Key Concepts of Global Value Chains (GVCS)
The term ‘value chain’ can be defined as the range of activities or functions that a product or service passes through from the origination at the concept level to transformation in production and processing up to the level of its final consumption, while Kaplinsky and Morris (2001) went further to include the function of disposal and recycling too. The idea of value chain was popularized by Porter (1985) to highlight the importance of focusing on a firm’s competitive advantage along a chain of value-adding activities. As value chains (VCs) have become ‘increasingly global in their geographical spread’, scholars often refer to them as Global Value Chains (GVCs) (Kaplinsky 2013: 3). Gereffi (1994) broadly divided these chains into two types: (a) buyer-driven commodity chains and (b) producer-driven commodity chains. In the early 2000s, Gereffi along with a few other scholars replaced the term ‘commodity’ by ‘value’ in order to accommodate ‘the full range of possible chain activities and end products’ (Gereffi et al. 2001: 3). Since then the lexicon was changed from global commodity chains to global value chains. Gereffi made sub?stantial contribution to develop and popularize the concept of GVCs and, therefore, some scholars refer to him as the ‘parent of modern GVC theory’ (Kaplinsky 2013: 8).
Governance has been central to the GVC framework in explaining how the chain works. There are five types of governance: (a) market governance, (b) modular governance, (c) relational governance, (d) captive governance, and (e) hierarchical governance (Gereffi et al. 2005: 83). At one end, market governance is characterized by the hands of market mechanism while at the other extreme, hierarchical governance is characterized by vertical integration. The other three types of governance fall into a broad category of ‘networked governance’ with varying degrees of power asymmetry between the lead firm(s) and supplier(s) in the chain.
Upgrading has been another key concept in the GVC framework. It refers to shifts or movements of various actors reflecting upon their competitive positions in GVCs. Scholars in the field refer to four possibilities of upgrading along a value chain: (a) product upgrading, (b) process upgrading, (c) functional upgrading, and (d) chain upgrading (Humphrey and Schmitz 2000).