Abstract
Global value chains (GVCs) or global production networks refer to the ‘full range of activities involved in value creation of a product from its conception to the end-use stage and beyond’ located in more than one country. In other words, the GVCs produce a final good which is made up of components produced and value-add generated in different countries. This represents the emerging pattern of fragmented production structures across countries that is based on technological advancements and liberalization of trade. The GVC phenomenon has seen its biggest success in Asia, particularly in East Asia, Southeast Asia and pockets of South Asia. Most Asian countries have been participating in GVCs at different levels of the value chain with China emerging as a major player that has shown considerable success in moving somewhat up the value chain. While transnational corporations often head such production networks, SMEs have been engaged in a significant way in several developing countries lower down the value chain. This is seen as an area of major opportunities for firms, SMEs in particular, in developing countries as it allows them to produce what they are most efficient at which may not be a full product but a component thereof and offers access to a large and growing market. It also allows potential learning and upgrading of production processes.
India has been increasingly participating in the GVCs across a number of industries, ranging between labour-intensive industries such as garments to technology intensive industries such as pharmaceuticals and automobiles. However, even while its engagement in the GVCs measured by GVC trade has increased manifold, it has still been somewhat limited. This under-utilization of the GVC opportunity has been seen as a major weakness of Indian manufacturing, one that has constrained its potential growth, technical upgradation and movement up the value chain. Given both the opportunity and the complexity of the GVCs, to understand why this engagement has been limited has been an important though a difficult question.
This book, addresses the central problem of why Indian industry has been less integrated into GVCs compared to many other Asian countries. This may be due to a variety of reasons and the book examines several aspects of this question. It breaks down the research question into two major ones: First, are domestically owned firms well integrated into GVCs? This looks at the measure of integration and identifies the performance of specific industries as leaders or laggards. Second, it looks at the prospect of upgrading for integrated firms. Both integration and upgrading can be determined by structural and policy factors. Upgrading, according to the book, depends on ‘tacitness of knowledge’ which ‘determines learning outcomes and transfer of manufacturing practices’. So the book looks at the process of knowledge dissemination and manufacturing practices in various sectors identified while addressing the first question. It further identifies bargaining power of suppliers and how government structure and policy affect determines of knowledge as determinants of tacitness of knowledge and therefore, the ability of Indian firms to upgrade.
Based on the above conceptualization, the book goes onto address some specific questions/thematics throughout its analysis: what is the evidence of India’s lagging behind, which are the explanations for this lagging behind, role of lead firms and government structures in value chains, and the diffusion of technology in each chain. Finally, it looks at the impediments and how can India overcome them. It identifies specific barriers in different sectors in India as well as in other countries.
Organized in 14 chapters across 4 sections, the book starts with an introduction that lays out the issues and the research questions. Chapter 2 provides a literature survey and Chapter 3 lays out the conceptual framework. Section II uses quantitative analysis to evaluate India’s integration into GVCs and uses primary surveys to analyse specific identified industries including looking at the barriers faced by them in integration and upgradation. Section III looks at both the successful cases of integration and some which are lagging behind. Automobiles, reactive dyes, petrochemicals, pharmaceuticals and semiconductor microchips are covered in the first category, while garments and specialty chemicals are covered in the second. Section IV (Chapter 13) provides an interesting analysis of sectors with future possibilities such as diamond, aerospace, electronics hardware and paper industries. The final chapter provides a summary of the main conclusions and implications for policy.
The book’s key findings include: the identification of the successes and laggards, as described in Section II, and then analysing why they perform in that manner. Of the successes, the book identifies the tasks that the firms are doing well, which is leading to these firms doing value-added exports. It shows that the bargaining power of suppliers plays an important role and how the governance structure influences the dissemination of knowledge in various sectors. As far as the laggards are concerned, the authors find that in chemicals, the ‘knowledge and production processes are proprietary and upgrading requires investment in research and development. In garments, production processes are more standardized and less knowledge dependent, and upgrading can come from use of newer raw material. The authors also identify the specific role of the lead firms in the different industries including in impacting learning and upgrading by the industry, and how this role needs to be supported by government policy.
An important finding for a country like India, which has a large domestic economy, is that the benefits from technology transfer, value addition, knowledge spillovers in terms of better jobs and so on can only be realized if links with the domestic economy is strong, and the lead firms do not make most of the decisions. Then government can also play a better role in promoting upgradation. In terms of policies needed for further engagement, the book finds ‘further opening to imports and an integrated framework of analysis encompassing goods, services and foreign direct investment’, or imposing of private standards by a lead firm will be needed. The book also identifies key regulatory, administrative as well as logistics and infrastructural barriers and standard-related issues, and makes policy recommendations that address some of these.
This book is timely, well researched and identifies policy issues very clearly. It includes a very succinct analysis of the literature on the global experience of GVCs and identifies which are the causes for successes and failures across the different countries. In moving to its focus country, India, the book provides a useful step-by-step analysis combining secondary data analysis and primary case studies. Its coverage of an extensive range of sectors is immensely helpful as it identifies the range of complex factors that could inhibit or foster integration and further upgradation. It provides a good analysis of structural issues and governance issues including role of lead firms but combines it with policy analysis including looking at the regulatory atmosphere and trade policy. A particular value add of the volume is the attention to the India’s specific context—of India being a high-growth country with a fast growing domestic market and therefore the importance of the GVCs to be linked to that large and growing domestic economy to be able to create broad based benefits. Overall, the book is a valuable addition to the literature on India’s GVCs and to understanding the gaps and policy needs. It also, at least partially, indicates which problems can be addressed by Indian policymaking and which are part of a bigger global structure of GVCs that are determined by factors outside India’s control.
In moving forward, it would be interesting to further explore some issues in the India-specific context, which this book already provides some preliminary grounds for. For example, the upgrade issue including improving knowledge and technology can be looked at in more detail and in particular the role of tight intellectual property rights (IPRs) through which the MNCs at the top retain control of technology, which is evident in the case of pharmaceuticals and specialty chemicals (e.g., when role of need for local R&D is mentioned). Second, in the context of IPRs and other chapters (including tariffs) have the Indian Free Trade Agreements been useful or hindering? Third, we could look forward to further interesting comparisons of how do the Indian results compare with the global experience. Further, It would also be interesting to look further at the two-way interaction between availability, characteristics (e.g., skill of labour force) and structure of key inputs such as natural resources and labour with integration and upgradation in these industries which the book already points towards (e.g., in the case of garments by concluding that it should move to newer raw material).
This book is a valuable addition to the field of research on the Indian manufacturing in a globalized world. It provides insights into what should be the approach of the Indian industry in putting structures in place that help Indian firms integrate and upgrade into the world of GVCs, as well as the intervention needed across a number of policy areas including manufacturing, trade, technology and so on.