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Spotlight on Global Value Chains

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Guide: Spotlight on Global Value Chains

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Global opportunities await Canadian exporters seeking to access the supply chains of larger multi-national enterprises.

These profitable channels allow qualified suppliers of goods and services to quickly link in to extensive B2B procurement networks. The following Spotlight introduces strategies that your company can use to enter new Global Value Chains (GVCs) effectively as well as expand on existing supply frameworks. Whether it is finding your niche, qualifying for preferred supplier lists, or taking advantage of diverse supplier initiatives, this short guide can help your business connect to GVC opportunities right here in Canada or around the world.

Globalization – Creating Opportunities

As trade continues to expand globally, companies are increasingly sourcing and segmenting their various services and production units from around the world.  Globalization has led to many positive outcomes such as improved information and communication technologies, a considerable decline in transportation costs, and reduced barriers to trade and investment. This growth has positively contributed to the competitiveness of Canadian businesses.

The Canadian Trade Commissioner Service (TCS) is pleased to present the following Spotlight on Global Value Chains (GVC), which presents information for Canadian exporters, especially small and medium-sized enterprises (SMEs) that are looking to either expand their business overseas, become a part of an existing GVC, or are interested in supplier diversity initiatives.

To illustrate this global trend, let’s take a look at a Company X that is headquartered in Canada, has its research and development (R&D) function in the United States, manufactures its product in China using parts made in India, sells to the European common market, and offers after-sales service from Thailand. The firm in each geographic area specializes in one task, performing at a higher level than if one firm were to complete all activities. This process has been referred to as global supply chain management, globalization of business processes, or simply global business development; however this phenomenon is professionally known as Global Value Chains (GVC).

For further information and resources on globalization, the growth of GVCs and other steps involved in the exporting process, refer to the TCS’s Step-by-Step Guide to Exporting which includes a special section in step #2 dedicated to Globalization: Linking to global value chains.

What are Global Value Chains?

Globalization: Refers to the growth of international trade and capital flows between integrated world economies.

Value Chain: Every step a business takes to produce a product or service and deliver it to the customer from its conception to its end use and beyond. As represented in Figure 1, all of a firm’s individual business processes are represented in the value chain. Research and development, production, distribution, sales and service are all business processes which most firms consider to be integral aspects of their business strategy. Corporate services act as support mechanisms for these core processes.

Global Value Chains: A value chain is established when firms outsource functions of their company to other countries. If business activities occur outside a single geographic location, usually a country, it is referred to as a GVC.

Figure 1: Simplified Value Chain

Spotlight on Global Value Chains
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Figure 1: Simplified Value Chain

  • Step 1: Corporate Services (Finance, H.R, I.T, Marketing, Logistics)
  • Step 2: Research & Development
  • Step 3: Inputs (Material, Service, Parts)
  • Step 4: Assembly
  • Step 5: Distribution
  • Step 6: Sales
  • Step 7: After-Sales Service

Access Existing GVCs

Tip

Trade Commissioners at your desired Regional Office will know who to contact to provide you with an opportunity to do business with an MNE, through procurement or supplying to subsidiaries.

In order to reach an international market, your business can access an existing GVC, where you can:

Market Highlight: Canadian Suppliers and CETA

The Canada – European Union: Comprehensive Economic and Trade Agreement (CETA) provides Canada with preferential access to the world’s second largest economy and Canada’s second largest trading partner after the US. Given the opportunity for international growth for Canadian companies, there’s an extensive section on Government Procurement in Chapter 19 of the Agreement. Canadian and EU suppliers are equal competitors on both parties’ government procurement activities. Take advantage of the lower tariffs and increased benefits, and export to Europe.

Tip

Be mindful of a potential partner organization’s long term goals, culture, methods of doing business, strengths and weaknesses, location, comparative advantage, and attitude towards partnerships in general.

Apply to Preferred Supplier Lists

Preferred Supplier Lists (PSLs) are a way of getting onto - and staying on - a larger multi-national corporation’s radar. Some sectors, such as the automotive, aerospace, oil and gas, and infrastructure sectors, are more likely to do business with suppliers on a pre-approved PSL.

For more information on PSLs, you can watch the following on-demand webinar Increase your Sales and Credibility: Become a Preferred Supplier. You may also contact your local Trade Commissioner for insight on international development opportunities.

Importance of Supplier Diversity

“We promote better access to financing, technology, and training facilities that help improve the capacity of micro, small and medium enterprises to integrate into sustainable and inclusive global supply chains.”

- G20 Leaders’ Declaration, Shaping an interconnected world, Hamburg 2017.

Supplier diversity is also going global and diverse companies are reaping the benefits worldwide.

Supported by the twenty (20) participating countries of the G20 Summit, among many others, companies owned by minorities that have been traditionally underrepresented in supply chains have a unique advantage. Your enterprise will have market-access opportunities to supply goods or services to major corporations, if it is owned (and staffed) by women, minorities, indigenous peoples, or someone that identifies as GLBTQ.

Market Highlight: Why Supplier Diversity

Supplier diversity offers important opportunities to create wealth and employment for underrepresented communities in the supply chain, such as women, indigenous peoples and minority communities. Many large corporations pledge to hire a diverse range of suppliers from pre-certified lists. It instills a positive perception in the community regarding your corporate social responsibility level, as well as guarantees your company has access to qualified diverse suppliers. Some of these inclusive corporations are: CISCO, the Coca Cola Company, IBM, Toyota, and UPS. (Reference source CAMSC)

Expanding Your Company’s Current Value Chain

If your company is interested in developing its own GVC, it is important to do it properly to avoid a financial deficit.

The TCS can help your organization understand the dynamics, culture, government regulations, and demographics of the market you are considering.

Some strategies your company can use to add international components to your existing value chains include:

Figure 2: Offshoring vs Outsourcing in Canada
Ownership
NationalityWithin the FirmOutside the Firm
Within the CountryDomestic Outsourcing
Outside the CountryOffshoringOffshore Outsourcing

GVC Requirements and Regulations

Trade Commissioners located around the globe can help you navigate business challenges.

Expanding your operations to a new country may be profitable for your enterprise, especially with the growth of Global Value Chains through globalization. It is critical, however, to be aware of requirements and laws associated with that practice:

Tip

The top obstacles organizations face regarding GVCs include:

  • Distance to Producers
  • Identifying Providers
  • Language or Culture
  • Tariffs and Taxes
  • Foreign Legal or Administration
  • Lack of Management Expertise
  • Distance to Customers
  • Concerns of Employees
  • Lack of Financing
  • International Standards
  • Social Values
  • Intellectual Property (IP)

Are you export ready?

The Step-by-Step Guide to Exporting will help you to:

Download this free guide and gain access to all TCS export publications through MY TCS.

Access these additional resources:

The TCS and partner organizations have programs, services and tools that can help your company access GVCs
opportunities. These include:

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