This blog is the third in a series highlighting the recent report – “Intangible Capital in Global Value Chains” – launched by the World Intellectual Property Organization. In this post, we focus on the evolution of global value chains.
Global value chains have emerged as the 21st-century face of international commerce. They have tied together national economies as never before and have helped integrate numerous developing countries into the global economy.
The world’s trade-to-GDP ratio has more than doubled over the past 50 years, but it has not seen any increase since the global financial crisis unfolded in 2008. Research suggests that the stagnating trade-to-GDP ratio may well reflect diminished opportunities for global value chains to spread any further. This development may suggest that greater global production sharing will not provide the same growth impetus that it did in the decades prior to the financial crisis. At the same time, technological and business innovations, as well as shifting consumer preferences, will continue to transform global production. Most prominently, developments in 3D printing, robotics and automated manufacturing have already reconfigured supply chains in a number of industries, and further progress in these areas may well unleash more profound change. These developments may lead to the “re-shoring” of certain production tasks, implying less trade. But the deployment of such technologies could still help spur economic growth.
Establishing a mix of policies conducive for investments in intangible assets – including through balanced IP policies – should be a key priority. In addition, governments can play a constructive role in identifying pre-existing industrial capabilities – often at the level of sub-regions – and leveraging them by removing constraints on entrepreneurial activity. In doing so, it is important to adopt a global value chain perspective as the opportunities and challenges of local entrepreneurs evolve with global market trends.
The report provides some statistics and case studies focused on the coffee, photovoltaic and smartphone industries. Here are a few:
- IP and other intangibles add twice as much value to products as tangible capital. One third of the value of the products you buy comes from intangibles such as technology and branding.
- Intangibles are key to seizing new opportunities in the coffee market. Farmers can boost their earning by selling premium coffees. That means upgrading their farms and investing in branding.
- Innovation is transforming the photovoltaic industry. Western companies used to dominate but now Chinese firms lead production of PV modules. Leading firms are looking to intangibles for competitive edge, intensifying their investments in R&D and patenting.
- Success in the smartphone industry is based on intangibles. Leading firms use technology, design and branding to secure a huge share of market value. Up to 35% of all patents filed worldwide since 1990 may relate to smartphones. Designs of use interfaces are also heavily protected.
Download the “Intangible Capital in Global Value Chains.”