Global value chains: who wins?

As of May 2025, global value chains (GVCs) have become the backbone of international trade, transforming how goods and services are produced and distributed worldwide. By fragmenting production across multiple countries, GVCs allow each nation to specialize in specific tasks, from design to assembly, adding value at various stages. This article examines how different countries benefit from GVCs, focusing on the roles of offshoring, assembly operations, and outsourcing. Through data-driven analysis, we explore which economies gain the most, the challenges they face, and the implications for global trade dynamics.

Understanding Global Value Chains

Global value chains refer to the international dispersion of production processes, where tasks like design, manufacturing, and marketing are performed across different countries to create a final product. In 2023, GVCs accounted for 70% of global trade, with intermediate goods crossing borders multiple times before reaching consumers. This fragmentation, driven by advances in information technology, reduced trade barriers, and lower transportation costs, has reshaped economies by enabling specialization based on comparative advantages.

Countries participate in GVCs by contributing value-added, the economic value generated at each production stage. For example, a smartphone may involve design in the United States, component manufacturing in South Korea, and assembly in China. In 2023, services contributed 43% to global trade value-added, up from 31% in 1980, reflecting the growing role of software, logistics, and finance in GVCs. However, benefits are uneven, with high-income countries often capturing higher-value tasks like innovation, while developing nations focus on labor-intensive assembly.

Who Benefits from GVCs?

Participation in GVCs offers multiple benefits, including economic growth, job creation, and productivity gains, but the extent of these benefits varies by country. High-income countries, with advanced infrastructure and skilled labor, dominate high-value tasks like research and development (R&D) and branding. Developing countries, leveraging low labor costs, excel in assembly and outsourcing but often capture less value. The 2023 Global Value Chain Development Report noted that GVC-related trade boosts income per capita and productivity, particularly for upper-middle and high-income economies.

High-Income Countries: The United States, Germany, and Japan lead in GVC value capture due to their control over technology and intellectual property. In 2023, the U.S. contributed $2.1 trillion in value-added to global exports, with 60% from services like software and design. Germany’s automotive sector, exporting $400 billion in vehicles, relies on high-tech components, while Japan’s electronics firms, like Sony, add value through innovation. These countries benefit from strong institutions, robust infrastructure, and access to global markets, enabling them to retain 70–80% of value-added in high-tech sectors.

Upper-Middle-Income Countries: China and Mexico have emerged as GVC powerhouses by integrating into manufacturing and assembly. China’s role as the “world’s factory” generated $1.8 trillion in export value-added in 2023, with 40% from electronics. Mexico, integrated into North American supply chains via the USMCA, exported $550 billion in manufactured goods, with 30% from automotive assembly. These countries benefit from competitive labor costs and proximity to major markets, though they face challenges in moving to higher-value tasks.

Low-Income Countries: Nations like Vietnam and Bangladesh participate in labor-intensive stages, such as garment assembly. Vietnam’s exports, valued at $400 billion in 2023, included $100 billion in textiles, but its value-added share was only 20% due to reliance on imported inputs. Bangladesh’s garment sector employs 4 million workers but captures low margins, with 85% of export value derived from foreign inputs. While GVCs create jobs and drive growth, these countries struggle with limited technology transfer and infrastructure constraints.

The Role of Offshoring and Outsourcing

Offshoring and outsourcing are central to GVCs, enabling firms to optimize costs and access specialized skills. Offshoring, relocating production stages to lower-cost countries, has driven growth in developing economies. For instance, Apple’s offshoring of iPhone assembly to China created 2 million jobs and contributed $50 billion to China’s export value in 2023. However, Apple retains 60% of the phone’s value through design and branding, illustrating unequal value distribution.

Outsourcing, contracting third-party firms for specific tasks, has expanded GVC complexity. In 2023, 80% of global trade involved transnational corporations (TNCs) coordinating outsourced production. India’s IT outsourcing sector, valued at $257 billion, serves global clients through firms like Tata Consultancy Services, adding high-skill value. Conversely, low-skill outsourcing in countries like Cambodia, focused on textile assembly, generates jobs but limited economic upgrading, with value-added per worker at $3,000 compared to $50,000 in Germany.

Both strategies amplify trade efficiency but pose risks. Developing countries face dependency on foreign technology and vulnerability to supply chain disruptions, as seen during the 2020–2021 semiconductor shortage, which cost global GDP $500 billion. High-income countries risk job losses in manufacturing, with U.S. manufacturing employment dropping 20% from 2000 to 2023 due to offshoring.

Assembly Operations and Value Capture

Assembly operations, often the final stage of GVCs, are critical for developing countries but yield low value-added. China’s role in assembling electronics, like smartphones and laptops, accounts for 10–15% of the final product’s value, with the rest captured by component suppliers and designers in countries like the U.S. and South Korea. In 2023, China’s assembly exports generated $600 billion in value-added, but its reliance on imported chips limited margins.

Vietnam and Thailand have also become assembly hubs, with Vietnam’s electronics exports growing 25% annually since 2015. However, their value-added share remains below 25%, as they import high-tech components. To increase benefits, these countries are investing in skills and infrastructure. Vietnam’s 2025 industrial strategy aims to double domestic value-added in electronics to 40% by 2030, supported by $10 billion in foreign direct investment (FDI).

Assembly-driven economies face the “low-value trap,” where they remain stuck in labor-intensive tasks. The 2020 World Bank Development Report emphasized that moving to higher-value tasks, like design or marketing, requires education, innovation, and policy reforms. Countries like South Korea, which transitioned from assembly to innovation in the 1990s, demonstrate the potential for upgrading within GVCs.

Challenges and Opportunities

While GVCs offer opportunities, they also present challenges. Developing countries must overcome infrastructure gaps, with Africa’s transportation costs 40–100% higher than global averages. Non-tariff barriers, like regulatory delays, increase trade costs by 15% in low-income countries. Technology transfer is not automatic, with only 30% of GVC firms sharing know-how with local suppliers, limiting economic upgrading.

High-income countries face distributional issues, as GVC benefits skew toward high-skilled workers and corporations. In the U.S., GVCs boosted corporate profits by 20% from 2000–2023 but left low-skilled workers with stagnant wages, fueling calls for protectionism. The 2018 U.S.-China tariffs, costing U.S. firms $46 billion, disrupted GVCs without significantly increasing domestic manufacturing jobs.

Opportunities lie in digitalization and sustainability. Artificial intelligence (AI) enhances GVC efficiency, reducing trade costs by 10% through optimized logistics. The 2023 Global Value Chain Development Report highlighted that sustainable GVCs, incorporating green technologies, could add $1 trillion to global GDP by 2030. Developing countries integrating AI and green practices, like Vietnam’s renewable energy push, are better positioned to capture higher value.

Data Summary: Value-Added in GVC Exports (2023)

Sources

Name: U.S. Bureau of Economic Analysis Global Value Chains Data
URL: https://www.bea.gov/data/global-value-chains
Description: Offers prototype data on U.S. trade in value-added, including domestic and imported inputs in exports, updated through 2023.

Name: OECD Global Value Chains Indicators
URL: https://www.oecd.org/sti/ind/global-value-chains.htm
Description: Contains indicators on GVC participation, value-added trade, and economic impacts for OECD countries and partners, covering 2023.