Value Chain’ in his book “Competitive Advantage: Creating and Sustaining Superior Performance”. Since then, this concept has been used extensively by organizations to improve their functionality and operations. The concept of ‘Value Chain’ stressed on the importance of ‘Competitive Advantage’ or being different and superior from competitors. Thus, value chain identifies how value is added throughout the creation of the final good or service produced and how operational activities costs represent a proportion of the final sale price of the good or service (Business Faculty from Ontario Colleges and eCampus Ontario Program Managers, 2018). Global Value Chain is when an organization does the full range of activities including supply, production, marketing, sales, distribution, and support to the end consumer, across geographical locations to gain competitive advantage. In simple words, when a company involves into international trade and divide it’s operations across countries, they participate in global value chain. Media 1.2. Cocoa: A Sweet Value Chain [Video]. STDF. We live in a global marketplace. The food on your table might include fresh fruit from Chile, cheese from France, and bottled water from Scotland. The clothes you wear might be designed in Italy and manufactured in China. The toys you give to a child might have come from India (Greenlaw and Shapiro, 2017). Have you ever wondered how is it possible that the products manufactured around the world are available in your nearby supermarket? The answer to such questions is International Trade. Global Trade allows countries to expand their markets and access the products which are not available domestically. Just Whose iPhone is This?The iPhone is a global product. Apple does not manufacture iPhone components, nor does it assemble them. The assembly is done by Foxconn Corporation, a Taiwanese company, at its factory in Sengzhen, China. But, Samsung, the electronics firm and competitor to Apple, actually supplies many of the parts that make up an iPhone—representing about 26% of the costs of production. That means, that Samsung is both the biggest supplier and biggest competitor for Apple. Why do these two firms work together to produce the iPhone? To understand the economic logic behind international trade, you have to accept, as these firms do, that trade is about mutually beneficial exchange. Samsung is one of the world’s largest electronics parts suppliers. Apple lets Samsung focus on making the best parts, which allows Apple to concentrate on its strength — designing elegant products that are easy to use. If each company (and by extension each country) focuses on what it does best, there will be gains for all through trade (Greenlaw and Shapiro, 2017). Global value chains (GVCs) have brought about revolutionary changes in international trade, industrialization, and economic development. The GVC story is still rapidly unfolding, as vividly demonstrated by the supply chain crisis, particularly for semiconductors and other components, that broke out during the COVID-19 pandemic, causing further anxiety Positioning Economies in Global Value ChainsWith the rise of global value chains (GVCs), patterns of specialization have expanded to cover not only products but also tasks. Indeed, gross trade statistics may lead to the conclusion that an economy has a when in fact it has a . A case in point is developing countries with major electronics exports, such as the Philippines. These do not specialize in electronics per se, but in a particular segment in the electronics value chain (Timmer, Miroudot, and de Vries 2019). Figure 1.2 shows since the forward GVC length is noticeably longer than the backward GVC length, this economy is said to be positioned relatively upstream in GVCs. Figure 1.2 Components of Value ChainThe concept of Value Chain is used as an to help a firm determine where it might be able to achieve a competitive advantage and answering questions as:
Figure 1.3 below describes the value chain framework given by Michael Porter. Figure 1.3 The Value Chain by Porter Note. From Kennedy, 2020, Section 4.5. CC BY-NC-SA 4.0. [Image description]. The Value Chain includes both Primary and Secondary Activities. Primary activities are actions that are directly involved in creation and distribution of goods and services. There are five primary activities in Porter’s Value Chain namely Inbound Logistics, Operations, Outbound Logistics, Marketing & Sales and Services. Secondary activities are not directly involved in the of a product, but instead provide important underlying support for primary activities. Four activities are attributed as Secondary in Porter’s Value Chain namely Infrastructure, Human Resource Management, Technological Development and Procurement. These primary and secondary activities work together to produce a profit margin for the firm. Media 1.3. Porter’s Value Chain: How to Create Value in Your Organization[Video]. MindToolsVideos. Let’s try to understand these activities from a very simple example of doughnut shops. Doughnut shops transform basic commodity products such as flour, sugar, butter, and grease into delectable treats. Value is added through this process because consumers are willing to pay much more for doughnuts than they would be willing to pay for the underlying ingredients. Figure 1.4 explains in detail how value is added while making donuts. Figure 1.4 Adding Value Within a Donut Value Chain Note. Kennedy, R., 2020, Section 4.5. CC BY-NC-SA 4.0.[Image description].Primary ActivitiesPrimary Activities are essential for creating value and Competitive Advantage. There are five components of primary activities:
Primary activities can also be viewed interactively below: Secondary Activities: Secondary/ Support Activities helps primary activities to work efficiently. There are four components of secondary activities.
Secondary activities can also be viewed interactively below: Answer the question(s) below to see how well you understand the topics covered above. You can retake it an unlimited number of times. Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section. Check your Understanding: Global Value Chain Text-based alternative. Media Attributions and ReferencesAlvarez, J. B., Baris, K. V., Crisostomo, Ma. C. R., de Vera, J. P., Gao, Y., Garay, K. V., Gonzales, P. B., Jabagat, C. J., Juani, A. S., Lumba, A. B., Mariasingham, M. J., Meng, B., Rahnema, L. C., Reyes, K. S., San Pedro, M. P., & Yang, C. (2021, November). Recent trends in global value chains. In Global Value Chain Development Report 2021: Beyond Production. World Trade Organization. https://www.wto.org/english/res_e/booksp_e/00_gvc_dev_report_2021_e.pdf Kennedy, R. (2020). Strategic Management. Blacksburg, VA: Virginia Tech Publishing. https://pressbooks.lib.vt.edu/strategicmanagement/chapter/4-5-value-chain/. CC BY-NC-SA 3.0. MindToolsVideos. (2017). Porter’s value chain: How to create value in your organization. [Video]. YouTube. https://youtu.be/aeshYi6lj2Y STDF. (2016, May 27). Cocoa: A sweet value chain [Video]. YouTube. https://youtu.be/5UAnYcqQTR4 Which of the following is a primary component of the value chain?The value chain framework is made up of five primary activities -- inbound operations, operations, outbound logistics, marketing and sales, service -- and four secondary activities -- procurement and purchasing, human resource management, technological development and company infrastructure.
What one of the following is not one of the primary components of a value chain?In the creation of value chain, auditing and accounting is not the primary activity.
What is the value chain model quizlet?Value Chain. the coordinated series of functional activities needed to transform resources into products and services customers want to buy. Consists of primary activities and secondary (or supporting) activities.
Which of the following represent the symbolic embodiment of all the information connected with a product or service?Brand. A firm's brand is the symbolic embodiment of all the information connected with a product or service, and a strong brand can also be an exceptionally powerful resource for competitive advantage.
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